Minimize Your Out-of-Pocket College Cost – Part 1

When I am talking about “out-of pocket” college cost, I mean what needs to be paid out over and above what the parents and child have already saved for college.  The best way to minimize this cost is to minimize the gap between how much the college will cost you and how much the college will give you.  This will take some planning and where you start will depend on where you are in the college choice process.  If your child is a senior in high school and has already applied to a handful of colleges, your options for minimizing costs are not as great as if your child is a sophomore or junior in high school and has just started thinking about college choice.

Today, I want to talk about seniors in high school.  You can do a pretty simple calculation.

1. Start with the college’s total cost per year.  I only use tuition plus room and board because I think books and extra expenses are too variable and I am willing to foot the bill for a reasonable amount per semester.  If you prefer, you can include the college’s estimate for books and other expenses if they list one.
2. Next, subtract any merit scholarships the school has offered.  If you are still waiting for merit scholarship offers, my recommendation is to use your best guess of what your child will qualify based on information the school provides on their website.
3. Next, subtract the actual financial aid offer from the college, or if you are waiting for that, use any estimate you have for the amount of financial aid the school will provide.  The best way to estimate is to use the school’s Net Price Calculator.  This should be fairly easy to find on the college’s website.
4. Subtract college savings.  My recommendation is to take the current value of all college savings accounts and divide by 4 to cover 4 years of college.
5. The number you have left is your estimated out-of-pocket college cost.

How does this number look?  If it’s negative, you are in great shape!  You can back off on dipping into the college savings.  If it is positive, you will need to figure out how to cover the rest.  Here are some pretty obvious ways to cover it.

1. Child’s summer job – with a full-time summer job, it would be realistic to expect your child to make $2000 – $2500 that could be contributed to the college fund.
2. Parent cash flow – determine how much you can comfortably pay out of your monthly budget.  Most schools offer monthly payment plans to make it easy for parents to cash flow part of the cost.
3. Outside scholarships – go for local scholarships first because the odds are so much more in your favor than with national scholarships.
4. Loans – personally, I dread the thought of putting a student massively in debt before he or she even has a full-time job, but this may be a necessary step if there’s no other way to pay for the out-of-pocket balance.

It’s pretty hard to estimate what your child might win in outside scholarships, but you can take the amounts you expect your child to earn over the summer and what you will provide from cash flow and subtract these from your earlier out-of-pocket calculation.  If you still have a balance, try figuring in a $5500 loan.  That’s the maximum a dependent freshman can borrow through the federal Stafford loan program, and that will probably be the most cost-effective type of loan.  If your child does win any outside scholarships, those can offset the loan amount.  Then, if you still have a balance, here’s where it gets a little tricky if you want to avoid additional student loans.  First, are there any grandparents or other relatives who might want to help out and who you are willing to ask?  Second, you want to look at schools that are still competing to be the final college choice and see if you need to knock any out based on the cold hard reality that you cannot afford them.  Third, you should talk to the Financial Aid offices at the schools.  Explain where you are with your numbers.  See if they are willing to negotiate either on need-based aid or on merit aid.  The worst they can say is “no.”  Check out Tuition Coach for some great tips on how to negotiate for more financial aid.

Next time I will talk about how to be prepared when your child is younger so that you don’t have to go through an agonizing process of finding the money when your child is ready to make the college choice.