Most of what we hear about the cost of college is How High it is and How Early and How Much you’d better save if you want to send your kids. It’s as if the collective consciousness has forgotten that an equation always has two sides.
Sure, we can try to save enough to pay that enormous bill, but why don’t we try to lower the bill too? This is basically Phase 2 of college planning: It starts when your kid is in high school and lasts all the way through college (and beyond, with loans…).
Focus on Reducing the Cost of College
While saving money might have been something you did without much involvement of your child, almost all of the ways to reduce the cost of college heavily involve your child. Which, ultimately, I believe, is a very good thing.
I’ve read quite a bit about how to raise a money-savvy children, for both professional and personal reasons. A recurring theme is talking to them openly about money issues. Keep it age appropriate, matter of fact, and non-judgmental so your kids can learn to think more rationally and productively about money.
Making them a (junior?) partner in the college planning is an essential part of that ongoing lesson, and if you’ve been doing it all along, it won’t be weird to involve them now.
Spend less time in college
AP credits in high school, dual-enrollment at a local community college while in highschool, or even going to a community college for the first year or two out of highschool before transferring to a traditional college…these will all shorten the time–and money–you spend in a 4-year college.
For me, the biggest downside of this suggestion is that I really highly value The College Experience. College can be about so much more than just classes and academic learning.
You develop intellectually, socially, culturally. And the less time you spend immersed in the college experience, the less of that development you undergo. (I attended a 4-year all women’s liberal arts college…I might be biased.) But I recognize the 4-year college experience as a luxury, and if you can’t afford that luxury, then so be it.
On the flip side, an alarmingly low percentage of students graduate from college “on time,” that is, in 4 years. You can find the statistics everywhere, but this paper states that the on-time graduation rate at a “flagship” university is 36%. Ouch. So, even if you don’t spend fewer than 4 years at a traditional college, at least don’t spend MORE than 4 years.
Choose a less expensive college
Well, that pretty much sums it up.
There are a lot of schools out there. Some cost a lot, some cost a little, and some are in between. If the college your child wants to attend is so expensive (after financial aid) that it would jeopardize your or her future, then you need to have the Hard Talk with your child about choosing a different school.
Yes, that sucks. But you know what’s worse than not going to the college of your dreams? Having destitute elderly parents you have to support or being saddled with college debt that prevents you from pursuing your post-college dreams.
The less expensive college is not always the one with the lowest sticker price. I’m talking about the price that YOU will have to pay, after all financial aid is given. At the extreme end, better-endowed colleges (the Harvards and Stanfords of the world) have made tuition and sometimes the entire college cost free for households below certain income levels. Although, if you’re working in the high tech industry, you will likely not have low-enough income to qualify.
Western Undergraduate Exchange
[Edited to Add: June 13, 2016] If you live in a western state, you might qualify for in-state-ish tuition for schools that are not actually in-state. Wha wha? you say? Exactly. Schools that are part of the Western Undergraduate Exchange give reduced tuition to students who live in one of these states:
Alaska, Arizona, California, Colorado, Hawaii, Idaho, Montana, Nevada, New Mexico, North Dakota, Oregon, South Dakota, Utah, Washington, Wyoming, and the Commonwealth of the Northern Mariana Islands
Your child could get tuition equal to 150% of resident tuition at participating schools.
A small sampling of participating schools: many of the schools in the California State University system, my local university Western Washington University, Washington State University. The UC System is not represented (except for Merced), nor is the University of Washington. There are, of course, other states in the west, but these are the ones I’m most familiar with!
Do note that this reduced tuition rate is not automatically awarded to all eligible candidates. Many schools limit the number of such awards each academic year, so apply early!
Have your child contribute money towards the cost
Although private scholarships (like my $500 Daughters of the American Revolution scholarship…what? I grew up in Virginia) are dwarfed by merit and need scholarships that colleges give, a dollar is still a dollar. Look here to find a bevy of private scholarships. Encourage your child to apply for scholarships in high school, as soon as she’s eligible, and continue looking for them throughout college.
Also consider encouraging your child to get a job during high school and college. Maybe just during the summers or maybe all-year long. Agree that a certain percentage of those earnings will go to college costs.
Reduce living expenses while at college
Tuition, room, and board aren’t the only expenses at college. Books, entertainment, and, let’s face it, beer. That’s going to cost someone. Try to reduce those costs: buy used books, choose cheaper entertainment, don’t bring a car, and, uh, drink water.
