Reality Check: How to Discuss College Costs with Your Child

Your child is a high school junior or senior, and talk about colleges is flying among their friends. Notre Dame? Michigan? Georgetown? Northwestern? To students, colleges are names, status, and perhaps top sports teams. Yet most high school students have no idea of college costs because they have never been included in discussions related to how the costs of college roll up. And with the average student debt load exceeding $33,000 for 2014 graduates, these conversations are both worthwhile and necessary.

Parents want the best for their children. Many would like to tell their children that they can go to any college they wish and that will accept them, and some families are in a position to fund those dreams. However, parents can also fall prey to figuring out how they are going to pay for a particular college after their child is already admitted to the school. Family financial advisors cringe at this naïve methodology. They recommend that parents begin looking at how they will pay for college when their first child is in seventh or eighth grade – if not sooner. This time frame gives the family sufficient time to increase their savings rate and legally shelter their assets well in advance of completing the FAFSA (Free Application for Federal Student Aid) form. This form is completed during a student’s senior year in high school and determines the Expected Family Contribution (EFC) and financial need.

Discussing college costs is not a one-time conversation but a series of discussions over time. As parents educate themselves on college tuition and other expenses, they can take the lead in sharing this information in an age-appropriate way with their child. These conversations are wonderful opportunities to introduce a student to the adult responsibilities they will be taking on in the coming years. These discussions are made easier when students in their sophomore or junior year of high school have already had a part-time or summer job and learned the value of money and hard work. These students know that costs are not just hypothetical numbers on a page. They understand more clearly the connection between work, earnings, and the time it takes to pay off unnecessary debt.

When these conversations take place, students have a greater understanding of the realities of attending college. They more deeply appreciate the opportunity for higher education, and are more aware of the significant investment they and their parents are making.

Let’s examine some productive ways to approach discussions of college costs with students.

Learn About Costs Together
First, cover the basics. Parents and students can investigate college costs together. Collect some initial information on Cost of Attendance (COA) from a few sample schools just to become aware of the differences. Do a general comparison between private colleges, public universities and community colleges. Most schools provide their COA in brochures or on their website.

Typical expenses can be broken down into six broad categories, and with options in each category.

1. Tuition
   Typically private colleges and universities charge the highest tuition, community colleges the lowest. Tuition is where families can expect the most help from schools, and where financial aid packages may be negotiated. And don’t rule out private schools. Private colleges and universities with large endowments are in the best position to offer more generous financial aid to desirable applicants, so that it can actually cost less to attend a private school than a public university.
2. Room and Board
   On-campus housing costs differ according to the type of living arrangement chosen. Different meal plans are also offered, depending on the preferences of the student. Items for a student’s room include necessities like bedding and a mini-refrigerator, all the way to a generously-sized, flat screen TV. Later, when students move into an apartment, in addition to rent and utilities, outlays for furniture, pots and pans, dishes, silverware, window treatments, and cleaning supplies all ratchet up the dollar signs.
3. Books and Supplies
   Today textbooks may be purchased, rented, accessed online or downloadable through electronic means, and the costs vary accordingly. Some classes require lab or materials fees, such as the purchase of art supplies. And a new laptop, case, and printer are often at the top of the list of the first-year student.
4. Student Fees
   Students may pay activities fees that fund a variety of non-academic amenities such as concerts, student organizations, campus media, intramural sports, and student government. There may also be fees for health insurance, the student fitness center, on-campus parking, and technology access.
5. Transportation
   The location of the college is an important consideration for estimating transportation costs. Have some initial discussions about the expected frequencies of visits home or weekend visits to friends’ colleges, and whether the means will be by car, bus, train or plane. Transportation costs can easily add several thousand dollars to annual expenses.
6. Spending Money
   The expense that students have most control over is their spending money. Annual estimates range from $1500 to $3,000 or more, depending on the lifestyle your student is seeking. Start working on this early. Use the high school years to teach your child how to plan and budget, and how to keep track of expenses for clothing, restaurants, entertainment, recreation, gas and car expenses, and personal items like cosmetics and toiletries – even if all of those expenses are not directly coming out of their pocket. When the amounts are consistently logged in a notebook or entered onto an Excel spreadsheet, the numbers themselves can educate both parents and students and provide a baseline for estimating monthly costs during the college years. This is also a great way for helping students think of cost saving strategies and make choices to live within a budget.

