How to Pay for College
College costs seem only to rise, and will likely continue to do so as the economy waffles along in its current state. As less funding comes from both the federal and state levels, colleges have little choice than to raise tuition rates. This leaves families wondering: how to pay for college?
There are several reasons for this, from less alumni donations due to economic downturns, to the need to offer competitive salaries to attract good professors and researchers, and finally the rising costs due to students adjusted to a 24/7 world, who expect things like the library to be open until midnight or longer and dorms wired for WiFi.
While the sticker shock may rock you, the best approach for paying for college is fourfold:
- begin saving early
- start family discussions to find out what everyone is ready to do to meet college financial goals
- find out what college costs will be, and
- look at all financial aid options.
A Sunday, June 29, 2008 Tulsa World story “Tuition hikes hit hard” included a graphic comparison in tuition rate hikes at area state colleges for the past two years. University of Oklahoma, Oklahoma State University, and Rogers State University will all raise tuition for 2008-2009 school year by 9.9 percent, with Northeastern State University and Connors State Community College adding a bit more than 9 percent.
Northeastern Oklahoma A&M College is running 6.8 percent more, and Langston University 6.4 percent more. For freshmen/sophomores at OSU Institute of Technology, the jump is 6 percent, but junior/seniors will find their tuition raised only 5.6 percent. And the best deal in town is still Tulsa Community College, which will only rise 5.5 percent from the previous tuition year.
While percentages can seem small, the costs associated can seem much greater. The almost 10 percent increase at OU means students will pay $6493 instead of $5607*. And remember, that’s just tuition—all the other fees and costs will be in addition to that number. On the lower end, the TCC numbers for one year’s tuition changes from $2568 to $2708.50* but, again, academic costs can add significantly to that number, even without any dorm fee options.
When It Comes to Saving
Early savings is always the best option. Having that “big chunk of change” socked away when you start looking at colleges significantly widens the options and reduces the stress.
However, financial expert Jean Chatzky’s first warning to parents worrying about sending their children to college is to “Think of your future needs first.” She warns parents not to forgo retirement savings to pay for children’s college.
“Remember, while there’s no financial aid for retirement, there is a lot of financial aid for college,” Chatzky warns. “And you simply cannot borrow for retirement like you can borrow for college. So, take a hard look at your spending, and if you’ve got your priorities in line then max out your 401(k) and other retirement plans.
How to Pay for College? Questions to Ask
After that, you can figure out how much you can contribute each month to college savings.” Chatzky also offers these 10 questions to ask yourself about college savings:
- What do you worry about more—saving for retirement or saving for your kids’ college education? She reminds that without adequate retirement savings your kids may have to bail you out in your old age.
- If you added up how much you spend on vacations and eating out, would it amount to more than you save for college? If it does, can you make some changes?
- If you attended college, how did you pay for it?
- What responsibility do you think your child has for paying for college? Her advice is to sit down with your kids during the application process and talk about how much you have to contribute toward college, and how much they will have to get from financial aid. That gives kids the option to change to a less expensive school before they are too committed to the pricey ones.
- Do you worry about your child starting out in life with student loan debt?
- Are you expecting your child to qualify for special scholarships? Chatzky warns only 1 percent of students receive athletic scholarships.
- How comfortable are you about talking to your child about who is paying for college and what his or her role should be? Chatzky advises to start in the freshman year of high school talking to children about paying for college and how much of the responsibility will ride on their shoulders.
- If you’ve started saving for college, what types of accounts are you using? Using a 529 plan offers the benefit of tax credits, so a family doesn’t have to itemize to gain the benefit.
- If you haven’t started saving yet, what’s the best way for you to get motivated?
- Who do you think can help you pay for college (grandparents, godparents, etc.) or help you make the most of the money you are saving for tuition (financial planner, trusted friend, etc.)?
