11 Mar Should we pay for an expensive college?

Q. My son has received several college acceptances, and he’s waiting for one more. They are all good schools but some are a lot more expensive than the school I want him to go to, which offered him some scholarships. He got very little in scholarships from the super expensive schools, of course. I have saved $127,000 in a 529 plan (mostly from money I inherited when my father died) but he or I will need to take loans to cover the rest. I can’t afford to pay more and I don’t want him to have to work while he’s in school, and of course having debt when you just start out is bad. And I don’t want debt either. How do I handle this? I don’t want him to fate or regret going to the school that’s more affordable.
— Mom

A. College is a big financial decision.

And it’s expensive. The average cost of tuition, fees, room and board for the 2023-2024 school year, according to CollegeData.com, was $56,190 for private colleges, $41,290 for out-of-state residents at state schools and $24,030 for in-state residents at state universities.

You’ve done well with your 529 plan savings, said Jeanne Kane, a certified financial planner with OneDigital in Boonton.

She said what you’ve saved would cover two years of average private college, three years of average out-of-state public school or more than four years for an in-state public college, she said.

It’s important to note that most students don’t pay the “sticker price” because they receive some grants, scholarships or financial aid, she said.

Kane said it is important to understand what each college is expecting you and/or your son to pay.

“Some schools will meet 100% demonstrated financial need while others will only meet a portion,” she said.

If you haven’t already done so, complete the Free Application for Federal Student Aid (FASFA).

“This is what most colleges use to help determine need-based financial aid,” she said.

Then, you have to continue the talk: how much you’re willing to pay. Ideally, she said, this conversation should happen long before the application process.

“That way the child’s expectations are set prior to applying to dream schools and they know what you’re willing to contribute towards his/her education,” she said.

But at this point, you need to decide how much you’re willing to pay towards college.

Are you willing to contribute a specific dollar amount and you and/or your son takes loans to pay for the rest? Or will you pay only for a specific type of college and you and/or your son takes loans to pay for the rest? Or will you pay for any college of his choice, no matter the price tag, where you and/or your son will take out loans?

“Some parents will pay for in-state tuition and if a child decides to go out-of-state or to a more expensive school, it’s on them,” she said.

Once you decide how much you’re willing to contribute, speak to your son.

“Knowing how much you are willing to contribute, he can decide about whether he wants to take out loans or not,” Kane said. “His college major and job prospects should also factor into this decision. If he’s interested in a career that doesn’t pay a high income, an expensive college with large loans doesn’t make sense.”

Also remember that you can finance college, but you can’t finance your retirement, she said.

“You’re told to put on your air mask first on an airplane in the case of emergency and then put it on your child,” she said. “Same holds true with your retirement.”

In addition to being unable to borrow for your retirement, there is an “opportunity cost” for your money.

She said you should ask yourself: If you don’t take out loans to pay for college, would you save that money for your retirement? How will you make up that savings if you do take out loans?

And if you take out loans to pay for his college but then can’t afford to pay your own bills when you must repay the loans, you’re creating debt for yourself. How will you pay that down?

You can also lobby colleges for additional aid, Kane said:

“Need-based financial aid offers are negotiated through the financial aid office,” she said.

You will probably need to show a change in circumstances — a reduction of income, job loss, illness, etc. — since you originally filed your FAFSA.

The other option is to show a financial aid award from another school that awards more money and leaves your family with less financial obligation, she said.

You can also work with the admission office for more merit-based scholarships, she said.

“Show the school any improved grades or accolades your son earned since he sent in his application,” she said.

“While being accepted and attending a ‘dream’ school is great, the hard reality is that you don’t want his dream to turn into a nightmare when you and/or your son if you take on too much debt,” Kane said.

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This story was originally published in March 2024.

NJMoneyHelp.com presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.