How am I going to pay for it?

Good news!  You’ve gotten the proverbial thick envelope from your top school.  Time to send the deposit and start packing…but…wait…how am I going to pay for it?

By now, most of you entering students should have received financial aid offers from your accepted schools.  I hope that they have all followed the Golden Rule of financial aid awarding…that they have all met your need and you can make your decision on factors other than cost.  In all probability, however, different resources and packaging philosophies have resulted in the Golden Rule being totally disregarded, leaving you with a collection of offers that bear little resemblance to each other.  Some are only merit, some only need, and some a combination of the two.

Here are several suggestions on how to sort them out to make sensible financial decisions:

• Know the terms. Ask the school whether the funds are merit or need-based. Are there GPA requirements to meet? If they are based on need, what will your package look like in the sophomore year and beyond? Many schools use a self-help (work/loan) base before you can receive grant money…will that base increase in subsequent years?
• Check on cost increases. You can ask schools what the increase will be for subsequent years, but probably won’t get an answer as the question is a difficult one, especially for public schools. However, many schools post the results of their Common Data Set (CDS) survey, which is a nationally used research document. You can search on the school and CDS to find them. You should be able to see many years of historical data.
• Watch your loan debt. This is an issue for both students and parents. Both student and parent direct loans have 10-year repayment periods which result in approximately $12 per month per $1,000 borrowed. If a student borrows 25,000 as undergraduate, for example, he would owe $300 per month for 10 years. Is this manageable…it probably is for some students, but not others. Keep in mind that students can borrow more in Direct Loans each year (5,500 the first year, 6,500 sophomore, and 7,500 the junior and senior), so the temptation is there to go for the annual maximum. The student would therefore have a four-year loan debt of not 22,000 (four times the first year amount of 5,500), but 27,000.
• Look ahead. You can’t project everything that will happen during the next four years, but some changes, like having two or more in college at the same time, are probably more certain. If you are a candidate for need-based aid, the parents’ contribution is divided by the number in college, so, in theory, you should not have to pay anymore for two as financial aid will cover the difference. However, see disregarding the “Golden Rule” above…you can’t assume that all of your need will be met by every school.
• Can you do this four times? To me, this is the most important question. With one-time outside scholarships, savings, and maybe money from Grandma, you may be able to scrape together enough money for one year, but can you do it for four? You certainly should plan to bend financially during the college years, but you do not want to break. Keep those “gotta go to my top school or else” emotions in check until you’ve done the financial analysis.

See you next time.