Get available tax credits
Two tax credits (as in, dollars directly off your tax bill, not a reduction in taxable income) can help you get back some of the money you pay for college.
The American Opportunity credit tops out at $2,500, and you can claim multiple credits if you have multiple kids. In 2016, this credit disappears at $90,000 income for singles, and $180,000 for couples.
The Lifetime Learning credit tops out at $2,000. In 2016, this credit disappears at $65,000 income for singles, $130,000 for couples.
Be sure to coordinate these tax credits with any funds you use from a college-savings plan. And pay attention to when you pay the college bills, because you can only claim the credit for the tax year in which you paid the expense!
Get Financial aid
And the issue that confuses everyone: Financial Aid. I’m going to dedicate a future blog post entirely to this issue, so I shan’t go into detail here. Needless to say, the better you can arrange your financial life and the more attractive your child is to a college, the more financial aid you will receive. The amount of financial aid you receive might very well make or break your and your child’s college decision, so start thinking about it several years before your child goes to school.
Not technically reducing the cost of college, loans are often necessary to afford college. I am by no means a student-loan expert (they definitely exist), but hopefully I can give you a basic understanding, and you can organize your future learning around this bare-bones infrastructure. The College Board maintains an Everything College website which you likely will find very useful (if not a little overwhelming).
You can apply for several kinds of loans:
Federal: Government-backed student loans, such as Federal Direct Loans, usually have lower interest rates and better repayment options than other types of student loans. The College Board encourages parents and students to please apply for these loans first. To apply, you need to complete the FAFSA (Free Application for Federal Student Aid; which you’ll do for financial aid anyway).
College: Contact the college’s financial aid office.
State: Check with the U.S. Department of Education.
Private: Investigate what loans are available to you from credit unions, through Sallie Mae, more traditional lenders like banks, and maybe even the more modern online lenders like Sofi. The other types of loans are likely to have better terms than private loans so be attentive.
The College Board’s Student Loan Comparison Calculator helps you evaluate and compare private or alternative loans.
And remember! Regardless of the type or terms of the loan, Borrow only what you need to cover education expenses.
Loans are often part of the financial aid package a college will offer you. When you get that financial aid offer letter from a college, and you see a Surprisingly Small Dollar Amount at the bottom for you to pay, be sure to look up a few lines: that calculation is probably already assuming some loans.
Are the amount and terms of the loan you are considering a good idea for you (or your child)? That’s only a question that can be answered while looking at the rest of your financial picture. The College Board website has a couple calculators to help you start figuring that out:
Last-minute 529 tax deductions
[Edited to add 6/1/2016] A friend (and reader) who is in this very stage of child-rearing right now, mentioned this clever strategy: contribute to your 529 plan one month, get the state-tax deduction for the contribution, and then withdraw the money the next month to pay college expenses. Only applicable, of course, if your 529 plan gives you a state-tax deduction, and not all states necessarily allow this strategy. I encourage you to contact your 529 plan administrator directly to ask if this is allowed. If your state tax rate is, say, 5%, this could mean an immediate 5% “return on investment”! This strategy doesn’t require that much advance planning, either (just a month’s), which makes it a lot easier than, well, most other financial planning.
What if my child ends up not going to college?
I’m going to assume that if you’re reading this series of blog posts, you’re going to instill in your kids enough of a desire to go to college that this won’t be an issue. But just in case.
If your kid gets to their senior year of high school, and instead of choosing a crazy expensive college on the other side of the country, they decide they DON’T WANT TO GO TO COLLEGE.
After the traditional yelling and bribery and locking-in-their-bedroom-until-they-come-to-their-senses, how can we at least salvage the financial mess we now have? That is, we’ve saved all this money for college in college savings accounts, and now we don’t need it.
There are some ways of mitigating this problem:
Change the beneficiary. 529 plans allow you to change the beneficiary of the plan to another member of your family (“family” is pretty broadly defined). (Coverdell ESAs do not.)
Use the money for other things, at a cost. You can always take the money out for “non-qualified’ uses. You’d pay income tax and a 10% penalty on the earnings portion. (Depending on how well your investments have done, this might hurt a lot or a little.)
Wait a while. You don’t have to use money in a 529 by any particular age. Maybe your child will be ready for college when she’s older? (Coverdell ESAs must be used by age 30.)
This is one reason why I recommend splitting college savings between a 529 and a taxable account. I want the tax benefits and the flexibility.
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