Parents: Do This Before Your Student Starts the College Search
The first thing I suggest doing before your student starts the college search is to truly understand how much you can afford to pay or want to pay. Most parents can’t afford, or don’t want to pay, full sticker price at any college their student may be interested in going to! The earlier you establish a maximum college cost, the more you will save time and energy in the college search and guard against potential heartbreak and frustration in the long run.
Step One – Consider Established College Savings
Sit down and make a list or start a spreadsheet with your established pool of money. Include:
- Current college savings fund balance
- A projected amount for future contributions to your student’s college savings fund at the current contribution rate (if you continue to save the same amount until your child starts college, how much extra do you expect to have?)
- Commitments from grandparents or others to fund a portion of your kid’s college
Step Two – Agree on a Student Contribution Amount
This is the amount you want your child to contribute towards funding his or her own education. Many studies show that the more students are invested in their own education, the more seriously they take it. It is important to decide what your stance is on this and have a conversation early with your child regarding your expectations.
My husband and I agreed that some amount of student contribution was important and established the following expectations for our girls:
- A full-time summer job, from the time they are old enough to get one in high school through the end of college, to contribute towards tuition
- A part-time job during college to pay for spending money and books
Of course these are goals, not absolutes. Our oldest daughter was not able to find a part-time job during her freshman year so we ended up providing her a monthly allowance and buying all of her books. Luckily, she is already set with a job for sophomore year!
Step Three – Consider College Funding Through Cash Flow
Are you willing to, and can you afford to, contribute to college out of your monthly cash flow? We decided we would handle room & board, at least for our first two girls, out of cash flow. Their established college savings accounts would only be used for tuition. This decision was primarily because we had not put as much as we should have into their college savings accounts the whole time they were growing up because we had no idea how inflated the price of college had become – what a wake up call that was! Unfortunately, most of us don’t realize this until our oldest child is in high school and we start looking at college prices.
Every family situation is going to be different with respect to cash flow. Some will not be able to contribute at all out of cash flow, some will be able to contribute a lot out of cash flow, and many will be somewhere in between.
The amount you decide on in this step could greatly impact the college search.
Step Four – Add This All Together and See Where You Are
Let’s look at an example:
- $25,000 Current College Savings
- $0 Committed contribution from other family
- $4,800 Expected Additional College Savings ($200/month, two years left to save – I kept it simple and didn’t include interest or growth rate)
- $3,000/Year Student Expected Contribution towards tuition + room & board
- Student will work to pay for books and additional living expenses while in college
- $500/Month Contribution from cash flow while student is in college
That gives this example family $29,800 in savings – divided by four years of college gives us $7,450 per year. Add in the $3,000 per year from the student and they have $10,450 per year to work with.
Now, taking the cash flow amount into consideration, that’s about an extra $6,000 per year.
Total per year amount = $16,450
Step Five – Assess What You Can Buy With What You Have
Looking only at the money the family can put into college, the student in our example needs to find a school where tuition, fees, room and board can be purchased for $16,450 per year. If we go off of sticker prices alone, this student is probably limited to in-state public colleges.
Fortunately, there is the whole world of need-based and merit-based aid to explore. Exploring these will greatly help you to establish a maximum college cost for your student. That will be Step Six and I will get into that in my next post!