2 days ago
How To Talk To Teens About College Finances
Robert Cole, president of Private College 529 Plan, a nonprofit prepaid tuition plan operated by hundreds of private colleges & universities
As we look ahead to the coming school year, families with rising high school seniors are preparing for which colleges to apply to in the fall. But the sad reality is that many are not considering the factor that might have the most influence on their future: college costs. Too many families hope for financial aid to come through instead of having real conversations about what the financial implications of their college selection means for their future. The outcome: Students are saddled with avoidable loan debt.
As someone who has worked in the college financing industry for most of my career, I know firsthand the importance of having these conversations early. As the parent of a teenager and preteen, I talk about all aspects of college, including potential majors, academic rigor and, of course, college costs. While teens do not always want to hear about it, college financing conversations are one of the critical teen-year chats parents need to have with their children.
Starting college planning conversations early allows you to research and tackle complex topics—financial aid and scholarships—and make informed decisions about colleges that best fit your children's academic, career, social and financial needs. Ultimately, these discussions about college don't have to include arguments or high anxiety. Your family can make informed decisions, aligning with your children's priorities and financial realities, by working together on a plan.
There are many ways to help students focus on colleges that fit their needs and wishes without setting them up for decades of debt.
Start with the college experience.
Before jumping into finances, speak with your teen about the college experience.
Keep it basic:
• What course/topics of study interest them?
• What subjects do they like most now?
• Do they want to attend college nearby or far away?
• What type of campus setting (rural, urban, city) interests them?
If relevant, discuss your own college experience. If there are family members—aunts, uncles, siblings—who attended college, have them share their experiences. A broad background of experiences can help answer some initial questions and provide a starting point for what teens need to consider.
Create an initial list and weave in affordability.
Families can start thinking about the college list as early as middle school. For most, this list will change over time, and often doesn't start taking shape until high school. When you're ready, it is smart to begin the process of putting these colleges and universities on paper.
As with any 'first draft,' version one should be broad and include various institutions. Once an initial set exists, the list can be narrowed by factoring in college costs. This is the perfect time to start those initial conversations with teens about what is realistic from a cost perspective and, if the opportunity arises, have that more extensive dialogue about college affordability.
Consider the following talking points:
• Discuss an 'all-in' budget and make sure to distinguish whether it includes both undergraduate and graduate expenses.
• Review family expectations regarding college finances and who is responsible (i.e., parents, parents and students, or just students) for covering college costs.
• Speak about the implications of borrowing for college and what realistic borrowing amounts and repayment timelines to aim for. Not all student loans are the same, so educate them on what options exist.
Go deeper on college costs.
With an open conversation about affordability, the next step is to explore what affordability means in higher education. Unfortunately, it is not cut and dry.
While some families may base their decision making on a college or university's 'sticker' price, which includes tuition, fees, housing, meals and school supplies, the real cost could be significantly lower. Instead, I suggest families focus on the 'net price' of a college or university, which is the price paid after grants, scholarships and aid are factored in.
The good news is that all colleges and universities participating in federal student aid programs must have a net price calculator, which helps families better understand what their net price might look like at a particular college or university. Net price calculators are helpful tools for families to frame the cost conversation with real numbers and engage in dialogue about who will be responsible for what costs. Although the numbers will be much different when a student attends, these are beneficial planning tools to use to support the cost conversation and help teens understand the financial reality of the growing costs of higher education.
Refine the list and explore colleges.
It is never too early to visit colleges, but high schoolers in particular should set up visits if possible. Plan to cast a wide net and take advantage of opportunities outside the 'standard' tour (e.g., speak to a faculty member, sit in on a class, visit common areas on campus, etc.). Many colleges offer virtual tours and meeting options if campus visits aren't an option.
Take advantage of tools that provide insight into colleges and universities. One great tool is the College Scorecard, which compares attributes such as median earnings, average cost, graduation rates and average student loan debt amount. Don't necessarily eliminate a school based on published (or sticker) price.
Choosing the right college is a weighty decision, but families can navigate the process more smoothly with open communication and early planning. When the time comes to make the final decision, compare costs and use tools such as loan repayment calculators to help make the right choice. By taking a proactive approach, students can find a college that aligns with their goals and financial situation, improving the overall college selection experience.
The information provided here is not investment, tax or financial advice. You should consult with a licensed professional for advice concerning your specific situation.
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