7 tips to cut college costs
By Dawn Papandrea
January 26, 2015
You've done the right thing and saved for both retirement for yourself and college for your kids. Your goal? Avoid saddling your children with student loans, or worse, the cost of supporting you in your later years.
Yet, you find yourself coming up short due to rising college costs. That's not a surprise, given that in-state tuition, fees, room and board average about $19,000 for the 2014-2015 school year. Those rising costs are one of the reasons why student loan debt for 2012 graduates runs about $29,400.
That poses the question: Should you dip into your retirement to make up the difference?
“You don't want to even slow down your retirement if you can help it,” says Jack Schacht, founder of My College Planning Team.
But at that same time, you don't want to leave your children to the student loan wolves. Here are some creative strategies for making college tuition costs more affordable, without cracking your nest egg.
First, work the numbers
First, know that not all schools use the same methodology to determine the Estimated Family Contribution, which is the amount you're expected to contribute to college expenses. There's the Federal Methodology that the majority of institutions use, which relies on the data you supply on the FAFSA (Free Application for Federal Student Aid). Then there's the Institutional Method, generally used by top-tier schools, which requires families to complete the CSS Profile.
“In general, all of the schools using the institutional method are going to assess home equity,” says Schacht. In other words, if you have a lot of equity in your home, the schools will assume that you can tap into that in order to pay for college, and will therefore offer you little or no financial aid.
Savings strategy: Try selecting schools a tier lower that use the federal method. Especially if your child is in the top 25 percent of the entering freshman class, you'll be better positioned to score a stronger financial aid package.
Save the most expensive school for last
Increasingly, students begin their academic journey at a community college for a fraction of the tuition price, and then transfer into a four-year program. This can be risky, though, says Mark Kantrowitz, senior VP and publisher, Edvisors.com. “Taking a detour through a community college may ultimately mean that the child never reaches his or her destination. Of students who intend to obtain a four-year degree, only about a fifth of those who start at a two-year college obtain a bachelor's degree within six years, compared with two-thirds of those who start at a four-year college,” he says.
“Some community colleges partner with four-year universities…”
–Jack Schacht, My College Planning Team
Still, financially speaking, the option is appealing. Look into “3+1” programs, says Schacht. “Some community colleges partner with four-year universities, allowing the student to earn their degree from the four-year university while spending three years at their community college with guaranteed transfer of credit to the partner university,” he says. These, like 2+2 programs (in which two years are spent at each institution), can reduce college costs by over 50 percent, and the student gets his degree from the four-year university in the end.
Savings strategy: Find community colleges that have these formal agreements with four-year schools so the student knows in advance where he'll be headed, and that his credits will transfer seamlessly.
Look to your neighbors
There are so many excellent public institutions that charge phenomenal rates for in-state students, but if you're not thrilled with your state's options, you may still be in luck. Special regional programs, such as the Midwest Student Exchange Program, give students access to tuition discounts at over 100 out-of-state schools for less cost than their own in-state universities, says Schacht.
Similar programs exist in other areas, including the New England, Western and Southern regions. The National Association of Student Financial Aid Administrators website has a good overview of these programs.
Savings strategy: Search for special regional programs that offer tuition discounts in neighboring states.
Many students are leaving the U.S. altogether to enroll at a less costly foreign college, says Kantrowitz. “Even with the travel costs, a foreign college may be less expensive than a U.S. private nonprofit college and perhaps even more prestigious,” he says. There are some potential pitfalls, however, even if you get past the emotional factor of your baby being so far away. Some to consider are whether the classes are taught in English, the need to choose an academic major before applying for admission and uncertainty whether financial aid will be available, says Kantrowitz. (You can search the Department of Education's website to see which international schools can be included on your financial aid applications.)
“Even with the travel costs, a foreign college may be less expensive than a U.S. private nonprofit college and perhaps even more prestigious.”
–Mark Kantrowitz, Edvisors.com
Savings strategy: Consider crossing the border into Canada. The prestigious McGill University in Montreal costs just under $18,000 a year for international students, and that's including fees. Compare that to Harvard or Yale, which hover above $45,000 a year for tuition alone.
Get scholarship savvy
Be strategic about scholarships. Scholarships that are awarded directly by the school are the best because they will automatically reduce the tuition bill. With outside scholarships, however, that's not always the case, says Schacht.
Some colleges use outside scholarship money to reduce the amount of grant aid they give to students, instead of applying it to the student's unmet need. Schacht advises that you check the policies on outside scholarships at all of your choice schools (usually they are published on the school's website).
Also, go to ScholarshipAmerica.org, and look at its list of collegiate partners. “That organization makes schools sign an agreement that any of their awards will go to fill unmet need. Those are the schools that tend to be fair with all scholarships,” says Schacht. That's not to say that if your school isn't among the 350 partners listed, that it doesn't have a fair policy – however, it's a good starting point.
Savings strategy: If your child's schools of choice have favorable outside scholarship policies, encourage your teen to get going on those applications. Many companies offer scholarships to employees, so check with your own employer, and have your teen consider that factor when applying for part-time or seasonal positions, says Roseann Amato, director of financial aid and scholarships at Seminole State College of Florida.
Live at home — and work!
If there's one way to cut college expenses virtually in half, it's to urge your children to stay at home as long as they can during college, says Amato. “Rent is one of the biggest expenses a college student faces, so this one decision can mean thousands in savings over the course of a college education,” she says.
Savings strategy: Whether or not the child lives at home, students should contribute to their own college costs, says Schacht. “The child and parent have to work together with some child income brought to the table,” he says.
Whichever school you choose, staying on track academically will keep costs down. “Plan a path from matriculation to graduation and don't be wishy-washy when it comes to choosing an academic major. Students who change majors or transfer schools often add a semester or two to the length of their education, and that extra time increases the debt,” says Kantrowitz.
Savings strategy: Think in terms of return on investment: “The total student debt at graduation should be less than the borrower's expected annual starting salary,” Kantrowitz says.
By factoring finances into the college selection process, researching special programs and maximizing financial aid, your students can develop a list of quality options that fit your budget, or at least, won't break the retirement bank.