Having “the Talk” with Your Child: Money and College

I was helping one of my seniors make his final decision about his college choices a few weeks ago.  He had narrowed it down to Northeastern and University of Pittsburgh.  During the course of our discussion, he asked me, “Is Northeastern worth the extra money? “

“How much is your budget for college?”  I asked so that we could calculate how much he would have to take out in loans to help him put some numbers around his question.

“See, that’s just it.  My parents won’t tell me the exact numbers.  They’re telling me not to worry about the money, but I know that money is an issue.  Northeastern is substantially more expensive than University of Pittsburgh, and I just don’t know if it’s worth it.”

Once the excitement of getting accepted to college dies down, the financial reality of paying for it quickly takes over.  For many students and families this year, the “talk” about finances happened after  the college acceptances were in and for most, this is too late.  The ideal time to discuss finances with your child is during junior year (or even earlier) as you start to put together your child’s list.  Below are some tips on how to have "the talk" (about money!)

1. Know your EFC

Students should understand their Expected Family Contribution  or EFC based on the FAFSA (federal forms) and CSS Profile (Institutional Method).   This is the amount of money that the Federal Government or an individual college believes your family can contribute toward your student’s college education.  You can come up with an estimated EFC on the College Board Web site. However, this is only an estimate. Each school will determine your need a bit differently.

Most schools provide a blended award to families made up of:

• Gifts (institutional, federal, and merit grants that do not have to be paid back)

• Work

• Loans (only subsidized loans are considered aid because interest does not start accruing until the student graduates)

2. Determine your budget

It is critical to discuss as a family how much money is set aside for college, how much parents are willing to contribute, and how much they expect their child to contribute.  Some parents say they will pay the cost of a state institution. (This amount varies depending on if it is in state or out-of-state ranging from $25K to $40K)  Some parents require that their child take out the maximum Stafford loan ($5,600 per year) to make them accountable to their education.  Others may not put any financial restrictions on their child. 

It is helpful knowing the budget before a student makes the list so that he or she can identify schools that will fall within their budget.  Keep in mind that several private colleges do offer merit aid and can end up costing the same as a state school.

3. Create Values for Schools

Many families have certain schools that they will beg, borrow, and steal to send their kids to.  It’s different for every family.  Identify which schools you are willing to pay full price for if you get in and do not qualify for any aid.  Then do the same for schools that you can go to only if you get aid, etc. 

Having that knowledge will make it much easier for the student when acceptances come in because he or she will know beforehand which category the school falls into and how it is valued by the family.  This will avoid disappointment if a student falls in love with a school and is accepted, but the parents decide it is not “worth” the cost.

4. Understand different types of Financial Aid Policies and Terms by School

Needs only: Only grant financial aid based on the family’s ability to pay as determined by its EFC.  (All Ivies and several highly select institutions fall in this category.)

Merit Aid: Colleges award financial aid based on a student’s merit typically to the top 10-15% of their incoming class.  Some colleges award merit aid automatically, others require separate applications.

Needs Blind. Do not consider an applicant’s ability to pay when making a decision. Here is a listing of needs-blind institutions.

Accept-deny: Accept students, however, do not offer enough (or any) needs-based aid, making it impossible for student to attend.

Needs sensitive: Factor in the student’s ability to pay when making admissions decisions. They can determine this through ZIP codes and parent’s professions even if a student does not submit an application for financial aid.

5. Approach your list strategically

If you need some sort of financial aid to attend college, it is important to have a clear strategy when developing a list of schools. You should research which schools meet your full demonstrated need and which schools give merit-based aid.

Once you have identified a school that provides merit aid and or meets a student’s full demonstrated need, there’s a higher likelihood that you will receive enough financial aid to attend a given school. Here’s an excellent place to research schools that offer merit aid.  Again, you are most likely to receive merit aid if you fall within the top applicant pool for the particular school.

If you do not need financial aid to attend college, you may have a distinct advantage in the “needs sensitive” category of schools. This is an opportunity for you as a full-pay student to apply to a reach school and have an increased likelihood of acceptance provided it is a good fit.  

6.    Keep an Open Mind

There are so many excellent schools out there, so keep an open mind and focus on fit. That’s what my client did.  After our meeting he had the “talk” with his parents.  Armed with new information and a plan to help him analyze the schools based on his own values, he did his due diligence.  He interviewed professors and students at both schools. When he visited the University of Pittsburgh he knew it was the right fit!  The kids were down-to-earth, athletic, and smart like him and the best part was that he knew it was the best overall value!

So have the “talk” today!