Three Things to Do Now
Beyond these questions, Chatzky cautions that there are three tasks you must do right away: find out what college is really going to cost you, get a fix on financial aid, and start a college savings account now.
The last is the easiest to start—you can get all the information online at ok4college.org, which offers you the option of yearly lump sum payments or having smaller, regular monthly charges withdrawn automatically from your checking account. There are also options like Upromise that save back a small percentage for every item you purchase that is part of the program.
Chatzky recommends that in January of your child’s senior year, do your taxes early then go online to fafsa.org and fill out the form to see what kind of financial aid your child can get from the government. Never assume you make too much to qualify—many schools use FAFSA information when they evaluate things such as tuition wavers, which hinge on a student’s GPA rather than financial status.
Also, have your child stay in contact with the high school counselor for scholarship information, and contact the financial aid office at your child’s choice school to see what the administrator can do to help. There are lots of resources out there, you just need to look.
Finally, for Chatzky’s first task, go to college websites and use their calculators to see what kind of costs you can expect to incur at your child’s choice schools. There are also good generic calculators like the one at collegeboard.com. Chatzky offers her own extensive college savings calculator through Oprah’s web site at oprah.com/money/jeanchatzky/groups/guide_college_d.jhtml.
The big thing is to get started, know what you need, and figure how you can get there.
The Bursar Cometh!
The bad news is that tuition prices keep rising—but the good news is that there are more options all the time for students who truly want to go to college. As state budgets cry “uncle,” college administrators are looking for new ways to subsidize those who cannot pay. On your own, go to the Internet to search for options, and check out sites like finaid.org, which offers info on the array of aid available to students.
Some schools concentrate on need, but a growing share of financial aid is spent on merit aid—those with high SAT or ACT scores, or who fit a desired profile. While it’s important to recognize that schools use financial aid programs to achieve different goals, everyone wants filled classrooms. To get those packed classes, schools use options like work study jobs, loans and scholarships, merit awards, and even tuition discounts.
When you meet with the financial aid officer, there are some specific questions to ask:
- Are conditions attached to my scholarship or grant?
- What GPA must I maintain?
- If I switch majors, will that affect my financial aid?
- My aid includes student loans. How much will I have to borrow over time to pay for my school costs?
- What if my family’s finances change? Can I receive more aid later if I need it?
- My parents can’t meet their assigned share of my college costs over the four years. Can they spread the payments out over a longer time period?
- If I receive a local scholarship after I accept your financial aid package, will the package change because of a new scholarship award?
- Part of my aid is a campus job. What kinds of jobs are available, and how many hours will I have to work?
- Do you know of any other scholarships or loan programs I should apply for?
And, finally, the first year package may look great, but that doesn’t mean succeeding years will necessarily resemble it. Be sure to ask what your financial aid offer is for the rest of your college years.
The Perils of Student Debt and Alternatives
While we don’t want our children saddled with future debt, when it comes to education loans it can be a necessary evil. Learning early to manage debt, and to ward off the lure of adding credit card debt to the mix is something parents can aid by talking to kids before too much is incurred.
According to the College Board, grants made up 50 percent of financial aid a decade ago, with student loans comprising 47 percent. Now grants are in the mid-30 percent range and loans are well over 50 percent. Though the bulk of undergrad debt is still federally funded, due to the rising costs of attending college, students increasingly turn to private bank loans and credit cards.
Congress has helped a bit by offering ways for students to consolidate student loans before July 1, 2006, and have fixed rates for federally-backed loans after that date, but students will still see themselves with loan payments—possibly big loan payments—soon after graduation.
To offset this, help your child look for ways to cut costs even before he goes to college. In high school, look at options like AP courses, where good grades can result in college credit without college prices. Also, in senior year (and junior year if the student’s ACT score is high enough) look to schools such as Tulsa Community College for concurrent enrollment options, where high school students can attend college classes for free, and enter college with part of their freshman studies already behind them.
* Amounts are approximate and based on full-time enrollment