According to College Aid Pro, money worries can keep parents up at night. Paying for college can be scary stuff causing parental nightmares. We’ve collected some of the biggest mistakes families can make that can cause some scary financial struggles. Let’s try to turn those nightmares into sweet dreams.
Not having the parent money talk BEFORE starting the college search
We can’t all afford a Porsche, right? Why go out and test drive one if you are going to have your heart broken when you can’t afford the payments?! We feel strongly the same can be said about the college search.
Although we always mention that families rarely pay the full college sticker price, they still need to be aware of how much a college will cost them after all the available aid, savings, and strategies to pay for it.
Families need to sit down with their student before starting college visits to talk about what they can afford, what would need to be paid for with loans, their loan comfort level, and how they want to approach the search in a smart financial way.
Once everyone is on the same page financially, no one’s heart gets broken.
Being unaware of their Expected Family Contribution
Part of that parent money talk is knowing a family’s Expected Family Contribution (EFC). The EFC is the amount the government expects a family to be responsible to pay towards college. This number may be a ridiculously high figure, but knowing it is the key to understanding whether a student is a need-based candidate or not. Their college search can hinge on this knowledge. Click here for a good estimated EFC calculator.
Not filing for financial aid (completing the FAFSA)
We’ve mentioned it before…billions of potential college grant dollars go unclaimed every year because people do not file the FAFSA. Even if a family does not think they’ll be eligible for need-based financial aid (because they know what their EFC is, right?!), fill out the FAFSA anyway.
Having a FAFSA on file is helpful in case something changes their financial situation in the future like illness or unemployment. Also, the FAFSA is required for federal student loans and some colleges require it for scholarship consideration.
Students earning too much money or having too much savings
What’s wrong with students earning too much money?! Shouldn’t they work to earn money towards college? Well, yes and no. Money earned by students or saved in the student’s name is assessed at a higher rate on the FAFSA.
Colleges expect dependent students to pay 20% of their earnings and savings towards their college costs. Parental assessment is only 5.6%…a big difference.
If a student is a borderline need-based financial aid candidate, earning too much money could push them out of eligibility for funds they might otherwise have qualified for.
Closely following the act of filing the FAFSA is filing it on time. When financial aid money is gone, it is gone. If a family forgets to file on time, it could be too late to correct it later when they realize their mistake. We urge everyone to finish filing their FAFSA by November 1st and to file it every year their student is in school.
Student loans are part of the picture for most families. Once students become graduates, they need to stay organized and aware of their financial commitments. We’ve heard stories about students forgetting about the existence of some of their loans and missing payments along the way. This disorganization will put them into a big financial hole affecting their credit and condition.
Part of being organized includes staying on top of a graduate’s situation if making student loan payments becomes a struggle. Don’t wait to investigate consolidation, deferment, and other options until they are practically in default. Credit histories have been wrecked by waiting.
Being unfamiliar with a student’s scholarship terms and conditions
Academically talented students may be offered scholarships from their colleges. This news is great, but sometimes students forget the terms and conditions of their scholarships a year later.
Most colleges require scholarship students to maintain a certain GPA and minimum number of credit hours to keep their scholarship. If a student only takes 12 credit hours per semester, they may fail to meet their scholarship conditions. If their GPA drops below a 3.0 or 3.5 (depending on the school), suddenly their sophomore year costs more than they planned for.
Many scholarships are only offered for a 4-year period. When a student is thinking about changing majors (see the next point), remember a 5th or 6th year will be without a scholarship.
Changing the major (sometimes once…or worse MANY times!)
Changing the major…possibly the biggest nightmare a parent may have. We (and probably you too) hear stories all the time about a friend’s student who is changing their major. Did you know the national 6-year graduation rate is only 59%? Yes, we said “6-year.” Although not the only reason, changing a major is a big contributor to this problem.
Of course, more years equals more costs for parents. Choosing the right major can be trickier for students. Money is a cut and dried subject. Making a choice about a major and career…not so much.
Students need to be exploring their interests in high school. Thinking about what they like and are good at. Doing research about careers. (If you need direction in this area, our friends at At The Core are a great resource.)
Taking out parent loans or private loans when federal loans are the better option
We strongly discourage parents from taking out loans in their names to pay for college. Loans in the student’s name are the best option. (You can read more parent options in this blog.) Borrowers over 60 are the fastest-growing segment of student loan debtors as parents choose to take on the loan burden for their kids. The result is a nightmare for retirement.
Being taken advantage of
Our final nightmare scenario we hear about are scams. We simple say “beware.” Scholarship scam services charge high fees for something families could do on their own. FAFSA filers want to charge to file the FAFSA which families can do for free.
Plenty of great FREE resources are out there to help. So, let’s avoid these nightmare situations with some pre-planning and awareness, and sweet dreams will be had by all.