Important Tactics for Reducing the Cost of College

This is a guest post from Daniel Bishop, founder and Comprehensive Financial Planner from Black Swan Advisors. See his full bio at the bottom of the post.

There are so many important tactics for reducing the cost of college.  And planning for college is like turning over hundreds of stones. Some of them have nothing under them, and some of them have exactly what your family needs.  It takes a lot of hard work, patience, and persistence to get through the process. Rather than trying to find the best stones on your own, I want to mark the best 4 for you.

Think of these as the 4 most important tactics for reducing the cost of college.

#1 – Start Learning Early, Seek Advice

I suggest learning about the full college process, as soon as your child enters high school. If you start in your child’s senior year, it is too late.  There is literally not enough time to learn the basics of everything you need to know, let alone go back in time to accomplish most of it. Yes, with enough help you may still be able to get a decent outcome, but not nearly as good as if you started much earlier.  I constantly hear the same things from parents: ”I thought I could do it all on my own.”, “I wish we would have saved more”, “It was not this complicated when I went to school.”, and “I wish I would have started learning 2 years earlier.”

At some point, you may want the help of a professional.  It is too broad of a process to learn everything on your own.  It is not about how smart you are, it is about how wise you are.  Wise people seek advice. No one person can know everything you need to know about: academic counseling, career counseling, test prep, essay writing, college search and selection, student positioning, financial aid, scholarship searching, college funding, or financial planning.  There is simply not enough time in the day for a single person to keep up on everything, let alone learn it.

If someone claims to know everything about the process, then please run… arrogance hurts even more people than ignorance.  Still, good advice is a great investment, e.g. the few hundred dollars it takes to get your student’s essay writing better can save you thousands in college cost.  So learn about the parts that interest you, do the parts you are good at, and outsource the boring, time consuming, and technical parts.

#2 – School Selection

School Selection is the #1 proactive tactic to reduce the cost of college.  This is usually best started in the freshman or early sophomore year, so that you have enough time.  Find the right type of schools for your student, that fit your financial situation, your student’s personality, and education needs.  Is your family low merit & high need? Then you need to be looking at a completely different set of schools than someone who is high merit & low need.

At first glance, you might think that state schools are the most affordable.  Many personal finance writers have repeated this over the years… they do mean well, but it is a bit more nuanced than that.  While they often have the lowest sticker price, that is not really a good indicator of what you will actually have to pay. It is all about the lowest future Net Cost, for your specific student.  Often, those “expensive” private colleges have much more money to give than public colleges. Public, and especially public out of state schools, are usually the most expensive in true net cost.

Instead of getting your heart (or your student’s heart) set on the reach school, what if you looked for great schools that get overlooked?  Think about it as… going for a school where your child is in the top 25%. Being in the top 25% gets you the best merit-based scholarships and grants.  Going to a reach school often puts a kid in the bottom 25%, where there is little to no help available.  There is also a lot of extra pressure and anxiety for a student at a reach school. Remember mental health is also really important for a good outcome.

#3 – Position First for Institutional Scholarships

Starting freshman year, position your student to get the most aid from the colleges first, then go after private scholarships (if they fit your situation).  The colleges have far more money to give than anyone else. Make sure your student is able to fulfill all the aid requirements. Many merit scholarships are tied to academic, social, or athletic requirements.

Here are a few key things you need to keep in mind as your student pursues institutional scholarships:

Scholarship Award Displacement – Colleges can reduce your aid dollar for dollar, for every non-institutional dollar you get.  All of the work you put into private scholarships could be for nothing. Some institutions will not displace aid, most will do it automatically.  You need to know the rules of the game before you can play it. And the rules can change from institution to institution. Find out how your target schools treat outside scholarships before your student spends the time and energy to get them.   

Academic Positioning – your students school record, class rank, GPA, ACT/SAT scores, Essays, letters of recommendations from school faculty.  Let’s take a look at how ACT scores affect merit scholarships at automatic grid schools. This is a past grid from the University of Alabama.

If your child got a 27 on the ACT they would have only gotten $14,000.  If they raised it to a 29 they would have gotten $52,000. If they were able to raise it to a 32 they could have gotten $107,800.  Just taking a practice test and studying for free at www.khanacademy.org can help most kids get 1 to 3 extra points.  For many kids, 15 hours of private tutoring can make a 5 points difference.  At this grid school, 30 hours of hard work from your student could save your family up to $93,800.

Qualitative Positioning –  the non-academic factors that your schools care about.  Some of these factors are objective, but many are both subjective and qualitative.  E.g. state residency, talents, interest, extracurricular activities, character, interview ability, ethnicity, work experience, volunteer work, first generation to go to college, and demonstrated interest.  Many schools will also consider legacy status, religion, and political interest. You have to find out what your various types of schools want, and some very similar schools will want value things differently.   

