1.5 Trillion dollars. That’s the amount of student debt in the country according to the New York Federal Reserve. Actually it’s just slightly under that but does a couple of billion really make a difference? I know, the number is so big to be meaningless but it’s not. Consider some of the factors that contribute to that number. In 1989, 48.2% of undergraduates at public doctoral universities took out federal loans. In 2011, the percentage was 61.9%. It’s not that the average amount has increased from $12,000 to over $21,000, but rather more students need them to just graduate. And it’s not just loans for the students. In 1989, 3.5% of parents had taken out PLUS loans. In 2011, 16.5% have.

 

How Debt Affects Families

No, it’s not a meaningless number. That’s why I have parents like Liz telling me that she’s worried that her son will get into a great school and she won’t be able to afford it.

There’s David who said that he’s not worried about finding a college but he does have huge concerns about paying for it. He just wants to be able to pay for the colleges for his two kids and not have to be paying off loans the rest of his life.

One mom, Michelle, yeah, I’m really not making up these people, told me that they can’t afford to send all four of their kids to school without taking on an unreasonable amount of debt. On paper they look wealthy, but they live frugally, and save, but the expense of college far outpaces any efforts they have made to save.

And then there’s Matt who doesn’t want his children to have to take on crazy student loan debt, but he’s worried that they won’t have enough savings to cover the cost.

 

What Causes Students To Take Out So Much Debt?

So is this what it’s come down to, debt or college? You sacrifice your retirement or your kids never get their degree? That’s the way a lot of these parents feel. But there’s a reason for that. It’s because the way college admissions is set up in general doesn’t provide them with the information they need to avoid the crushing debt they’re worried about.

If you’re at all familiar with the process, you know that financial aid is the last thing you do. The college admissions process goes something like this:

  1. Parents pay for SAT/ACT Prep
  2. Students take SAT/ACT
  3. Students decide best colleges they can possibly get into based on test scores and personal preferences such as location, size, and campus culture
  4. Families visit possible college choices
  5. Students finalize list of colleges to apply to
  6. Students request letters of recommendations
  7. Students start required college essays
  8. Students submit applications
  9. Students submit financial aid applications
  10. Students receive Expected Family Contribution (EFC) from Student Aid Report
  11. Students receive acceptance letters and Financial Aid Awards
  12. Families start to frantically search for more resources

The problem is that money isn’t addressed until after students submit their applications and apply for financial aid. Too many well-meaning high school counselors and less well-meaning college admissions brochures tell students to go ahead and apply because no one pays sticker price.

Colleges will usually list statistics such as we provided over $8.7 million in aid last year or that 97% of our students receive financial aid. But they don’t tell you how much individual students are likely to receive.

The high school counselors can be really good at helping students locate scholarships to apply to. They may also have a financial aid night focusing on applying for financial aid using the FAFSA. But they don’t provide a lot of information on how to figure out if a family can afford a college.

The effect is that you just need to apply because you won’t know how much it will actually cost until you get your financial aid award. And don’t worry-there’s plenty of financial aid out there! And here, while you’re at it, take a look at another of our view books of happy college students.

 

It’s Time to Start Thinking About the Costs of “Buying” a College Education

It’s obvious what the problem is if families would only stop and think about this as the major purchase college is. You’re considering buying something where the cost starts at $100,000 and can easily exceed a quarter of million dollars. You’re essentially considering buying the equivalent of a house. So what’s the first thing you do when you’re thinking about buying a house-tell your daughter to decide which houses she likes best and then figure out how to pay for them?

Not likely.

No, the first thing you do is figure out how much you can afford. Then once you have that number, you decide what kind of houses to start looking at.

As for the not knowing about how much financial aid a school will award until you apply? Sure, you won’t know the actual award. But just by using EFC estimators and college Net Price Calculators, families can get an idea of how much financial aid they’ll qualify for at individual colleges.

This means that students will apply to colleges that they can actually afford and there shouldn’t be any expensive surprises when they receive their financial aid awards.

And if more families addressed the cost issue first and then selected colleges, the student and parent debt wouldn’t be as high as it is.

Unfortunately, colleges have absolutely no incentive to encourage students to use their net price calculators before they apply. They can actually be difficult to find on many college websites. And high school counselors too often don’t have the time or knowledge to show families even the basics of using Net Price Calculators or estimating their EFC.

That leaves it to families on their own to make sure they don’t contribute any more to the student loan debt crisis.

If you’d like some help with this, check out Click Here for The College MATCH Method.

Have a great day,
– Michelle Kretzschmar.