As your student reaches high school, the urgency in determining college funding grows. Financially, a college degree can be very important to your son or daughter. On average, college graduates earn 56 percent more than high school graduates.1 Additionally, the unemployment rate for college graduates is about half of that for people who have only a high school diploma.2
The cost of education is rising yearly. Additionally, student loan debt has consistently increased each year. It’s reached more than $37,000 for the average Class of 2016 graduate.3 And, average in-state tuition and fees for 2017-18 at public four-year colleges increased 8 percent since 2012–13.4 How do you and your student begin to pay for college?
Discuss as a family what your expectations about college planning and funding are. What savings do you already have? How much are you able to help your student pay for college? What is expected of your student financially?
Also, be realistic about your son or daughter’s job prospects. It’s important to talk with your student about this, even though it may seem like a hard conversation. Think about the need for additional schooling, advanced degrees and any other possible education costs.
When everyone in the family is on the same page, you can work together to save money without hurting your finances or your student’s goals.
Explore a range of schools that match your student’s preferred major. The all-in price for college can differ significantly for two-year technical schools, public in-state schools, public out-of-state schools and private colleges.
Most schools have college cost estimates available online. Typically, they include average scholarship awards and statistics on the percentage of freshmen who graduate in four years. You can also estimate the costs with a college costs calculator.
As college approaches, look at ways to reduce college costs. That can mean having your son or daughter live at home, if possible, or take summer courses at a less expensive college. Working with your student to graduate in 4 years or less will also help.
Student loans can help fill the gap, particularly if you’re getting a late start on saving for college. However, be cautious. Your debt must be manageable and shouldn’t interfere with the money you need for daily living expenses or retirement savings.
For your student, debt can create serious issues, especially in the early years of their career when their paychecks tend to be lower. Outside of very specific forgiveness programs offered by the government, student loan debt does not go away, even with a bankruptcy filing. Finding ways to avoid excessive student loan debt can be a big help towards improving your student’s long-term financial future.
About two-thirds of full-time undergraduate college students receive some sort of financial aid. Once you and your student have completed the Free Application for Federal Student Aid (FAFSA), colleges and universities where your student has been accepted will contact you with details. Typically, they will send you an award letter that outlines your student’s financial aid package.
Especially if you feel overwhelmed by the cost of your student’s education, it can make sense to have a discussion with grandparents and other family members. See if they might be able to contribute a gift toward your student’s college costs. Grandparents who pay tuition directly to a college create a living legacy, which is exempt from gift and estate taxes.
College planning and saving can be stressful, but thinking through your finances and your student’s aspirations can go a long way toward helping you achieve your goals.
For questions about specific college savings plans, continue reading about funding your student's education.