My S26 knows that finances will play a role in his college choice, but we haven’t discussed any details, and I’m figuring it’s time since we’ll be starting college tours this summer.
I’m curious what other people have told their kids. Did you tell them they can choose anywhere under $X amount, or that you want them to keep the number as low as possible? Did you tell them they could consider higher cost schools if they take loans, or that no loans was a priority? If they chose a school that came in under budget, did you offer them the difference for grad school?
Since our business barely survived the Great Recession, we told all three kids that money was tight. We let our oldest apply to 11 schools, because he had excellent stats and ECs. We made a big spreadsheet that showed all the costs for each school. A couple were just too expensive. Our oldest went to his second choice. Our younger two were able to go to the schools they liked best. You just need to have the conversation from an early stage so they are not shocked/surprised if later you tell them a particular school is off the table.
We told our kids what was in their 529 accounts and how much we planned to continue contributing each month. They were free to take out the student loans but we were not taking parent loans.
We made sure that their list included at least 2 affordable safeties. After that…they were free to apply anywhere they wanted, but they understood what the final cost needed to be. They were free to attend any school that came in at an affordable cost.
Both kids also knew that they were headed to some type of grad school, and any money left over would be applied toward that degree.
Do you think our timing makes sense, talking about it in detail the summer before Junior year? Or are you saying we should have talked in detail before now?
He does know that money will play a role in the decision, we just haven’t talked specifics.
My kids were responsible enough that we felt they could understand the financial consequences. So we said “we’ve saved X in the 529, and will give you an extra Y per year for 4 years. That money is all yours and you can decide what to do with it. Anything left you can keep for grad school, home downpayment, IRA funding, etc.”
The amount in the 529 was based on the same contribution for each (ie it had longer to grow so was more for the youngest - that growth offset inflation in college costs). All picked relatively cheaper colleges (but that were also the strongest options for their majors), full pay privates were not considered.
They’ve always known the balance on a rolling basis since I maintain a spreadsheet detailing all of the costs incurred to date (useful for taxes). The older two graduated with $30K and $80K left respectively. The one with more has been using it to subsidize her living expenses as a ballet dancer. The third kid will likely be somewhere in the middle, depending on earnings during college.
We set a budget based on S23’s 529 account balance, plus an amount of cashflow that we felt confident that we could handle even if finances turned out to be tighter than expected while he was in college (for example, a parent getting laid off, market downturn, etc.)
He could apply to any school that had the possibility of being affordable (either its published COA, or possible merit). He knew up front that if an expensive school accepted him but didn’t give enough merit, it would be off the list.
If he ends up with money left over in his 529, he can use it for grad school, or put it in a Roth, or use it for his own kids’ education
That’s when we discussed it and ran the NPC together for colleges they had expressed interest in. They then had a spreadsheet showing how much money was left or not (or how much merit aid was needed). A bunch of places that had previously looked interesting to them got dropped at that point. It’s important to do it before deciding on the application list.
By the older kid’s junior year, we knew we were not eligible for need-based aid and that we could not afford sticker price at privates. We told our kids the total resources we had available per year for each of them and said there would be no loans, either for them or for us.
So, they knew what the max cost per year was and shaped their list of schools so nothing exceeded that. One kid wanted big, so only applied to public flagships – which were significantly lower than sticker price at privates. The other wanted small and was an athletic recruit, so needed merit money – so NESCACs came off the list and the focus was D3s with significant merit.
Both kids came somewhat under budget, leaving room for unpaid summer internships, travel opportunities etc. Now that both have graduated, they realize how glad they are that they don’t have undergrad loans.
We told our kids we could afford the cost of in state public which was about 35-40k a year. They could go out of state or private, but they’d need merit aide to bring it down to that price point. Having specific information at the start made for a low drama process. My D17 got acceptances and offers she knew she couldn’t afford, so they were just immediately disregarded by her. One of her best friends got into her top choice school, only to have her parents tell her after the fact that it was out of budget. It was heartbreaking. She ended up having to go to a CC, which she was not prepared for.
I would have a specific numbers conversation now…and expect he won’t remember the specifics when it comes to applying.
Have the conversation again before applications open. This conversation is easiest if you’ve helped steer your child away from schools that have no chance of working financially during the search/selection process and have steered them towards schools that fit both your budget and your child’s wishlist.
Edited to add: We gave each of our children their specific budget number (yearly costs) and told them they were more like welcome to choose a school all the way up to that budget number…but absolutely no higher. None of them chose the cheapest option they had, but that wasn’t the expectation either.
I’d absolutely set the terms–whatever they are–before beginning the college tour process. It is like anything else you shop for, you need to know your budget so you do not waste time looking at options outside of your budget.
In our case we had the means in his 529 to be up to full pay private. We explained if he didn’t use all of that now, he could save it for grad/prof school or possibly continue it on to his own kids and such. And none of that seemed to matter to him and he has opted to use it all for his own college.
