With the average 2018-‘19 cost of college tuition and fees a stunning $35,676 at private colleges and $21,629 for out-of-state students at state schools, according to U.S. News, it’s no wonder many parents and teens are frazzled about how to pay for college. To help unrattle their nerves, Beth Kobliner (a personal finance authority specializing in young adults and their families) has a helpful new multimedia site called We Need to Talk: College. If you have a child planning to go to college in the next few years or who’s already there, I highly recommend checking it out.
I recently interviewed Kobliner — a former Money magazine colleague of mine — to hear a few of her best college-financing tips for boomer and Gen X parents; highlights appear below. But first, a bit about why I’m such a fan of Kobliner and We Need to Talk: College.
She’s the author of the bestsellers Get a Financial Life: Personal Finance in Your Twenties and Thirties and Make Your Kid a Money Genius (even if you’re not). Kobliner also has plenty of personal experience with the college process as a parent of three: a recent grad, a junior and a ninth grader (that’s the age she thinks parents should begin having “the talk” about college). We Need to Talk: College, has four parts — Starting the Conversation, Shopping for Schools, Paying for College and Making the Final Choice. Each has Kobliner’s written advice plus a video with a parent and child talking about the challenges they faced and decisions they made (sometimes involving compromises) to pay for college.
Beth Kobliner: I spent a lot of last year on a book tour talking to parents about money issues and one thing, not surprisingly, came up a lot: how to pay for college. With so much concern about the cost, and kids going into debt and parents wondering if they should raid their retirement plans to pay for college, there was more anxiety than ever before. There was also more talk about: Is college even worth it?
What’s your answer to that question?
Research from Georgetown University shows that, on average, college grads earn $1 million more than people who don’t go to college. Another study found that people who graduate from college have, on average, four times the net worth of people who don’t. College really is a very good investment if you pick the right school and pay for it in the right way.
What do parents and their kids not know about paying for college?
What I find troubling is that families are unable to know the true cost of college. You’d never make a major purchase like a home or a car without knowing what it will cost. But when it comes to college, we are really flying blind. You turn in all the applications and fill out all the forms for financial aid and keep your fingers crossed and hope for the best.
What don’t parents and kids understand about financial aid?
They don’t know that filling out the FAFSA form [the government’s form to apply for financial aid which just went live October 1, FAFSA stands for Free Application for Federal Student Aid] doesn’t just give you federal money, it unlocks money from states and colleges in grants or loans. Sometimes, the FAFSA form is used for outside scholarships. It gives you a lot of options. I know it’s a pain in the neck to fill out.
Your multimedia project is called ‘We Need to Talk: College.’ What aren’t parents and their high school or college students talking about that they should be?
Paying for college is one of the taboo topics. They’re not having conversations with their kids because they don’t want to think about it and believe that hopefully, it will work itself out. I met with a college counselor who said some parents don’t want to let their kids in on their not having as much money as other families.
What should 'The Money Talk’ with kids be about?
It’s a series of talks starting at the end of eighth grade and the beginning of ninth grade. But before parents talk to their kids about the cost of college, the parents need to get a sense of what college will cost them.
How do they do that?
Look at what are called Net Price Calculators for a few schools. [The net price is the amount a student pays to attend a school in a single year after subtracting any scholarships and grants.] You plug in your income and savings and get an estimate of what you’ll be expected to pay. You can find the calculator at the Department of Education’s website, Collegecost.ed.gov.
The other thing to do is get a forecast for the amount of financial aid your family could receive. You can do that at the FAFSA4caster sitefrom the Department of Education.
After that, you’ll want to have a conversation with your spouse. One of you might think it’s fine for your child to take out student loans and the other might not.
Then, you’ll be at the point where you can start having conversations with your child about managing expectations and whether you expect your child to get a job to help contribute to the cost of school. The videos on my site have fly-on-the-wall discussions between children and parents. In one, a mother tells her son she doesn’t want him to make the same money mistakes she did, taking out a lot of debt.
These can be emotional conversations with your children.
The cost of college has become so high, especially for highly selective colleges. What do you tell parents who think they just can’t afford it?
It really depends on how much you have and the Net Price calculation. Keep in mind that the bulk of financial aid these days comes from college, not the federal government. Some of the most selective schools say that if you earn under a certain amount, they will pay your whole way or won’t require your family to take out loans.
What’s your view about taking on student loans for college?
I think parents have to be OK with their kids going into some debt. Federal student loans have low interest rates and decent repayment plans. But this doesn’t mean you have to borrow as much as you possibly can for a dream school either. That’s where the conversations have to come in to play.
The worrisome trend is that now more than ever parents are going into bigger debt to pay for their kids’ colleges, through PLUS loans for parents. The amount of parent borrowing has outpaced student borrowing. That can really be risking your retirement. And if you’re going to raid your own retirement plan, at some point, you will end up being a burden on your children. It doesn’t make sense
There’s guilt on the part of parents who want to send their kids to the best college or who don’t want their kids to take on any loans. I think both of those are wrong. It’s not good for anyone if the parents ruin their own financial future.
What do you think of private student loans, the kind offered by companies and not through the federal government and lenders?
I think you should steer clear of them as much as possible. They often have variable-interest rates which are typically much higher than direct federal student loans and parent PLUS loans. And with interest rates going up these days, these loans can be particularly risky. They typically don’t have flexible repayment plans. Generally, you’re more at the mercy of these lenders.
You suggest students pick a few financial safety schools. What do you mean?
It’s a school you know your kid can definitely get into and that you can afford.
What’s your view of 529 college savings plans and prepaid tuition plans as a way to save for college?
529 plans [money in them grows tax-free] have gotten very popular, and they be good particularly if you go for the low-cost options. Often, if you save for a 529 plan from your own state, there can be state tax breaks as well. Just be careful as you get closer to college; you don’t want all the money in a 529 to be in stocks.
The limitation with prepaid plans is that you’re locked into your child going into a school in your state.
What are some financial moves families can make to maximize the amount of financial aid they’ll receive? You talk about ‘Draining Your Savings.’ What do you mean?
Freshman year is a good time for parents to pay down other debt. That reduces their assets, which could make them qualify for more financial aid.
And you talk about saving for college in your name, not your child’s name. Why?
Colleges expect you to contribute 5.6% of your assets to pay for college, but they expect kids to contribute 20% of their assets. So it makes sense to save for college in a 529 savings plan in your own name, rather than your child’s name.
What’s your view about spending time looking for scholarships or paying professionals or companies to find them for you?
There’s no harm looking for scholarships, although if you find outside scholarship money, schools sometimes replace the money they were going to give you with the scholarship money.
I don’t think you want to pay for scholarship searches. There are some good free websites to find scholarships, like StudentScholarshipSearch.com, Fastweb.com, The College Board’s Big Future, the U.S. Department of Labor’s CareerOneStop and the section of the Department of Education’s Studentaid.gov site for military families.