Years ago, my wife and I built the house we still live in today. As the son of a sheet metal worker, I was intent on upgrading the builder-grade materials with my own hands. I spent a lot of time upgrading the baseboard throughout the house from 3-1/2” to 5-1/4” (and yes, I cope my corners). I trimmed out the windows with casing, and I even installed crown molding in the dining room.
But this all came at a “price.” I was slow, so the work was extremely time-consuming. I also made some mistakes which increased the cost of materials, and I was obviously not nearly as efficient as a professional carpenter.
Years later, when we decided to have crown molding installed in the rest of the house, we hired a professional carpenter who did an excellent job at a fair price and completed the whole project in just a few days. With 2 active boys, stressful jobs for both parents, and no free time, it just made sense to utilize an expert.
DIY College Financial Planning Doesn’t Work
I contribute free advice on a few social media pages dedicated to helping do-it-yourselfer parents to navigate the financial aid process. In mid and late-summer, many parents are still seeking “the best” private lenders or asking if they should take out a PLUS loan for the Fall term. These parents clearly did not do a great job of planning or “DIY-ing” it.
With college being as expensive as it is, it is critical to “get it right” if you don’t want to overpay. Hiring a professional is the only way you will know that you maximized your aid, your educational tax credits, and minimized your college debt.
Answer these 5 questions to see if you understand the College Financial Aid Process
1. You should visit as many schools as you can as soon as you can. Worry about your net cost at those colleges later.
A: False. Have you ever test drove a BMW 5 series, then subsequently test drove a Toyota Corolla? To an 18-year-old, the dopamine hit they will feel from the BMW (expensive private school) will elevate their desire to attend there and they will scowl at the suggestion that the Corolla (the less expensive but reputable in-state flagship school) should even be considered.
They don’t care if you can only afford the Corolla, because the frontal lobe area of the brain is nowhere near being completely developed at that age. They will tell you that everybody takes on debt and they will deal with it later. Call Kiplinger Magazine today and book an interview for 5 years in the future when your student gets their first monthly student loan bill.
2. My family doesn’t have a lot of money or assets. Therefore, we should only consider our in-state public schools.
A: False. Low-income families have greater financial need than middle or upper-income families. State schools often “meet” or pay for only a low percentage of that need, typically 40% – 60%, and often this aid is in the form of loans and work-study. Expensive (private) schools meet 80%, 90% and sometimes 100% of need, and these are grants (not loans) that come from their endowments.
Low-income students should search for schools (a) where their credentials are strong enough so they can get accepted and (b) that meet/pay for a significant percentage of financial need. Buying a $70,000 Lexus at a 90% discount is cheaper than buying a $25,000 Toyota at a 50% discount.
3. My son or daughter is so smart that they will get merit aid (scholarship) no matter where they apply.
A: False. Many of your elite schools do not offer traditional merit aid. You may see that schools like Stanford and Notre Dame award “merit aid” to 5% or 10% of students, but most of this is really athletic scholarships.
If you need merit aid to cover some of your college costs, check first to see if the schools on your list provide merit aid to 20% or more of incoming freshman, and make sure your student’s grades and test scores are in the top 25% of incoming freshmen (check this on www.collegedata.com). Otherwise, if you do not have financial need, prepare to pay sticker price at these elite schools. It’s all about supply and demand.
4. Attending a public school in a neighboring state is still a lot cheaper than attending a private school.
A: False. The (COA) Cost of Attendance (Tuition, Room and Board, Books, Fees, etc) of an out of state public school rivals that of many private schools. For example, the non-resident COA at the University of Michigan ($61,932) and University of North Carolina ($49,994) exceeds that of many private schools, and they generally offer minimal if any aid to out-of-state students. On the contrary, private schools are generous with needs-based aid and many small and mid-sized private schools offer merit aid for top students.
5. I don’t need to understand how I will pay for each of the 4 years of college down to the penny. I will “figure it out” as I go.
A. Maybe. But you risk subjecting your son or daughter to major heartbreak if they do get accepted to that “dream” school but can’t afford it unless both the student and parents take on enormous debt. If the parents say no, the tears will flow. If the parents relent, the family may burn through the college savings in the first 2 years. The student must then transfer to a less expensive school or the parents will take on debt that they will take to their graves. The student also takes on excessive debt, struggles financially after graduation, and may have to move back home. I’ve watched this movie too many times. Why would loving parents take this risk?
College planning is not unlike financial or retirement planning. A solid plan upfront will eliminate uncertainty and minimize the surprises that occur later. With college and retirement, some families ignore planning and “hope for the best.” Most of the time, this doesn’t work, and when it does, the outcomes are not as favorable as they could have been with professional planning (yes, even after the fee)! When was the last time you committed to a $100,000+ purchase but did not know how you were going to pay for it? What makes you think that college is any different?