This is the time of year when parents who have high school seniors begin to think seriously about paying for college. Some of them started planning for this expense about 18 years ago when they brought the baby home from the hospital and figured they needed to start a nest egg for college. Most did not start the nest egg, however, because they just didn’t have enough money to do so, or figured they had a long time to take care of it.
But now the time for good planning has passed! How does a regular family with modest to moderate income pay a bill that represents about half of that income for four years in a row? And, of course, how do they do it while actually paying all of their regular bills over those four years? Whether you are the parent who does everything for your student or one who prefers to be a little less involved, you need to make sure you both understand your plan for paying for college. You will be a trusted resource who will be available all hours of the day and night year-round. You should be able to get them on the right path and keep them there, without becoming a full-blown expert.
There are some pretty straightforward pieces of information about student financial aid that can ease family fears and make the important and sizeable expenses of college a little less daunting:
1. Know The Cost – Make sure you and your student know how much it’s going to cost to get their desired degree at whatever colleges are at the top of their list. The basic costs will include tuition, fees, room, board, books and spending money. This information is readily available at the school’s website or by talking with staff in financial aid or admissions. Also, make sure to find out what is and is not included in the spending money category. For instance, if you are planning on a car, a bus pass, or tickets to sporting events, know whether or not they are included in the price tag. And remember that most schools provide cost figures for one year only. If the desired degree requires more than 1 year of study, multiply the first year’s costs by the number of years it takes most students to get the degree and assume you are a little low.
2. Set Limits – We all know the future cannot be known but it does make sense to talk about what you aren’t going to support during the college years. Will your young adult be allowed to use his or her (or your) money to do the spring break thing in Florida? How about buying a car with summer earnings? Is a study abroad trip for college credit going to be possible? These are all highly personal issue for your family to decide but there is nothing wrong with talking about them ahead of time. College life gets busy and students can sometimes err in judgment when they find they are treated as an adult by banks, car dealers and others to whom they can become indebted. In the financial aid profession, we like to use the adage that you should live like a student while in college so you don’t have to after graduation!
3. Share Your Plan – Once you know how much it will cost, you need to be honest about how much of that cost you are prepared to take on and how much will be borne by your student. If you are not able or willing to contribute anything, skip to the next paragraph, but understand that it is much tougher for a student to cover all costs on his/her own if the costs are high. You can decide how many details to share about how you arrived at the amount of your contribution, but in the end you and your student should be on the same page. I think it is best if you also explain the source of your contribution: maybe it’s coming from savings, from your regular paycheck, from a home equity loan, or from a federal or private education loan. Sharing this information with your son or daughter can eliminate problems later. And If you have conditions attached to your contribution, make them clear, too. Do you require a copy of grades; a minimum GPA; involvement in certain extracurricular activities? You should both understand right from the start how your part of this deal is going to work.
4. Help Your Student Develop a Plan – For your student’s contribution, you should be reasonable. Are there savings that your child will put toward college costs? If so, do you expect all of it to go toward the first year or equally spread over the time expected to earn the degree? Will your student work during school? Earnings from a part-time job are going to be limited, especially if your student is taking a course load sufficient to reach graduation in the shortest amount of time. No more than 20 hours per week is considered to be reasonable and equates to less than $500 per month in take home pay. Is that going to be your student’s spending money or put toward tuition or housing or other costs? Knowing that both you and your young person know what part they have to play in this deal will make things much more comfortable along the way.
5. Apply for Financial Aid – Most higher education institutions offer some form of financial aid. Typically found are the federal programs with parent and student loans making up the majority of those funds, but also a hefty amount of grants for those who demonstrate significant financial need. The State of Michigan offers several grant programs too, some based on need. Schools vary widely in the dollars they have available for their own grants but most offer some based on need or on merit. The merit awards are based on things such as grade points and test scores. Need-based awards, regardless of the source, rely on the Free Application for Federal Student Aid (or FAFSA) to determine financial need. Because the amounts of aid vary so much, it is recommended that everyone complete the FAFSA and have the results sent to all schools that are being considered. You should do this as soon as possible after January 1st, the earliest date the federal government allows it to be completed. Most financial aid is handed out on a first-come, first-served basis, so applying as early is possible increases the likelihood you will get the maximum amount.
If the school admits your child, they will send a financial aid award notice that shows you not only what it will cost to attend but also how to meet those costs using aid from all known sources. The notice will also make it clear if there is a gap between the costs and the available aid. In such a case, the school will work with you explore options to fill the gap if the contributions you came up with in your own planning won’t make ends meet.
Rick Shipman is director of financial aid at Michigan State University.