Broker Check

The Flawed College List

| April 20, 2015
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By: Tim Higgins

When your student is asked by their high school what they would want in a college, you often hear that certain characteristics are important to them like: location, size of school, majors offered, etc.

However, in creation of their college “shopping list” there is one factor that is not considered. Any guesses as to what that is? What is the one question that the high school doesn’t ask your student?

How much can your family afford?

*To be fair, the high schools cannot ask this question, as it is, for lack of a better phrase – none of their business.

This is analogous to a real estate agent showing you homes based off of desired location, size, and style without ever asking what your budget is. As a result you begin touring homes with which are highly desirable and you may in fact fall in love with. Only after visiting the bank does reality set in as to how much house you can afford.

The safety net in the home buying process is the bank, which (in theory) will only lend you what you can afford. However, in the college selection process, there are loans that allow families to borrow up to the cost of college (PLUS loans). With private college costs around $60,000 per year we are very much discussing numbers that are similar to purchasing a home.

1 Student = $240,000

2 Students = $480,000

3 Students = $720,000

When it comes to borrowing for college, who is going to tell you that you are borrowing too much?

  • The colleges?They are cashing the checks.
  • The Government?In 2012 the Government made more profits on Student Loans than did ExxonMobil or Apple Computer.
  • The loan companies?That is their business.
  • Your friends and family? That is none of their business.
  • The high school?(Again) None of their business.

It is solely on our shoulders to figure this out.

An exercise I recommend to families is to sit down, calculate, and discuss how much you can contribute from the following:

  1. Student Income
  2. Student Savings
  3. Student Borrowing
  4. Parent Income (run a cash flow analysis)
  5. Parent Savings
  6. Parent Borrowing
  7. Tax incentives

Add up the totals from the categories above and that should give you a rough draft of your budget. If a college costs more than your budget, and does NOT make up most of the difference with scholarships within a financial aid package, then that school may be out of your budget.

Keep in mind that college selection is not a contest, or a judgment of a student’s self-worth. It is a business transaction. Therefore, this is not always a “fair” process. Some families will be able to pay for any college in the country out of pocket, but most cannot. Therefore, for the majority of families I recommend they sit down and calculate a budget with the student.

I know society pressures families to become obsessed with the admissions game; but not factoring in cost may get you and/or your student in trouble. Unfortunately, many college lists don’t take this into consideration and are therefore flawed.

The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. LPL tracking #: 1-371062
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