Three steps when discussing college funding with your kids
The rising cost of higher education is out pacing inflation and many families are struggling to find what may be the best way to pay for college.
Applying for financial aid is usually the first step individuals make to help with the cost of college. Four basic types of aid that can be awarded. They are work-study, grants, loans (federal and private) and scholarships. To find out if you are eligible for the different type of student aid, the college bound student must fill out the Free Application for Federal Student Aid (FAFSA form). The form is completed in January/February before the student’s fall classes and determines what financial aid one is eligible to receive. What determines the eligibility is need based. Student resources, parent’s resources (if student is considered a dependent) and academic status (full time, part time) are used in the calculation.
Once the FAFSA form is completed, it will create the Expected Family Contribution (EFC). The EFC is not the amount of money the family will have to pay for college nor is it the amount of federal student aid one will receive. It is a number used by the school to calculate the amount of federal student aid the student is eligible to receive. The school will send a financial aid award letter in the spring. This will then assist in calculating the approximate amount needed to cover cost of attending school for a year.
This is where the second step and discussion should take place. As a team, parents and their college bound child should realistic, calculate just how much the child will need. Take in consideration money the child has been able to save for college. Ask the questions: Will they be working while attending school? Are you, the parents, going to supplement living expenses while in college? Often the financial award amount is generous in their calculations of the amount needed. Have your child do some research to find true cost of what it might cost for living expenses at their college of choice. This will also be a great opportunity to do some education on basic money management and recognizing what are true needs verses wants. This will also be an opportunity to review the different cost of the institutes the child wishes to attend, which may affect the decision.
Third, there are a few creative solutions that families may consider to help cover cost. Relatives are helping through estate planning strategies such as gifting or paying tuition directly to the university (no gift taxes). Parents and students are sharing on the contribution to school by using funds freed up by the student no longer living in the household and/or cutting back on expenses. Take advantage of all scholarship opportunities. Even if the potential award is small, they add up. Check with the college or university your child is considering for their list of scholarships. Michigan State Univerity has a very cool outside scholarship list as an example. https://finaid.msu.edu/forms/schships/view.asp.