How To Avoid The Most Costly College Savings Mistakes
Leading up to College Decision Day on May 1, high school seniors and others planning to start college this fall are making their final decisions about where to attend. That means comparing financial aid packages they’ve received and understanding just how much in student loans they may need to borrow.
To help our readers answer two difficult questions—how much they can afford to pay for college, and how parents of children can save for college—Forbes Advisor hosted a webinar on April 20 with Ron Lieber, the “Your Money” columnist at The New York Times and author of the book “The Price You Pay for College.” The webinar focused on how families can skip common mistakes when paying for college.
Here are the top takeaways from the event.
Understand the Emotions at the Heart of the Process
According to Lieber, it’s crucial for families to accept that sending a child to college is an inherently emotional journey that will bring up a range of feelings.
Parents may fear that they’ll make a mistake that affects their child’s future, feel guilty that they haven’t saved enough money or worry that their child won’t attend a college that’s reputable enough to assure long-term success.
“We need to be in touch with our feelings about this process before we do anything else,” Lieber said.
In practice, that means acknowledging any fear, guilt or worry you feel, then being clear on the reason your child is attending college and what they hope to get out of the experience. That can keep your emotions from taking hold.
According to Lieber, examples of values your child might prioritize at college include kinship, or meeting like-minded people; earning a specific credential that puts them on a particular professional path; or feeling intellectually challenged by top-notch professors. Explore as a family what your child’s goals are for college, then seek out schools that will provide that experience within your budget.
Choose a Realistic College Savings Strategy
When deciding how to pay for college, parents do not have to plan to pay for their child’s entire education out of pocket if that’s not realistic. But relying solely on student loans is not wise either.
Lieber suggests a compromise. Parents can plan to: save one-third of a student’s college costs in advance; pay for one-third with their current income while the child is in school; and take out student loans to pay for the final third—with the loans likely split between the parents and student.
A smart strategy for saving in advance is to use a 529 plan, a tax-advantaged savings account run by individual states that lets parents invest their money specifically to pay for college costs. Automatically transferring a certain amount to this account each month, starting when the child is as young as possible, will help create a savings habit and ensure the money will stay earmarked for college even when other priorities arise.
When choosing student loans, federal loans are the best option because they come with robust consumer protections and low interest rates. Federal student loans also have annual lifetime and borrowing limits, which can help families keep their debt in check. (Parent PLUS loans do not have annual limits the same way federal loans for students do; they also have higher interest rates and fees. Minimize PLUS loan borrowing if you can.)
Make the Most of Merit Aid
Unlike need-based financial aid, which schools provide based on your family’s income and assets, merit aid is scholarship aid offered based on the student’s unique abilities and accomplishments. It can be hard to understand how colleges dole out merit aid; that information isn’t easily accessible for families during the college application process, Lieber said.
But it’s possible to ask for merit aid if you haven’t been awarded any. It’s also possible to appeal for more merit aid, especially if a similar school offered you more than your first-choice school did. To appeal, Lieber suggests contacting the admissions office and kindly requesting a merit aid offer aligned with the one you received from a competing school.
“Try to be reasonable about this; this is not a negotiation,” he said. Rather than aggressively demanding more money, Lieber recommends asking the admissions office whether you could have made a mistake on the application, and offering examples of what the student has achieved since their application was submitted. While it’s important to keep the conversation respectful, don’t be afraid to ask for more money.
“You should absolutely appeal any and all financial aid awards,” Lieber said. “It can’t hurt to try.”