Paying for college, why planning is so important
Sticker shock, that's the best way to describe it. If you're the parent of a college-bound high school student sometime soon you will discover that a college education may be your most expensive purchase. Now most people do a lot of research when they buy a car or a computer. But how much time and thought are you giving that $200,000 college education?
We at ScholarshipMentor believe that being prepared will help you in making one of the most important financial decisions of your life.
Many parents start thinking about college in their child's junior year of high school. In fact that is much too late to take advantage of all the options available to a student. College Savings plans (529 Plans) need to be started as early as possible to accumulate a college nest egg. The student's grades and extra-curricular activities will play a significant role in determining which colleges will accept them (the more options, the greater likelihood that scholarship money will be available). Such factors as basic as where you live and who you work for can impact scholarship eligibility and tuition expenses. To avoid jeopardizing the financial future of the family or prevent a student from continuing with higher education, it is important to start thinking about college no later than freshman year.
Know your eligibility for aid
Financial aid is largely determined by income, but assets, family size and even parent's age play a role in the calculation. Congress has approved a methodology (called the Federal Methodology) for calculating Federal aid given to students by school financial aid administrators. The amount your family is expected to contribute is called the Expected Family contribution (EFC). Most families will not be able to pay the EFC out of income, so the difference needs to be made up by savings, loans, work study, grants and scholarships. What you should keep in mind is that not all colleges calculate financial aid the same way. Many private schools calculate aid using a method called "Institutional Methodology". In fact, the result from two different colleges using the same method can be different. It may seem confusing at first, but the message is that you shouldn't eliminate a college simply because of its price tag. To get a head start on planning how much money your see: calculating savings and expected family contribution. Don't assume that you are not eligible for aid and don't assume that the local state university will be less expensive than the fancy private college! File your Free Application for Federal Student Aid (FAFSA) in a timely way.
If your family income is less than $100,000 you may be eligible for free tuition at some schools (see the lower income free tuition guide - under construction). At some colleges the threshold is lower, so it is critical to know your eligibility and the guidelines of your target colleges and universities.
More expensive is not necessarily better
OK, I've said it, paying top dollar does not guarantee the best available education. There are many fine schools that prepare students to compete in the world that don't charge $40,000 a year in tuition. You must take into consideration the student's needs and you need to reflect on your ability to pay and undertake loans. In addition, there are techniques and tactics for lowering the cost of an education at many schools.
In 2008 SmartMoney Magazine published a story where they looked at salaries of college graduate 3 years and 15 years out of college. They found that the best financial returns were for State schools. That too, doesn't indicate the "best" education, but clearly most expensive shouldn't be your only choice.
Why more expensive might be the better option
That said, a fancy private college can be cost competitive with your state university. In many cases, there are special scholarships and other sweeteners that will effectively even out the score. There's no way to generalize, because it depends on a lot of factors including income and assets and whether your student brings something special to the university. Special recognition is paid to students who have excelled in sports, academic areas or even community service. And there are others reasons for special consideration too; I cover that in some of my special reports.
In a study by the National Bureau of Economic Research published in 1999, the authors indicated: "...we find that students who attended more selective colleges earned about the same as students of seemingly comparable ability who attended less selective schools." So, if you have a bright student, you might want to consider a less selective school that offers you more money to attend. The same study also indicated that: "Children from low-income families, however, earned more if they attended selective colleges." So if this describes your family background, you might want to stretch for the more selective school (and they may provide you with significant help in paying your way).
Get Your Share of the Billions of Dollars of Scholarships Available
There's a lot of scholarship money out there! However, don't believe the claim that millions or billions of dollars of scholarships go unclaimed. My research indicates that only about small percentage of scholarships go unclaimed (see scholarship myths for more information). Often the reason a scholarship is unclaimed is because it has highly restrictive criteria (an example might be the Downer Scholarship Fund at Harvard. It is only for students who bear the surname Downer and are descendants of Joseph or Robert Downer of Wiltshire, England). Many scholarships have many more applicants than recipients; the Coca-Cola Scholars Program gets as many as 100,000 applicants a year for 250 awards (getting this award is more difficult than getting into Harvard, Princeton or Yale). That said, we have successfully guided students to get this award, it can be done with the correct preparation and persistence.