I had lunch with a high school friend the other day. We didn’t keep in touch in college, and I’d never heard how her parents ran out of money during her junior year in college, and she was forced to drop out because she already had more student loans than she could handle. In her case, there was a happy ending: she had been an excellent student, so she managed to get a full-time job at the university, which gave her tuition remission benefits, and she was able to finish her degree.
The Relationship Between Finances and Finishing School
Not every student is as resourceful and fortunate as my friend. According to GreatSchools reporting of data provided by the Organization for Economic Cooperation and Development, the United States has the highest college dropout rate in the world. (I couldn’t actually extract that information, but I had a super-hard time trying to get all their cool tools to give me the answers I was seeking. We’re going to have to trust GreatSchools on this one.) Here are some more sobering statistics:
- 36% of college students report food insecurity in the last 30 days
- 71% of community college students who drop out do so to work or make money
- over 20% of college students report housing insecurity in the last 30 days
We’re in the thick of college at our house. Three girls in school, and one just graduated. We talk about college and money ALL.THE.TIME – how is it going, what are they learning, and how to pay for it. That last part is obviously super-important: first, because Mamma spends her days talking to people struggling with their money, and, second, because we don’t want to get caught in the “run out of money” situation. With four kids in five years, running out of money is a very real concern.
The Cost of Not Finishing College
Not finishing a college program you’ve started is a huge financial issue. First, there’s the loss of economic potential. The average difference in lifetime earnings between an employee with some college and an employee with a degree is $721,000. That’s a lot of money!
More importantly, 28% of folks who leave college without a degree also leave college with student loans. It’s like the worst of both worlds: you don’t have the financial boost of the college degree, but you have the financial burden of college debt. Yuck. Double-yuck.
As parents, friends, and family of potential college students, we have a responsibility to help them make good choices in many areas of their lives. Picking a college they can afford is one of the most important choices they’ll make, impacting their long-term financial situation and also playing a huge role in whether they’ll complete that education once they start.
I belong to a Facebook group full of pre-college parents, and I’ve heard some scary things. (Paraphrased to protect the innocent, exaggerated because it gets so ridiculous.)
“I’ll be taking out a home equity line of credit for the $20,000 per year we need to cover.”
“She’s worked so hard, she can go where ever she wants. I’ll figure out how to pay for it.”
“We don’t have good enough credit for parent loans, so he’ll be able to borrow more than the average student.”
“We’re not worried about paying for college, since he’ll get a full ride. He has a 38 ACT score, a 5.2 GPA, he plays six varsity sports, he’s the world robotics champion, and during his internship at the Mayo Clinic he cured cancer. Plus, he plays guitar.”
As a financial educator, this terrifies me. While the cost of college shouldn’t be the ONLY consideration, it should be an important one. A recent poll reports that just 7.5% of students picked their college based upon affordability, prioritizing location, “fit,” and expected end-state of a good job. As a society, we’ve got to do better. A college education is typically the 2nd biggest purchase a person will make in their life, and there are very real and long-term financial implications of making a bad financial decision.
How To Help The Kids In Your Life
What can you, the parent, do to help your child make smart choices about the financial aspects of college?
Start talking about it early. Okay, maybe it isn’t great pre-school reading, but don’t wait until April of your child’s senior year to start talking about how they’ll pay for school. Calculate your Expected Family Contribution (you can get an estimate here) and talk about whether your family can actually manage that amount. (Most can’t.) Share whether there is money set aside for college, in college accounts or otherwise. Talk about what things you’ll pay for, and what things you expect them to pay for themselves. (For example, I fund dining hall meals but not Starbucks.) Explore your thoughts on student loans, whether you think it is OK for your kids to take them, and whether you’re willing to take them on behalf of your kids. (Pro tip: don’t.) Emphasize the concept of “financial fit” as an important consideration in the college selection process.
Be realistic about both merit-based and need-based aid. Many families are shocked when they see how much they’re “supposed” to be able to afford for college. And those full-ride scholarships? They’re less common than you probably think they are, and the competition is incredibly fierce. For example, the 2016-2017 University of Virginia’s Jefferson Scholars program selected just 36 students out of 2,005 highly-competitive nominees.
But don’t assume you know what your child will receive. There’s only one way to know what financial aid your child will receive at any school: apply, and fill out the required financial aid documentation. Don’t assume that any type of school – in-state, out-of-state, public, private, large, small, well-recognized or obscure – is going to be cheaper. While you can have a good idea of your child’s prospects, you have no real idea what sort of aid your child will get until they apply.
I say this as the parent of a kiddo who got a shockingly generous merit aid package at a school that has a reputation for being stingy with merit aid. I’m so glad that I said, “Go ahead and apply. But you’re going to need a miracle to be able to afford it.” Because she did get a miracle. Go figure.
Don’t count on your counselor. Unless you go to a small, private school, your guidance counselor is a demi-god, or your school has a uniquely good program, your high school counseling office isn’t truly equipped to give the right kind of help to every single child. Both parents and students need to learn about the college admissions and financial aid process.
Consider alternatives. Despite what you see in the movies, the “straight to a 4-year university” isn’t the only way to do higher education. There are 100 ways to get a degree, and just as many ways to pay for it. Common choices include starting at a community college or going part-time, more creative options include getting a job at the university (like my friend!), pursuing a more technical education like an apprenticeship, or taking enough CLEP exams to earn your first year of college credits for free.
On the flip side, don’t discount the four-year experience until you investigate your options. At most schools, the largest merit aid awards to go to kids who start as freshmen. A $25,000 per year merit award over four years of university might be cheaper than two years at the community college and two years at the same university with only a $10,000 merit award. You don’t know if you don’t apply and get that financial aid package.
You have to evaluate your child’s specific situation. Don’t decide that one option is going to be more affordable based on anything other than cold hard facts.
Emphasize that there’s no single perfect school. The idea that there’s one “best” school for any person is absolutely unhelpful to the process of finding the right school for your situation. As mentioned before, “financial fit” is at least as important as all the other factors that go into picking a college.
As any parent or student will tell you, the cost of higher education can be crazy. For 2021, the most expensive college in the United States had an estimated Cost of Attendance of a staggering $77,696. Per year. That’s insane. Thankfully, we all have choices. Understanding the long-term implications of poor choices during the college selection process can help parents and students make the best decision for their financial capabilities, which will increase the chances that they’ll finish their college program and decrease the amount of debt accumulated in the process. That’s a win-win in my book.
If you want some help with your college financial strategy, including making the most of your Post 9/11 GI Bill benefits, consider hiring me to help. You can schedule a free 30 minute call to discuss your family’s specific concerns by using this link to my Calendly schedule.
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