The Cost of Higher Education - How much is too much?
The best time to discuss finances is when our kids start high school but any time is a good time as long as it's before the kids start putting together their college list. If you're the parent of a rising senior, hopefully, you're playing around with the Net Price Calculator (NPC) found on each university's website.
College is one of the biggest financial decisions (and purchases) families make in their lifetime. It can be anywhere between $110,000 to $360,000 and that's if students graduate in four years. And yet so many families go in without knowing the final cost. We tend to lead with our hearts when it comes to our children and their college trajectory. If we started to look at college from a consumer mindset rather than from our hearts, I want to think we'd make smarter (and dare I say, better?) decisions.
When you buy a house, it's useful to use the 36/43 Rule where the debt to income (DTI) ratio is under 36%. Investopedia says - "As a general guideline, 43% is the highest DTI ratio a borrower can have and still get qualified for a mortgage. Ideally, lenders prefer a DTI ratio lower than 36%, with no more than 28% of that debt going towards servicing a mortgage or rent payment." If that's a good rule for the housing market, shouldn't a similar rule apply when 'purchasing' college?
Determining financial guardrails for college for all of your children and for all four years should be done early. Wouldn't it be great to know how much your family can afford to pay for college without touching your retirement and also keeping your current lifestyle?
College is actually a project, not a product. It takes several years to really plan for it and even then there are a lot of unknowns that might pop up right when you're getting close to the finish line. Everyone has their responsibilities; students need to keep their GPA up and research colleges and majors and parents need to decide how they'll fund this project and determine how much is too much.
When I work with families to help them with the college application process, I'm the project manager who works with both the student and parents to ensure all the work gets done in a timely manner. The best part of my work is helping my students build their college list. We put a lot of emphasis on the academic fit, social fit, and financial fit. Having a balanced list is key and my goal for every one of my students is that they have five to six strong choices in April. And I say this often - we are working to ensure you have choices at the end, and it's not a choice if all the acceptances are from colleges that cost upwards of $82,000 a year and the family finds out that that is something they just cannot afford.
One of the reasons college has become so expensive is because it is perhaps the largest unregulated industry in our economy. It might not feel like it but colleges compete fiercely with each other to fill their classrooms. While the highly selective ones have the luxury of denying admission to more than 95% of students who apply, the majority of colleges struggle to meet their quotas. This is why we need to go in with a consumer mentality, knowing which schools will compete for our kids (and not the other way around) will help us keep the costs down.
Many ask why the cost varies so much across different schools. The highly selective schools don't offer any merit aid because, quite frankly, they don't have to. Their brand names are worth enough for families to pay full cost. On the other hand, many out of state public schools want our California kids and will award merit aid accordingly. Many offer scholarships based on SAT/ACT scores and/or GPA. And to top that, many are part of the WUE (Western Undergraduate Exchange) program and offer tuition cuts to our students as well.
The cost of attendance at California State Universities is under $30,000. The cost of attendance at most of the UC campuses comes to between $35,000 and $45,000. Out of state public schools and private schools in and outside of California can range between $40,000 to $90,000. That's a huge range but it can vary for different students. If you're only looking at highly selective schools, you should be prepared to pay full price at every institution your child applies. But if you have a balanced college list, where your child is stronger than the rest of the applicant pool, you have a good chance of paying less. Time and time again, families make the mistake of failing to appreciate the nature of the competition for being admitted to selective schools. And they pay dearly at the end (both literally and figuratively).
Class of 2024: It's not too late to start looking into financial aid. Ask me about my financial aid platform and how it can help you make better decisions. Hourly sessions will help you get the answers you need as you move into the application season.
Class of 2025: Junior year is a great time to start thinking about what you can afford and what makes sense for your family. Sign up for a comprehensive package and the onus is on me to help you stay on track.
Class of 2026 and beyond: Good luck as you start your new school year! Call me to schedule an hourly session and we can go over activities and programs you can do in high school to help you create a stronger college application when the time comes.