Planning for the cost of college is a big task and it can take you hours of research and conversations with colleges to do it right. Over and over, parents new to the process bring similar misconceptions that are helpful to knock out right away, so we can move on to higher-level planning. Here they are, the top 5 misconceptions about paying for college I see all the time:
This is actually two misconceptions in one! First, the “sticker price” or Cost of Attendance is not what your family will pay for college. Grants and scholarships vary wildly between schools, so two schools with the same sticker price will cost your child dramatically different amounts. Yes, private colleges have higher sticker prices than public universities. But most private schools also have more aid available to bring down the price. A public university is not necessarily the cheapest option.
What you can do: A good place to start research on private college affordability is at Collegedata.com. Enter the college name you’re looking for, and navigate to the Money Matters tab. You’re looking for the amount of need-based aid and merit aid the college gives out for freshmen. This is a good place to compare the awards for multiple colleges.
This is just patently untrue, and not the case for any family. In the Expected Family Contribution (EFC) calculation, colleges expect parents to use only 5.6 percent of their savings to help pay for college each year. Not only that, parents get an asset allowance that isn’t used, and retirement funds in 401(k)s and IRAs are protected. Having savings for college is crucial for avoiding bad financing decisions. Save that money!
What to watch out for: this myth is a common one used by insurance agents who want you to buy life insurance to shield assets. This is rarely a good choice, don’t fall for the life insurance scam when it comes to college planning.
You need to file the FAFSA if you want to be eligible for Stafford/Direct federal loans. And subsidized direct loans are the best deal in the college financing world. Filing the FAFSA doesn’t mean you’re taking out financial aid, but you want to keep all of your options open. Plus, it’s not that hard—reach out to the Iowa College Access Network (ICAN) for help.
I fell for this myth when I was applying to undergrad schools. Getting a $25,000 scholarship sounds fantastic to a good student, but it can leave $20,000-$30,000 more as a bill for a private college. Full-ride scholarships are rare.
What you can do to plan: develop a full strategy for paying for college, which includes parent contributions, work-study, loans, and other sources. Merit scholarships are great, but are only one piece of the puzzle.
Your EFC is a measure of your family’s financial ability to pay for college, what you can contribute. It’s the same amount across schools that use the FAFSA (most schools). Depending on the school your child is interested in, though, you may end up paying more. That’s because many schools, especially state universities, don’t have enough aid to go around. In those cases, your family will pay the cost of attendance minus grants and scholarships. And the way you’ll make that payment is with loans!
How to avoid this problem: Using collegedata.com, you can research each college or university’s ability to meet the financial aid need of students. Be careful, though—they can count “self-help” amounts in here, which are student loans and work study. But, it’s a starting point for researching schools.
If you avoid these five big misconceptions, you’ll be well on your way to a good financial plan for paying for college. Please contact us if you need help!