This is the time of year when high school seniors start to calm down and their parents start to get anxious. The students have received those coveted college acceptance letters, so they know they are going to go somewhere. But how will Mom and Dad scrape up the money to pay for it?
As has been widely reported, the numbers are significant. Some schools have breached the $60,000 mark for one year of tuition and fees.
The interest rates on federal student loans are slated to double from 3.4 percent to 6.8 percent come July 1, unless Congress acts before then. And independent financial aid advisers like Fred Amrein in Wynnewood, Pennsylvania, say they see schools increasingly optimizing their funds to drive the most money to the students they want the most.
Put bluntly, a student with great SAT scores and a willingness to forego the Ivy League for a second or third tier school, will get plenty of financial help in the form of merit aid from a school that really wants her. A student who has clawed his way into a school that was a stretch for him shouldn't expect to get merit aid, and may even find his need-based aid capped at a level too low to meet that need.
But families have more tools and power at their disposal than they think. Here's how parents can handle the haggle month of April, when everyone is playing "Let's Make A Deal" with your child's future.
First, calm yourself . There is no one school that will make or break your child's life. Your child can take time off before going to school, start at a cheap community college and transfer to State U. They can stretch four years into five and work in between, or give up their summers to school and shave a semester or two off of their program.
They can – steel yourself – live at home and commute to school. All of these strategies will save money, and none of them will ruin your child's future. Some may even improve that future.
Compare offers . The Consumer Financial Protection Bureau has a cost comparison tool on its website (here) that allows families to compare bottom line after-aid costs of different schools. Start by comparing the bottom line cost of the degree, not just the first year, says Ellen Freiburger, a Manhattan Beach, California, financial planner.
Look for special circumstances . Need-based financial aid is typically formula-based. Some colleges will negotiate if you show them a better package from a competitive school. But most will not, says Amrein.
He discourages his clients from appealing their aid awards unless they have financial pressures that don't show up on their aid forms. That could include unemployment, high health care expenses, or spending associated with taking care of an aging parent.If you have special circumstances, write a very brief and numbers-driven letter to the financial aid office at the colleges your child is considering, he said. The shorter and more direct, the better.
Do a cash flow analysis. Figure out what it will cost for all of your children to get their degrees, and then make a plan for where you will get that money. In the years when you have more than one child in college at once, you'll get more aid. If you have enough cash to pay for the early years but not the late ones, be strategic.
One way to do that is to use up all 529 plan savings and other college-aimed savings early, deferring loans until they are absolutely necessary.
But Amrein tells clients that if they expect to have to borrow a lot in the out years, they should start by having their child take some federal Stafford loans early. They are the best loans, typically at the lowest rates, and that strategy will protect parents from having to resort to private loans or borrow too much under their own names in the out years.
Pick and choose. Just because a school gives you a comprehensive financial aid package that includes grants, loans and an on campus job doesn't mean you have to take all of it. You can take the grants and the job, and leave the loans, pulling money from other sources, including family savings, home equity and Grandma.
Or you can take some of the loans and the grants, and have the student look for higher-paying work off campus. If your student has her heart set on one particular school, you could even – ahem – ask her to skip the costly spring break trip and earn extra money during academic vacations.
After all, drastic times call for drastic measures.