College Finance Prep

independence_dayMy eldest daughter has another seven years before she begins college,[1] but I’m a planner. The financial burden of my kids’ college looms large, like those spaceships in the Independence Day movies, threatening to block out the sun, and with them, all hope on earth.

Before abandoning everything, running for the hills, and calling Will Smith, I decided to put on my journalist’s hat and call up an expert source.

“Um, hey Mom? I need to learn about how parents pay for college in this era of extraordinarily expensive tuition.”

My journalistic sourcing is way more legit than it may at first appear. Mom has been a college guidance counselor at a private school in Massachusetts for thirty years.

Mom’s first piece of advice for parents of college-bound children is this: while the child is still just a freshman in high school, go online to look up the Free Application for Federal Student Aid – aka Fafsa to figure out your eligibility for financial aid. What you learn from that can help guide your financial strategies for the next few years.

I did that. I learned in about four minutes that I’m not eligible – I mean my kids are not eligible – for a Federal Pell Grant.

Mom’s second piece of advice was to go online to the “net price calculator” of a private four-year college. It turns out, all colleges have these online now. The College Board website helpfully provides a link to 200 such school calculators. Or you can go to individual colleges sites directly.

I picked my alma mater and entered some data on our savings and family income. This took me only another 4 minutes.

After carefully inputting our household income and savings I saw that, realistically, we should start playing Powerball every week.

I’m kidding, never play the lottery. C’mon, man, you should know that the lottery is just a tax on people who are bad at math.

But I realize this four-year college idea sure started to look terrible, at least financially.

“Hey kid, can’t you just make a living curating your own Instagram feed like everyone else does these days, instead of taking Daddy’s money for college?”

instagram_richI think my Mom’s point, without having to spell it out for me, was to demonstrate how terrible the cost of private four-year college can really be.

Indeed one message she would like middle-class families to know is this: Parents have her permission to JUST SAY NO to paying for private four-year colleges. And she has her good reasons. A middle class family with some savings might have been able to shoulder this burden a generation ago, but no longer. I’m not suggesting your child shouldn’t go to college, but rather that financial reality makes a private four-year college a bad deal for most.

I went to a five different ‘net price calculator’ websites to compare the process across schools: a couple of private universities in Texas, where I live; a couple in Massachusetts, where I grew up. In the process I included a very wealthy four-year college with a reputation for scholarship generosity, and another of a school recently featured for having a terribly small endowment and some financial trouble.

I learned that financial aid questions vary greatly depending on the school.

One school asked about the value of our house and how much we still owed on our mortgage, while other schools did not. Some asked whether I owned my own business, or whether I owned real estate besides my home. One asked for my daughter’s GPA, presumably to take “merit aid” into account in our automatically-generated estimate.

Consistently, all schools exempted retirement savings from household assets in their “net price calculators.” I conclude from that fact that if you want to “hide” your assets from colleges for the purposes of getting your kid the most generous scholarship possible, stuffing your retirement account can be a pretty cool financial move.

Another cool idea, which I mentioned last week, is to be born into the right family. Grandparents’ surplus does not count against a college’s financial aid formulas in any of the calculators.

The bigger picture remains that the extraordinary amount of debt parents and their children now take on rarely makes financial sense in the long run. Parents should not raid their retirement savings. Neither parents nor a child should take on high five-figure debt for college. Low five-figure debt, ok, fine, maybe.

Apart from a small handful of the very richest and most highly selective universities – which do offer generous financial terms for lower- and middle-class families – the aid packages of most private colleges render the traditional four-years-on-campus-best-years-of-your-life idyll an unaffordable luxury. Just because we can take on massive federal student loans does not mean we should take on massive federal student loans.

Instead, Mom advocates flexibility and a hybrid approach. In-state tuition at a public four-year college is one approach, although even that has become less affordable as the price of public universities has soared over the past decade.

My mom frequently tells her clients that a few years worth of affordable community college, followed by a transfer to a more prestigious college for the final two years before graduation, can be a pretty cool financial move.

Never_have_childrenBy now you’ve probably realized the most important take-away from this financial column: Never have children.

But if you do have children, strongly encourage them to build a money-making career creating a YouTube channel account, instead of going to college. I’m just trying to save you some money here.

 

A version of this ran in the San Antonio Express News and Houston Chronicle.

 

Please see related posts:

 

529 Accounts are for Grandparents

Want to See Something Really Scary? College Savings

Ask an ex-Banker: Estimating Savings To Prepare for College

Ask an ex-Banker: Using savings v. debt to pay for school

 

[1] “Should she choose that path,” my wife and I always say to each other.

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I founded Bankers Anonymous because, as a recovering banker, I believe that the gap between the financial world as I know it and the public discourse about finance is more than just a problem for a family trying to balance their checkbook, or politicians trying to score points over next year’s budget – it is a weakness of our civil society. For reals. It’s also really fun for me.

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