Photo by Dimitry B.
Can we afford college
Q: We have one daughter heading to college next fall with another likely to attend in a couple of years. We don’t have any college funds or savings, so how should we go about paying the bills?
A: You should be commended for your desire to help your children start life with a strong education. Although many parents cannot afford to pay for college, most can at least help. Here’s a checklist to determine how prepared you are to cover your children’s expenses.
- You have no credit card debt
- You invest enough in your 401k to receive the maximum company match
- You have no car loans
- Your retirement accounts (IRAs, 401ks, pensions) are growing at the pace required to retire someday
If the first three statements are true, you may be in a position to help with tuition or their living expenses. Otherwise, you probably should focus on creating and following a written budget, paying down your debts, and investing for retirement. There are many ways to pay for college, but only two options in your golden years: live off a nest egg, or keep working to pay the bills.
College doesn’t have to be expensive
A college degree is one of the surest ways to raise your children’s income potential, but that doesn’t mean a degree has to cost a lot. Here’s the three biggest costs you need to discuss with your children.
Moving out vs living at home. The decision to live at home or flee the nest will probably have the biggest impact on your children’s expenses. Walk them through the bills they’ll be responsible for if they choose to move out on their own. Rent, food, utilities, and internet access will cost them thousands—month after month. Living on campus might be cheaper, but room and board will still cost eight to nine grand a year.
Community college or straight to university. Community colleges are a wonderful option. There’s often one near home, the tuition is affordable, and many students find the transition easier than heading straight to a university. With an average annual tuition cost of $2,361, community college tuition is almost four thousand dollars less than the average public university’s tuition.
Private vs public university. The decision to attend a private university or an out-of-state university can add thousands to the bill. At $6,185, a hard working student could pay for his or her public university tuition with a good part-time job. But, out-of-state tuition at an average cost of $16,640 is probably beyond most students’ reach. Even more expensive, the cost of an average private university comes in at $23,712 a year—before considering room and board!
Choices, choices, choices
Although college will be expensive, your children’s decisions will determine how expensive. Keep in mind that almost two-thirds of full-time undergrads receive grants and/or tuition wavers.
Pursuing scholarships is another option. Make sure you don’t overlook the smaller scholarships because they often only receive a handful of applications.
You’ll also want to include your second child in your college discussions. The sooner children start thinking about college and it’s implications, the better prepared they will be.
And finally, don’t sacrifice your financial health by helping more than you can afford to. You won’t be doing your children any favors by spending money you either don’t have or can’t afford to spend.
Source: College Board
This article was featured in the Carnival of Personal Finance hosted by MoneyNing.
Glblguy added:
April 1st, 2008
Excellent advice. If you don’t have the money to pay, then seek financial aid or have her work and pay her way through. There are also literally thousands of scholarships available, you just have to seek them out. I worked and paid my way through college. My dad helped when he could, but honestly I think I appreciated my education more as a result and established a good work ethic before entering the professional world. Don’t put yourself in a bad financial situation to pay for your child’s college.
Aaron, thanks for the link!
Ron@TheWisdomJournal added:
April 1st, 2008
Paying for your children’s college education doesn’t have to be a budget buster. There are plenty of scholarships, work-study plans, grants, and other types of financial aid that is available to most people. For heaven’s sake, though, avoid those student loans.
Thanks for linking to my article on budgeting. Hope your readers enjoy it as much as I enjoy reading your blog!
Aaron Stroud added:
April 2nd, 2008
@Glblguy, you’re right about seeking out scholarships. When I was in grad school, I saw many scholarships, contests, and job opportunities only receive a handful of applications, and sometimes no one bothered to apply.
In fact, one year Microsoft requested interns from my department (technical communication), but none of us even remotely met their list of requirements. A handful of motivated students applied anyways and most of them were offered paid summer internships. By the end of the summer, at least two of them returned to school for their final year with a job offer in hand.
@Ron, I tend to agree with you on student loans. I certainly would strongly advise against parents taking on loans for their children’s education. Starting life with hefty loans also is not a good idea for most students (there are some exceptions like doctors for example).
The decision to avoid student loans is even easier now that they are hardly the bargain they were a few years ago when the floating interest rate dropped to the low, single digits. Stafford loans no longer float with interest rates. Instead Congress has crafted a confusing schedule of fixed rates for undergraduate students for the coming years.
However, sometimes student loans can be put to good use. Although I had a stipend and tuition waver in grad school, the financial aid equation still provided me with loans for living expenses.
And since my wife and I are thrifty, the assistance allowed us to fund our Roth IRAs and to start building our house (drilling a well, planning septic system). We could have used the loans to raise our standard of living (as the student loan formula intended), but instead we reduced the amount we had to borrow for our house.
Trust me, Student loans aren’t nearly as bothersome once they’re consolidated at a 3-4% interest rate.
Pinyo added:
April 2nd, 2008
This is an excellent and comprehensive answer. There are also other options of reducing college expenses — i.e., buy used textbooks, take more credits per semester to end a semester or a year earlier, take AP courses and test for credit, etc.
Aaron Stroud added:
April 2nd, 2008
Thanks Pinyo. There really are a lot of options when it comes to college. And community college is even free to residents in some states like California!
Taking classes during the summer can help as well if you really want to finish early and start making a decent paycheck.
Glblguy added:
April 3rd, 2008
@Aaron - Just don’t take accounting during the summer…I did that and spent more time doing homework than anything else…miserable summer
Aaron Stroud added:
April 3rd, 2008
Interesting. I always found the summer classes more relaxed. The quarter was about two weeks shorter and the instructors and profs always seemed to be in a more mellow mood.