As a financial advisor and parent of three children, one of whom is going to high school next year (oy!), I know full well that your child’s excitement about going to college can quickly be dampened by knowing how that shiny new degree is expensive. will be! Most people will need to borrow at least some money to pay for this degree. I’m here to help you figure out how much debt you can wisely take on and how to find the best loan possible.
How much does college cost anyway? A private, nonprofit college or university will cost an average of about $39,400 a year in tuition and fees alone, according to College Council Study of higher education pricing. Four-year public schools cost an average of $10,940 for in-state residents and $28,240 for out-of-state residents. That’s not including the additional costs of books, housing, food and more. A full-time community college student, while enjoying relatively low tuition and fees, spends about $1,760 a year on transportation alone. And tuition fees increase every year due to a host of factors such as faculty salaries and improved campus amenities.
The big question about borrowing: It is important to realize that there is a big difference between how much you can borrow and how much you should borrow for college. You can borrow up to the full cost of college, but, just as it is unwise to borrow up to your credit card limit, neither should you to want borrow more than necessary in student loans. As a general rule for student loans, make sure that the total amount of your student loans is less than your expected starting salary for a career. And there are some potential sources of borrowing you should steer clear of, one of the most important of which is retirement savings.
Why it’s a mistake for parents to borrow against their retirement savings: Withdrawing funds from retirement accounts reduces the amount available for growth and could jeopardize your own financial well-being in retirement, especially if you consider you’ll be missing out on the potential for growth and compounding returns. You can also incur taxes and penalties if you dip into your accounts too early. Although there are no options for “borrowing” retirement accounts, there are other resources that can help cover college expenses, such as scholarships, work-study programs, and 529 savings plans. If you fund your children’s college education by sacrificing your own retirement funds, you risk becoming financially dependent on your adult children in your later years. Insufficient retirement funds can lead to hardship and stress as you struggle with a lower quality of life and an inability to cover essential expenses. Making retirement savings a priority is crucial to ensuring a comfortable and secure retirement.
Get a realistic picture of tuition before deciding to borrow: One way to determine college affordability is to assess financial aid packages. Take princeton university, For example. It announced a sticker price of $56,010 for tuition and fees in 2021-22, but the average cost to students after receiving need-based grants that year was around $16,562. .
A recent report from the Government Accountability Office estimates that 9 out of 10 colleges do not include or underestimate a key number that students need to determine if a college is affordable before enrolling. The data of the National Student Information Clearinghouse showed that only 62% of students complete their degree or certification program within six years, increasing costs along with their education.
Look beyond tuition and fees: Calculate the total cost of attendance, including tuition, room and board, textbooks, meal plans, transportation, and other expenses1. If your student is studying away from home, remember to include travel costs in your budget. If you have received an offer of financial assistance, compare your total costs to the amount of assistance to determine the amount of your disbursements. You can even use College Ave’s student loan calculator to help you estimate what a monthly student loan payment would look like. This can help you determine how much you should borrow for college.
Rules students should follow when deciding how much to borrow:
- Don’t borrow the maximum amount just because you qualify; borrow only what you need.
- Keep track of how much you borrow each semester and each year.
- Check with yourself: what do scholarships and other free funds cover? Can they cover more? Do you continue to apply for scholarships throughout the year?
- Once you’ve graduated and are looking for that first post-college job, know that your starting salary should be 1 to 1.5 times your student loan balance.
- Decide on the type of loan and repayment options that you think will best suit your monthly budget while in school and after graduation.
- Make a plan for the maximum amount you’re willing to take on and pay after graduation, and how repayments will fit into your monthly budget
Getting into and staying in college takes planning, especially when it comes to your finances. Do your homework to determine how much to borrow for your college degree. As tuition costs continue to rise, remember your needs versus your wants and make the difference between how much you can borrow and how much you should borrow for college.
Having a realistic loan repayment plan and considering earning potential after graduation is essential. By making informed decisions and setting borrowing limits, you can pursue higher education while working towards financial independence.