Most parents and guidance counselors don’t understand financial aid and college admissions practices well enough to effectively guide college bound teens. The results are really big mistakes that increase student debt and the potential for financial ruin.
The cure is a hefty dose of reality checks combined with the knowledge, understanding and tools families need to make college more affordable. In this post, you’ll learn about five really big mistakes that increase student debt and what to do instead.
5 Big Mistakes Families Make
Given the ever-increasing cost of college and significant decline in household income many face, most families simply can’t afford any big mistakes. Could any one of the following five big mistakes be stopping you from finding schools that are a good fit? Let’s see.
1. Failure to manage expectations.
You wait until senior year in high school to let your child know how much college you can afford. The only scenario worse than that is the one in which you never discuss it all.
No wonder students start imagining getting into their “dream” or reach schools without thinking about the cost. Parents may even find themselves at odds with high school counselors that typically encourage students to include reach schools on their college lists.
What does this mean for you? A “reach” school means that your child will be in the academic bottom of the incoming freshman class.
As a result, you won’t get enough scholarship money from the school to offset the high cost. When that happens, many families resort to high interest loans to make up the shortfall. Don’t wait until senior year. Instead, get an estimate of your family’s expected family contribution (EFC) by your child’s freshman year of high school.
2. Failure to estimate your Expected Family Contribution (EFC).
Your EFC represents what financial aid formulas say your family should be able to pay for one year of college. Families that need help paying for college should get their EFC before exploring their teenager’s college options. Your EFC gives you an idea of what is the smallest amount your family will have to pay for college.
Ultimately, families will usually have to pay more for college than their EFC indicates they can afford. That’s because most schools don’t meet 100% of a student’s demonstrated financial need. This can result in loan amounts above and beyond federal limits.
For all these reasons, it’s important to start your college search by finding the most generous colleges likely to entice your child with grants and scholarships.
3. Failure to use Net Price Calculators.
Net price calculators can help you detect stingy schools before your child falls in love with them. Net price calculators help you avoid budget-busting schools by providing you with an estimate of what a school will cost you.
4. Failure to file the FAFSA.
Unless you’re content to pay the full cost of college, you should file the FAFSA. The FAFSA opens the doors to campus work-study, state financial aid and even merit aid at some schools. Families that want to receive lower cost federal student loans should file the FAFSA regardless of their income and assets.
5. Using parent PLUS loans and state loans to fund four or more years of college.
Parent PLUS Loans can prove helpful in emergency situations where families temporarily need extra help to meet their expected family contribution for a semester or two. If, however, you need a parent PLUS loan to pay for all four to six years of college, that’s a clear indicator that you simply cannot afford the college.
Likewise, if a student requires a state loan to pay for all four to six years of college, that’s a clear indicator that you simply cannot afford the college.
Consider the case of Chris Gonzalez. Chris borrowed $218,000 over the course of 5 years for a bachelor’s degree in engineering from Embry Riddle. He fell behind on his student loans after he got cancer.
The federal government cut him some slack. The state of NJ, however, sued him for $266,000. That includes $188,000 for the original state loans, $34,000 in interest, and $44,000 in collection fees.
Unfortunately, this is part of a growing trend in NJ where the loan program has been dubbed “state-sanctioned loan sharking.” Remarkably, one NJ family racked up $800,000 in state debt—five times more than their house is worth.
As these examples show, failure to take into account how much college you can afford can end in total and utter financial ruin.
Just because you can borrow enough money to cover the entire cost of attending your dream school doesn’t mean you should. Use EFC and net price calculators to develop a college list of schools to apply to that will give your child the most scholarships and grants. You’ll be glad you did!
What’s your biggest challenge?
Please share your thoughts in the comments section below.
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Think it’s too soon to get started? Think again! In these two videos, you’ll learn everything you need to know about Expected Family Contributions to help you get started.
- What You Need to Know About Co-Signing a Loan
- College Admissions: How to Be Anxious for Nothing
- What You Need to Know About Financing College
- Apply Now and Figure Out How to Pay Later
- The Biggest Financial Aid Mistake You Don’t Want to Make
New Jersey’s Student Loan Program is ‘State-Sanctioned Loan-Sharking’: “The loans have extraordinarily stringent rules, aggressive collections and few reprieves, even for borrowers who’ve died. The head of the loan agency was appointed by Gov. Chris Christie.” ~Annie Waldman
New Jersey Legislators Move to Reform Aggressive Student Loan Program: “The move is the latest action to rein in the agency, whose loans have left families financially ruined.” ~Annie Waldman
Smart Money Smart Kids: Raising the Next Generation to Win with Money: “In Smart Money Smart Kids, financial expert and best-selling author Dave Ramsey and his daughter Rachel Cruze teach parents how to raise money-smart kids in a debt-filled world.” ~Amazon