Is your child starting to talk about what they want to major in and where they want to go for college? As the parent of a high school student, you will likely have been thinking about how to pay for this dream education for much longer.
In a 2017 study by LendEdu and Priceonomics, “only about 10% [of students] received about half their tuition from their family.” Meaning, 90% of the millennial college graduates surveyed paid for the majority of their education using loans, financial aid, scholarships, and their own savings.
Talking about money and setting expectations can be uncomfortable, but is an important part of your child’s financial education. Not every parent is in the position to pay for the total cost of attending college. Being upfront with your student will help them make informed decisions for their future education.
Can You Afford to Help Your Child Pay for College?
Sometimes it isn’t a question of ‘if’ you want to pay for college, but if you can. Here are some questions a parent should ask themselves when deciding how much they can chip in for college.
Do you have debt currently?
If you currently have debt, especially high-interest, you might not be in a good position to borrow further to help pay for your child’s education. Securing your financial future and paying more than the minimum on high-interest debt should take priority.
Can you afford payments for loans or tuition?
Do some quick math with the total semester cost for the schools that your child is interested in. All colleges have a cost calculator available online to help you get an accurate number.
If less expensive colleges are within your budget talk it over with your child and see if the differences between the schools are worth the debt your student might have to take on to make up the difference.
Do you have an emergency fund saved?
Emergency funds are meant to be spent on unseen events that need cash on hand. Think of why you made that fund, and what would happen if you didn’t have that money available for an emergency.
If you don’t have an emergency fund, then consider building one before making payments towards your student’s college expenses. Chances are the downsides of not having that cash on hand for an emergency is greater than taking out a student loan.
Are you saving enough for retirement?
Before you invest in your child’s future, make sure you aren’t putting yourself in a bad financial situation. As Darin Shebesta, vice president, wealth advisor, and CFP at Jackson/Roskelley Wealth Advisors in Scottsdale, Arizona told TheStreet, “you can borrow for college but you can’t borrow for retirement.”
How to Help Your Child Afford College (Whether You’re Helping Pay or Not)
Maybe you can’t help your child pay for college, but there are ways to help them borrow smart. Support your student in their search for the right school, apply for financial aid, budgeting, and a plan to pay back any funds borrowed.
Have a money discussion with your child before they apply
Before your child starts ranking schools, make it clear that the cost of attendance is an important factor. College counselors recommend applying to academic safety, goal and dream schools; you should factor into this mix schools that are within budget if you don’t receive much aid.
Discuss strategies for working while in school to help further close the affordability gap. Make sure your student knows how to effectively budget their time for classes and homework before taking on a job.
Help your student file the FAFSA
Once your child has some colleges in mind, they should use the Free Application for Federal Student Aid (FAFSA) form to apply for financial aid. The majority of undergrad students will still be seen as a dependent for the FAFSA, even if they are independently paying for college.
You need the following information on hand when filing the FAFSA:
- Social Security Numbers (or Alien Registration Numbers) for everyone listed
- Your federal income tax returns, W-2s, and other records of money earned
- Bank statements and records of investments (if applicable)
- Records of untaxed income (if applicable)
- An FSA ID to sign electronically (you will sign up one if this is your first year filing)
Borrow federal aid and encourage your child to apply for scholarships
Federal aid, scholarships, and grants are great options for students because they don’t need to be paid back. Interest-free money should be your first resource when paying for school.
Applications might feel tedious for students who are burned out from applying to schools. Explain to your student that this is like a part-time job, the more money they receive in scholarship or grant money, the less they will have to pay off later.
Borrow Parent PLUS Loans if you can afford to
PLUS loans are federal loans that parents of dependent undergraduate students can take out to help pay for college or career school. Applicants and their child will have to meet the Department of Education’s general eligibility requirements for federal student aid.
Parents should also consider loan options for student borrowers, like Direct Subsidized and Direct Unsubsidized Loans, where the primary borrower is the student and decide which is the best option for your family’s financial situation.
Help your child compare private student loans
Private student loans can help close any affordability gaps left when paying for college. Review all the options on the market and decide what factors or perks each company provides are the most important for your family’s financial situation.
If you have a positive credit history and are willing to cosign for your child, it might help them get a better interest rate on their private loan. Most students don’t have a long credit history to review. Adding a cosigner who has agreed to support the student through the repayment process could give the loan provider further peace of mind (and a lower interest rate).
However, cosigning for a student’s loan means you are equally responsible for paying back the loan. Be sure you have a repayment plan with your child in place before cosigning a loan for their education.
Read more: How Much Does College Cost in 2019?
This article was written by Carolyn Pairitz Morris, Senior Editor at Earnest.