The Parents’ Contribution
It is not necessary to go into detail on family tax returns or other private financial information with your student. However, explore together what the family can realistically afford to pay for college by examining the real monthly costs. A good first step is to establish criteria for selecting the colleges to which your child might apply. This includes gathering information about the cost categories noted earlier, as well as determining the likelihood of admission to possible colleges. The more attractive a student is as an applicant, the greater the potential for receiving financial assistance. Second is a search for financial aid, grants, and scholarships in your child’s chosen field of study. If acceptance will be heavily dependent on the financial aid package, it is a good idea to include some safe and affordable schools. Student loans often fill in the gap in finances.

As you investigate student loans, look for examples of monthly payments on different total balances. A recent example given in a New York Times article “A Generation Hobbled by Soaring Cost of College” was a $510 monthly payment on $70,000 in student loans. This helps both parents and students know upfront what financial responsibilities could be after graduation. Also, financial advisors urge parents to think very carefully about being a co-signer on student loans, and warn against using retirement savings to pay for children’s college educations, as tempting as that might be.

Unless your child has had experience paying bills and purchasing their own personal items, they might not understand the implications of using credit and the responsibilities of a checking account or debit card. Discuss the use of these accounts, as well as credit cards, well before leaving for college. While still at home, a high school senior can establish a checking account and begin to practice responsible financial behavior by using a debit card. Parents can closely monitor the use of the card and use this experience as a teaching tool before the student heads off to college.

The Student’s Contribution
Next, discuss what your expectations are for how much your student will contribute to their college expenses. Students value their education more when they have some “skin in the game.” Again, part-time and summer jobs are an excellent source for building college savings. Money earned while in high school or college can decrease the amount of loan debt quite a bit, since the student will not need to borrow as much money. Students learn to manage their time more efficiently when they juggle academic coursework with a part-time job. Jobs also provide occasions for students to learn workplace skills and behaviors which will pay off later when seeking full-time employment.

It is interesting that when our children come to us to ask for money, we ask why? Or what is this for? Parents need to ask these questions regarding the college investment, too. Most families say that the reason for college is to get a better job or to make more money. The most highly employable students today have already chosen realistic career goals supported by the appropriate education. It is to your family’s advantage for your child to have a career direction, or at least have narrowed down the options, and have determined an appropriate college major to achieve that goal, before selecting the school. This allows you to gauge your return on investment, understand how to manage your dollars if your student’s career path includes a master’s degree or more, and to manage debt.

When students lack direction, they flounder. Changing majors, changing schools, and taking unnecessary classes are all symptoms of this. Lack of direction not only adds the cost of extra semesters or years to earn a degree, but it delays their entry into the workforce to earn income – a double whammy. Exploring careers and college majors while still in high school will make campus visits and college selection much easier and more accurate. Parents and students alike can work together to plan a strategy for the young adult to earn their degree without digging themselves into a deep hole of debt. Parents who share this challenge with their children as they prepare for college will teach them problem solving skills that will stay with them for the rest of their lives.

Making the decision to attend college is a major life decision. If college major and career path decisions are made early and wisely, a degree will add to a young adult’s earning power over a lifetime. Understanding that there are many different paths to earning a college degree or preparing to enter the workforce is helpful. Estimating the cost and probable return on your investment is just smart.

Helpful Website
Texas Reality Check is a website of the Texas Workforce Commission and the Texas Education Agency. It is designed to help students learn how much money they will need to earn in order to have the kind of lifestyle they may want in the near future. For students hoping to live off campus in an apartment at some point during their college years, this website provides an interesting way to help them learn about living costs associated with different levels of lifestyles.