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College Funding Nightmares: 8 Mistakes That Keep Parents Up At Night

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By:  Matthew M Glatt, CPA, CFP®

Does the thought of paying for college keep you up at night? College cost can be scary stuff. It can cause parental nightmares. We’ve collected some of the biggest mistakes families can make that can cause 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?! The same can be said about your college search.

Although families rarely pay the full college sticker price, you still need to be aware of how much a college will cost you after all the available aid, savings, and strategies to pay for it.

Sit down with your student before starting college visits to talk about what you can afford, what would need to be paid for with loans, your loan comfort level, and how you want to approach the search in a smart financial way.

Once everyone is on the same page financially, no one’s heart has to get broken.

Being unaware of your Expected Family Contribution

Part of that parent money talk is knowing your 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 you are a need-based candidate or not. Your college search can hinge on this knowledge. Click here for a good estimated EFC calculator. 1

Not filing for financial aid (completing the FAFSA)

Billions of potential college grants dollars go unclaimed every year because people do not file the FAFSA.2  Even if you do not think you’ll be eligible for need-based financial aid, fill out the FAFSA anyway.

Having a FAFSA on file is helpful in case something changes your 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? Don’t you want them to 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.

Being unorganized

Closely following the act of filing the FAFSA is filing the FASFA on time. When available financial aid money is gone, it is gone. Parents should finish filing their FAFSA by November 1st.

Student loan debt is more common than not. Once students become graduates, stay organized and aware of your financial commitments. Forgetting about the existence of some loans or missing payments along the way, can put you into a big financial hole and affect your credit and condition.

If making student loan payments becomes a struggle, don’t wait to investigate consolidation, deferment, and other options until you are practically in default. Stay on top of your situation.

Being unfamiliar with your scholarship terms and conditions

If you are an academically talented student, you may be offered scholarships from your college. 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 you are 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. Did you know the national 6-year graduation rate is only 59%?3  Although not the only reason, changing a major is a big contributor to this problem.

Of course, more years equals more costs. Students need to be exploring their interests in high school. Think about what they like and are good at. Choosing the right major or career path is essential; do your research.

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. Borrowers over 60 are the fastest-growing segment of student loan debtors as parents choose to take on the loan burden for their kids.4  This result is a nightmare for retirement.

Being taken advantage of

Beware of scholarship scam services.  Scholarship services can charge you high fees for something you could do on your own. FAFSA filers will want a fee to submit your FAFSA, which you can do for free. There are plenty of great FREE resources are out there to help. Don’t be taken advantage of by these services. You can do this yourself.

You can avoid these common college funding mistakes with some pre planning and awareness. Being prepared prior to applying to schools should lead to sweet dreams for all.

1   https://bigfuture.collegeboard.org/pay-for-college/paying-your-share/expected-family-contribution-calculator

2   https://www.nerdwallet.com/blog/loans/student-loans/missed-free-financial-aid/

3   https://nces.ed.gov/fastfacts/display.asp?id=40

4   https://www.chicagotribune.com/business/columnists/ct-seniors-college-debt-marksjarvis-column-0827-biz-20170824-column.html

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