By Jason Shueh
Boulder, Colo. - From the beginning children are told they can be anything they want to be. From diapers to grade school the maxim is planted, then watered and grown by teachers, family and parents too, until a once seed notion turns impenetrably tall, a veritable sequoia of hope in an adolescent wood.
That is of course, until those college applications go out. For many students this is when the axes of financial reality strike. Parents set conditions, the word "sacrifice" pops up, and that list of top-tier schools begins to shrink and shrink and shrink - disillusionment at the college doorsteps.
However, the process doesn't have to be so grim, especially if parents plan early and plan for a variety of options. In fact, instead of sidestepping financial realities until it's too late, parents can take advantage of embracing financial challenges early to grab greater variety of financial options to help their students with costs. Saving early, scholarships, grants, and the right student loan could be enough to keep those lofty aspirations sprouting.
Consequences hit when parents and students don't prepare and let the admission process be guided by defaults, higher education options based upon little or no preparation.
A perfect example of this is a recent report by Third Way, a social policy research organization based in Washington D.C., that shows the limitations finances can have, influencing both enrollment and graduation rates of students in higher education.
According to the report, students born between 1979 and 1982 with families who earned salaries in the bottom quartile of household incomes only had a 29 percent probability of enrolling in college with just a 9 percent chance of graduating.
Contrast these statistics with students from top quartile families who are 80 percent likely to enroll in college and 54 percent likely to graduate, and the gap is startling.
Adding more definition to the financial college admissions process, a college parent survey conducted by Inside Higher Ed and Gallup researchers, showed that only a scant 16 percent of parents surveyed said they were "not at all likely" to limit their student's college choices based on tuition (14 percent reporting they were not very likely, 34 percent somewhat likely and 34 percent saying they were very likely).
The news only strengthens the argument for early and continuous financial planning.
Admissions Coach Claudia Hannon, co-founder of the Arvada, Colo., company The Campus Pathfinder, understands better than most the need for financial planning. Hannon said today's students face a far more challenging financial climate compared to their parents' generation.
"Looking at the expense of school today is so different than it was 20 years ago... there's literally no way a student can pay for college by themselves," Hannon said.
In the past, Hannon explains it was possible for a student to work seven to eight weeks during the summer and pay for a significant part of their college education for the year. Today, she said on average it would take them roughly 26-28 weeks to do the same thing.
Hannon said what the new world of finances translates to is a duty for parents to fund their student's education or, if funds just aren't available, help their student seriously investigate financial aid options.
And while financial planning is no guarantee a student can select any school they choose, planning does provide a path toward the most school options.
For parents with students in school or parents planning for their student to attend a university soon, here are some tips to get started in the financial planning process.
Tip 1: Identify Affordable Schools and Financial Aid Dependent Schools
One of the first steps Admission Coach Claudia Hannon advises parents and students to do is to sit down together and identify schools that are within a family's budget and to do this as early as possible. The worst-case scenario is for a student to get accepted into the school of their dreams only to be told it's out of reach - or to get in, and not finish due to finances. This isn't to say students shouldn't aim high, but if they know which schools are within budget and which schools are completely dependent on heavy financial aid, expectations can be set realistically without shattering hopes. A great tool to calculate the cost of a school is to find its net price calculator online, every college and university is required to have this tool so students and parents can calculate a school's affordability.
Hannon said a common misconception by parents is assuming that all schools have comparable financial aid options or that schools all calculate expenses based upon one uniform system. The truth is that each school is different. One school may seem to offer enough financial aid to pay for everything but later have hidden costs such as travel, healthcare insurance, books, material costs, and other fees that increase the true net cost of college. The only way to really understand the true price of a college education is walk through expenses line item by line item.
Perhaps a student is dead set on a prestigious college, perhaps finances are tight, or perhaps your student would rather spend tuition money on extras like study abroad programs, whatever the need, scholarships and grants are always good. Big and small scholarships and grants can ease burdens. A book that comes highly recommended with a listing of scholarships is the Scholarship Handbook 2013, by the College Board. The book offers a listing of more than 1.7 million awards, including scholarships, internships, and loan programs offered by foundations, charitable organizations, and state and federal government agencies. Each entry is verified by the College Board, non-profit college resource organization, to be up-to-date and accurate.
If a parent has a little time on their hands before their student heads to college, a 529 savings plan is a beneficial way to save for college without being taxed for it. The plans are operated and overseen by a state or educational institution and can be found across the U.S. in most states. Your local bank is a good place to start for specific information about a 529 plan that fits.
Loans are like fire, they can be used productively as in the case of heating a home, or dangerously, to burn it down. Loans have to be paid back and college doesn't last forever. So if taking out a student loan is necessary your student should carefully analyze what their job market might look like when they get out of college and how much they're likely to earn. A great resource for predicting employment and wages can be found by visiting the United State Department of Labor's Bureau of Labor Statistics website where you can find detailed information on employment and salary statistics for almost any industry or occupation. The other details to flesh out are the specific types of loans appropriate for your student.
Perkins Loans: A Perkins loan is a low-cost, government-guaranteed loan that colleges issue to low-income students to help cover education costs. The federal government caps Perkins loans for undergraduates at $5,500 a year and for graduate students at $8,000 a year. Each college determines each student's award, so a student's Perkins may be less.
Stafford Loans: Stafford Loans are offered to graduate school students who are U.S. citizens, legal permanent residents, or eligible non-citizens who have been accepted at a U.S. school. Students cannot have defaulted on other federal student loans in the past and must attend school at least half time to qualify. Graduate students can borrow up to $20,500 a year in Stafford loans, and up to $138,500 total for their studies (including any Stafford loans taken out during college). If students are in health fields the maximum loan amount can be up $47,167 a year and up to $224,000 in total.
Parent PLUS Loans: This is a federally guaranteed parent loan that can be used to cover your child's higher education costs. Each year, you can borrow the full net or out-of-pocket cost of each child's annual college education. To calculate the maximum amount that can be borrowed, take the college's annual cost of attendance and subtract any financial aid, grants, scholarships, and other federal student loans.
Private Loans: These are loans made by banks or other private lenders without any government subsidy. These also are sometimes called signature loans or alternative loans. Each lender's terms are unique. Some lend up to the student's cost of attendance while others have a cap of about $40,000 per year or less.
*Descriptions of loans are based upon a report by U.S. News.