Every parent who has taken on the responsibility of talking to their high school kids about drugs, alcohol, and texting while driving is motivated by a desire to protect the loves of their lives.
But there’s another important conversation I believe parents must have with every high school freshman: The family’s financial plan for college. While it does not carry the life-and-death realities of those other conversations, it is nonetheless vitally important.
Families that don’t talk about college costs, and the need to set a reasonable college budget, are families that make disastrous choices. Kids take on too much student debt, or parents borrow too much, or even worse, raid their retirement plans or home equity to pay the college bills. That’s not only putting the parents’ financial security at risk; it also ends up having a huge impact on the kids. When their parents retire with insufficient savings, who exactly do you think is going to need to step in and help? And are you seriously going to tell me that will be easy for an adult child raising her own family? I don’t think so. That’s the sort of unintended consequence that comes from not talking to a young teen about the cost of college, and what your expectations are. Some tips for making college finances a family affair:
Make the initial conversation empowering.
This conversation should not be scary for your child (or you, for that matter!). And please don’t bring some sense of guilt into it. That’s just wrong and counterproductive. Your kid will respond to your honesty.
Explain your expected annual contribution.
Whether you’ve saved in a 529 Plan, or can afford to siphon off income to pay bills, the sooner you can give your kids a ballpark idea, the sooner they can start to think about their contribution. Maybe they will be motivated to get a part-time job. And great grades, which can help with financial aid and perhaps scholarships. And it gives your entire family time to become experts on the right way to borrow for college.
Make it clear this is a group research project.
Online resources such as the U.S. Department of Education’s College Scorecard and college ranking projects like Money magazine’s Best Colleges for Your Money are great starting points for the entire family to get a sense of costs, graduation rates and typical salaries for grads.
Introduce the concept of a financial safety school.
No one is rooting more for your kid to get a terrific aid package from the school of her dreams. But I am your resident realist. I want your child to apply to at least one financial safety school. That can be an in-state public school, or a private school you are truly confident will roll out the aid red carpet to your child. (Just make sure the aid is not laden with loans that you can’t afford.) Be sure to include a financial safety school in the mix.
Develop a family financial aid game plan no later than the start of junior year in high school.
Wait until senior year to get up to speed on college loans and I guarantee your family will make some costly mistakes. Plan early. Make it clear to your child that they will borrow first for college, before you borrow a penny. Yes, you heard me. All kids borrow first. Because every college student is eligible for a federal Stafford loan, which has a lower interest rate than the federal PLUS loans available to parents of college students. I also want you to make a family vow that there will be no private loans taken out. They are bad news on so many levels. Stick with federal loans. And please, parents, don’t you dare borrow a penny if it puts your retirement security at risk. That’s just setting up your family for a ton of hurt down the line. If you insist on borrowing, limit it to a sum you are 100 percent certain you will have repaid before you retire.