July 1, 2013 Congress doubled interest rates for student loans from 3.4 percent to 6.8 percent after a one yeareprieve. On average, the cost of schooling increases by about 6percent per year. A less than 10 percent tuitiion hike may not seem significant, but it is because the cost of obtaining a college education roughly doubles every 12 years. Unfortunately, an increase in the principle and the interest compounds the burden on families who already struggle financially to provide their children with a college education.
Something Has to Give
In America, almost all families are expected to pay some out-of-pocket expenses for college. Those families must fill out a Free Application for Student Aid (FAFSA). The information collected from this application will help a family find out their expected family contribution. Currently, the cost of college is increasing faster than the rate of inflation and the cost of living adjustment in wages. Over time, each family’s expected contribution will erode disposable income and therefore, the provider’s ability to accumulate both short-term and long-term savings for other areas like retirement and vacation.
Strategies To Decrease The Financial Burden
There was a book written thousands of years ago that stated, “My people perish for lack of knowledge”. That statement is as true today as it was back then. There are so many unexamined assumptions about paying for college because people simply don’t know what they don’t know. The following is a simplified list of suggestions to decrease the cost of college:
1 – Take Less Time To Graduate
There are high schools designed for students who want to accelerate the time it takes to graduate. These students have the opportunity to take college courses at a local participating college. In some cases, these highly disciplined students graduate college with an Associate’s degree.
The amount of units a student needs to graduate is based on a four-year scheduled timeline. Students, however, end up staying in undergraduate school five years. This trend is very costly for students and their parents. One reason this happens is because there is little emphasis placed on selecting a relevant major for college. Consequently, students go to college, and don’t find out what they want to do even after their general education courses are completed. A simple solution is to provide high school students with more opportunities to identify their personality strengths and career interests.
2 – Take More Time To Find The Right School
Students often choose schools for the wrong reasons. Perhaps they followed their favorite sports program or a brochure had cool school colors that attracted them. Sometimes the location of the school plays the primary factor in a student’s decision. The right school is a college that best aligns with the student’s career preferences, academic expectations, and to a much lesser extent, social interests. Students who have achieved high levels of academic success have more flexibility to choose an institution that is the best match in each area listed above. Schools desire students who have the potential to make their institution more appealing as a result of a graduate’s success. In fact, they are willing to provide scholarships as incentives for those students to attend their school. In return, it is the institution’s hope that those alumni will give back by making financial contributions.
3 – Decrease The Expected Family Contribution (EFC)
There are strategic ways to lower the EFC. Interestingly, scholarships are not one of them. That being said, substantial scholarship amounts can certainly lower the out-of-pocket expense for college. College savings plans such as 529s actually increase a family’s EFC because many of the grants are awarded based on need. There are financial vehicles that can strategically be used to lower a family’s out-of-pocket expense, but it is sometimes complex and goes beyond the scope of this blog. There are experts who can provide you with assistance, but be sure they are well versed in college planning strategies.