What you should say obviously depends on your circumstances, but I think a general structure like that–you have up to $X to spend on college, but if you pay less than $X you will get the benefit of the difference–is a pretty solid approach in a lot of circumstances. But of course if you need them to pay as little as possible, that is fine too.
As for loans, I tend to think it is best not to have them (particularly at current rates) if possible, and it is a very good idea not to go beyond the federal direct loan limits.
I think one of the worst things a parent can do in this situation is to be unclear or overpromise, hoping the financial situation might be better when it comes time to pay the piper. Hope is not a plan.
I also think we, as parents, sometimes forget that our smart, capable young adult children are, when it comes to finances, still completely children. They are prone to magical thinking and don’t understand the ramifications of the kind of money college costs.
95%+ of the heartbreaking stories I’ve seen and heard about with college admission have to do with a family deciding at the last minute that the finances don’t/can’t work.
Clarity and specificity is kind and, imo, imperative. The earlier, the better.
We were fortunate that we could fund four years of undergrad school using my current earnings. This was for any college. Our kids were very grateful for this gift and have thanked us many times.
We did say we would not take out any loans above the direct loan amount. But we really didn’t need to.
We also agreed that we would agree on the application list before applications were sent. Our kids were fine with that.
If we had needed to set a financial limit, we would have been very clear what that limit was. And we also would have been clear that we wouldn’t go above it!
One of our kids got a decent merit award and the other a smaller one. We were very clear that if their grades caused them to lose their merit awards, they could plan to transfer to an instate public university. Even though we could afford full costs, we wouldn’t pay for grades that didn’t support this.
In addition, we told them we would fund four years of undergrad, and anything beyond that to finish an undergrad degree would be their expense. One of our kids took summer classes on year and she paid for those.
I think it differs based on the kid. In high school my older kids had Roth IRAs and were keen to think about how much their contributions would grow by the time they retired. They were stunned by the amount in their 529s and thinking about how many years work in their minimum wage jobs it would take to accumulate that money.
But if you don’t explain costs and budgets then magical thinking is more likely. A neighbor is going through this right now, and even though money is tight, their kid wants to pick a lower ranking, more expensive OOS school because “the sororities are better” and it would be fun to go OOS. It’s their first time going through the process and not helped by the parents being divorced, but I want to say “get a grip”.
Remember that this is a hard conversation for kids. Either they can’t fathom the process that they are about to begin, or they are already far enough along to be stressed about it. They might be hearing numbers they don’t want to hear. You might be bursting a bubble when they realize the “dream school” they’ve been thinking about for years is now out of reach.
When you have this conversation, put the numbers somewhere in writing. Whether it’s on a spreadsheet or a piece of notebook paper. I know with my parents, I often remembered conversations differently than they did, and to this day, I’m not sure who was right or if perhaps they were just not very clear and just gave some vague parameters. Having a form of written “contract” will serve as a reminder of a firm number.
Apply to where you want but you can only consider schools that achieved the budget.
If a school couldn’t possibly make budget, like they had no merit aid, we let them know up front - so they knew if they did an app, it was pointless.
We are full pay - so our scenario may be different than others.
But in the end, I personally wouldn’t worry about sharing finances - but I would give them a hard and fast limit. And perhaps, let them know, if they spend less, you’ll be able to do such and such for them - grad school, help with a car, etc - if that’s a consideration for your family.
Our oldest had a Roth IRA in high school as well as a work 401(k)…and still wanted to take out loans for the ‘dream school’. It wasn’t a lack of math knowledge or financial education. It was not being able to imagine what it would be like to have to pay something back, every month, year after year. Or how that would limit their choices in the future.
We decided to have her pay her car insurance premium to understand what a monthly payment felt like. $144/month during junior and senior year of high school*. She hated paying that bill every month. And she was driving the car daily, while we paid for gas and maintenance! It did help her realize how much she would not want to be paying student loans years after she had already gotten the education.
*Unbeknowst to her, we were banking those insurance payments and gave her the $3400 back before she went off to college. She will still tell you how much she hated those monthly payments even though she got all the money back in the end.
We told our kids how much we had saved for them for college - mostly inherited from their Grandparents - and it was enough to cover about 3-3.5 years of a public in-state school. Our EFC for 1 kid in school was right at the cost of an in-state public.
We told them we would get them through that final year at an in-state public cost. But, if they got scholarships and/or could find a way to get what they wanted cheaper, any money left over would be theirs.
High stats older kid went to an LAC with free tuition, and scholarships to cover a fair amount of the rest. Younger S went to an in-state public with lots of scholarships. We wound up only paying for his apartment (which was a lot cheaper than I would have guessed) plus a little bit of the meal plan the final two years.
Both kids graduated with a fair amount of $$$ left in the bank!
Our kids know what the costs are. We made them a deal - do the best you can and we’ll pay for whatever school you want to attend. D24 had a full ride to our flagship state school but didn’t want to attend and we were fine with that.
She is also potentially interested in law school. We told her if she gets into T14, we’ll 100% pay for it and if she doesn’t, we can discuss based on the school. We are very aware of law school career outcomes and so is she.
