Thank you for visiting First Bank.
You are now leaving our website and entering a website hosted by another party. Please be advised that by continuing you will no longer be subject to the protection of our privacy and security policies. First Bank does not guarantee the experience and content accuracy of the new website you will visit.
It’s easy to get caught up in filling out FAFSA and loan applications,
evaluating your 529 plan performance and planning a budget for college
expenses, and forget one very important step of the paying for college process:
having an open, honest conversation with your child about how you will handle
the cost of college.
According to the College Savings Foundation 2013 Survey of Parents, 75
percent of parents expect their children to contribute to college costs. If
you’re among this number, do your children know that these are the
expectations? It’s important to have “the college conversation” well in advance
of the first tuition bill so that there aren’t any surprises or arguments over
who will be paying when the time comes. These tips can help you maneuver this
tricky conversation with ease.
Do your calculations
As accurately as you can, estimate how much you would be able to
contribute to each school that your child has received an aid offer from. This
can help you calculate how much your child will be responsible for based on
each school so that you have a hard number to present to him or her. These
estimates shouldn’t include your retirement funds—remember, there are loans and
scholarships available for college, but not for retirement. Furthermore, if you
sacrifice your retirement savings for your children now, you might end up
depending on them to support you financially later in life.
Meet with a professional
Your financial advisor can help you estimate how much you can afford to
spend per year on tuition and other college expenses. Remember, he or she may
be able to spot areas of excess or shortfalls easier than you can, and this can
drastically change the amount you are able to contribute.
Share the responsibility
Ask your children to help you fill out FAFSA and compare financial aid
packages from various schools—it’s important they’re involved in this process
so they know what’s expected from both them and the family financially.
Your financial contribution may affect where your child chooses to
attend school, so you should have this conversation well before he or she needs
to send in his or her decision letter.
Make the time
Rather than springing the conversation on your child (and yourself)
unexpectedly, set a date and time for when you’ll discuss paying for college.
This can give both of you some time to prepare what you want to say and can
help the conversation progress logically rather than emotionally.
Pick a number
You should enter the conversation with a set number of how much you will
be able to contribute to your child’s education—and stick to it. Include any
savings you have to contribute directly to college and any additional amount
you are willing to borrow. Remember,
this isn’t a time to negotiate—if you know how much you can safely contribute,
going beyond that number can only hurt you (and your child) financially down
Under promise, over deliver
Even if you predict you will be able to cover 100 percent of your child’s
costs, it may be wise to avoid doing so in case you have an unforeseen
financial emergency later on. If you do end up with money to spare for college,
you can always help your child pay off his or her loans in the future.
Ask the tough questions
Don’t shy away from questions that your child might not want to
hear—getting these answers is vital to knowing how much you can both afford.
How long will it take your child to graduate? Will you offer any financial
incentive for early graduation? Has your child researched what his or her
postgrad salary might be? How will this set him or her up for repaying loans?
Would he or she consider living at home and commuting to save on room and
board? Will he or she work part-time before or during school to help defray
costs? Getting a realistic idea of your child’s stance on these issues is
important to setting expectations for financial responsibility.
Give a reality check
Loans can seem like free money when students are receiving them to pay
tuition, but they can get real quickly when the first repayment statement
comes. Prepare your child for the reality of debt by helping him or her
calculate what the monthly balance on his or her loans will be. This can help
give students a reality check of what postgrad life might look like if they are
set on borrowing a large amount, and can help you explain the importance of
limiting debt. For example, if students took out the maximum federal loan
amount of $31,000 with a fixed rate of 3.86 percent and paid off the loans for
10 years, they would have a monthly payment of over $300.
Set clear expectations
Each of you should leave the conversation knowing exactly what you will
be responsible for. Will you contribute more if your child graduates early or
works during school? If he or she has loans, will you contribute to repayment
after graduation? What about living or entertainment expenses—who will cover
After the discussion
Give it time
Especially if you’ve just had to deliver the news that you can’t pay for
your child’s dream school, the best thing to do right after this conversation
might be nothing. Allow some of the dust to settle before you broach the
subject again, allowing you both to gain some perspective.
Revisit the conversation
Financial situations can change, and if, for example, your child is
planning to work during school or has gained an unexpected scholarship, this
conversation might need to be revisited. Be open to discussing the topic again,
but remember, unless your income increases drastically or you receive an
unexpected windfall, you can only contribute what you can
contribute—bankrupting yourself to send your child to college isn’t financially
sound for either one of you.
Fill out loan applications together
After deciding how much you or your child will need to borrow, involve
your child in the loan process rather than just accepting federal loans on his
or her behalf. If students aren’t aware of their financial situation before
entering college, it can be a shock to discover how much they’ll have to repay
once graduating. Making students aware of their loans can also give them the
opportunity to pay down interest while they’re still in school to avoid higher
bills later on.
Above all, remember to stick to your guns and be honest with yourself
and your children about how much you can afford to spend on their education.
You may think you’re protecting your children by keeping them in the dark about
your financial state, but saddling one of you with insurmountable debt after
graduation isn’t the answer. An uncomfortable conversation now is better than
financial disaster down the road.
Submitted by David Presson,
Director-Investment Services at First Bank. You may reach David