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Q: Help! My spouse and I are the parents of a high school junior who’s starting to look at colleges. We couldn’t be prouder of our young scholar, but we haven’t saved a dime to help the costs. What can we do?
A: It may sound like a cliché, but now is a time to focus on the positive. Your child is college-bound and has the ambition, intelligence and drive to do something in life! Take a moment and celebrate that little victory.
Sending your child to college without having any savings isn’t going to be easy. It’s going to take more research, more writing and more debt. This disadvantage isn’t insurmountable though: You and your child are both going to have to work a little harder to make this happen.
Before you begin planning your course of action, get a realistic estimate of costs. The College Board maintains a utility called the Estimated Family Contribution (EFC) calculator. Using this tool, enter your income, your savings and the number of people in your household. At the end of this, you’ll get a dollar amount showing how much the federal government expects you to pay. You can use this number as a target for how much you’ll have to come up with each year.
As hard as it might be to have this conversation with your child, you ought to have it. At some point, your student will have to read and sign the FAFSA (Free Application for Federal Student Aid), which requires your income and savings information. This will also help your child make an informed decision about which school to attend.
Once you have a good understanding of realistic costs, it’s time to start planning. Here are three options to consider as you and your child are planning the next steps:
Choose flexible schools
Encourage your child to apply to and visit a few schools where he or she would likely be among the best students. There’s a dirty little secret in the college admissions world. The quality of instruction at most non-Ivy colleges is the same. What’s different is the environment. What makes your student most comfortable: a small liberal arts school or a big state school? There are many in both categories at all points on the cost continuum.
Many schools in both categories struggle to attract quality applicants. They will be eager to accept a bright and promising young person who can make their school a better place. These schools may offer extensive grants, scholarships, work-study offers and other tuition breaks.
If your child is reluctant to consider schools that don’t have an elite price tag, you might want to frame the concern as future debt. Use current examples of people who just graduated and can’t find work in their fields. Encourage them to think about the next five or six years of their life, rather than just the next four.
Take a look at loans
If you have nothing saved for college, the unfortunate reality is that you’ll likely have to borrow at least something. The federal government sets a cap on how much they will lend to students, based on EFC, or estimated family contribution. These loans have quite favorable rates and good repayment terms that will help young people stay out of trouble.
Borrowing for college isn’t the end of the world, but you will need to repay all that money whether there is a degree at the end of the adventure or not. This can be a serious burden for a new graduate, even with income-based repayment programs. Don’t give in to “debt creep,” or the feeling that, since you’re borrowing, there’s no reason to borrow less than the most you can. A debt of $19,000 is better than $20,000 in debt. Every dollar not borrowed is compounded by the absence of interest on the other end.
Outside of a mortgage, though, a student loan is the safest investment you can make. The earning potential of college graduates is significantly higher than a high school graduate. There’s no need to be ashamed about borrowing to pay for school. Just use it responsibly.
Consider non-traditional options
There’s no rule that says every 18-year-old has to graduate high school and then immediately enroll in college. In fact, in most other countries, the so-called “gap year” is quite common. Students use this time to work at part-time jobs, volunteer and build their resumes. The difference between a 23-year-old college graduate and a 22-year-old college graduate is negligible. A student working and saving for a whole year could save $10,000 for college. That’s enough to defer the cost of tuition. Plus, building a resume will make it much easier to find work on the other side.
Community college may also be an attractive option. Most community colleges will offer significantly discounted tuition for exceptional students. These institutions offer the same general education courses for a fraction of the price. It’s not a free alternative: You’ll still have to pay for housing and transportation. Yet, the more flexible schedule makes it easier to work a part-time job while going to school, and it costs half as much or less. No employer or grad school will react badly to two years of community college. Once your child graduates with a four-year degree, that degree will be the same as a four-year student of that school. Community colleges aren’t free, but they’re certainly not as expensive as a residential college.
Having no college savings does set you behind in the education race, but there are many alternative options. Have a frank, honest conversation with your student, and then do what’s best for you and your family. And don’t forget to celebrate the positive – you raised one smart kid. Talk to one of our financial advisors to discuss your options.
*Marine Federal Financial Group Advisors are registered representatives of CUNA Brokerage Services, Inc. Representatives are registered, securities sold, advisory services offered through CUNA Brokerage Services, Inc. (CBSI), member FINRA/SIPC, a registered broker/dealer and investment advisor, which is not an affiliate of the credit union. CBSI is under contract with the financial institution to make securities available to members. Not NCUA/NCUSIF/FDIC insured, May Lose Value, No Financial Institution Guarantee. Not a deposit of any financial institution. CUNA Brokerage Services, Inc., is a registered broker/dealer in all fifty states of the United States of America. FR-2844645.1-1119-1221