Financial Positioning – positioning your assets is a way to help qualify for more need-based institutional scholarships and aid.  Paying down non-mortgage consumer debt, increasing retirement funds, reducing self-employment income, balancing college money in parent vs student name, and optimizing grandparent help are all tactics that can work to qualify for more need-based aid.

Financial positioning is part of college funding.  College funding is not simply saving for college in a 529 plan, as most investment advisors and retirement planners were taught.  College funding is about saving on the cost of college, not just for it.  Ideally, you want to work with a comprehensive financial planner, with college funding knowledge; not an insurance agent or investment advisor that does some financial planning work.  

The person at Sam’s Club that changes your tires and oil is technically a mechanic.  I am not trying to diminish what they do; oil changes and tires are very important maintenance, and it is honorable work.  They may be great at it, be an honest person, and be very personable… but that does not mean they are qualified to work on your transmission and engine.  In the same way, a “financial representative”, “financial advisor,” or “retirement planner” that works for an insurance or investment company may mean well, be a good person, and have some very good advice, but may not even be aware of what they do not know, especially about college funding.

Rebuilding your car’s engine or transmission is not a do it yourself project – it is not even something you can take to a regular mechanic, you need a specific expert.  College funding has more moving parts than a modern transmission, and comprehensive financial planning is more complicated to troubleshoot than a modern hybrid motor/engine.  This is definitely an area where advice more than pays for itself. Even just getting a basic college funding plan, will save you a lot of time, money, and frustration.

#4 – Graduating on time

The goal is to graduate on time, which for most students is in 4 years.  About 15% of public college student take 5 – 6 years to graduate with a 4-year undergraduate degree, some take much longer, and some never graduate.

The first year of school is usually the cheapest, it goes up from there.  This can happen for many reasons: inflationary increases in school cost, more lab and technology fees, decreasing class sizes, changing majors, or because that college is front-loading aid packages – to make it seem more competitive than it really is over the longer term. So if your student takes more than 4 years to graduate, and is effectively a senior again, they will be paying a higher total cost – not a freshman year price.

The student aid maximum time frame is 150% of the normal time frame for the program, so in a 4-year program a student will lose all federal aid after 6 years.  While a student can get more federal loans after years 4, they have probably already used $27,000 of that $31,000 total limit (for dependent students). If the student/family must borrow more, they will need to use more expensive loan options.

Many institutions only give undergraduates institutional grant funds and merit scholarships for eight semesters.  Institutions that award funds for more than eight semester, only do so on a case by case basis, and with specific timelines and conditions.  Institutions that offer tuition freezes, so that years 1 – 4 are all the same, really do not like to extend it past 4 years.

As the loss of federal aid, low cost federal student loans, and institutional aid packages continues, the options for paying for college becomes more limited.  Year 5 starts getting more expensive, and it gets worse from there. Not only are you paying for more years of school, your student is missing out on a paycheck, for a year or two.  That opportunity cost can be a greater loss than the cost of college. E.g. if your student is projected to start off making $50K a year, and it takes them 6 years to finish their degree, they are missing out on $100K+ worth of income. At the same time, they have to pay for 2 more years of school at the highest cost, with more inflation, with the least amount of aid (2 years can easily cost $50K to $100K).

How much are we really talking about here?  What is the lifetime opportunity cost of missed income and all additional expense?  Including the delay of pay increases, a ballpark figure is -$590K to -$712K lifetime economic impact for years 5 and 6.  Ouch! So, any extra years get really expensive when we start looking at the total impact to your student’s financial life.  

Hopefully, in turning these 4 stones over with me (the most important tactics for reducing the cost of college), you have found some insight and inspiration.  I wish there was a single, silver bullet, but there just isn’t one. The basics of good planning, are where most of the gems are- and these are the core tactics for building your strategies.  I wish your family well on the college bound journey.

Daniel L. Bishop, Founder and Comprehensive Financial Planner

Black Swan Advisors – Real. Honest. Advice.

Late Stage College Funding & Comprehensive Financial Planning

Daniel L. Bishop is a comprehensive financial planner that has experience in education funding from cradle to career: Private K-12 Funding, 529’s, ABLE, College Savings, College Funding, College Pre-Approval™, and Student Loan Repayment.  His expertise is in optimizing Late Stage College Funding into a Comprehensive Financial Plan. He founded Black Swan Advisors LLC in 2016, so that he could pursue his passion of real, honest, financial planning advice for families.  He loves working virtually with clients across the Heartland of America. Daniel and his wife modernized a century-old, lakefront farm house in southern Illinois. After work, you can often find them fishing with their toddler (who thinks he is a T-Rex).