More savings can translate into more options for your child both heading into college and on the way out. Why? When you have monies set aside, your child can choose from a larger set of schools. Seemingly out-of-reach options (based on sticker) suddenly become more affordable. This example shows what a difference the combination of merit aid and savings can make.
The benefits of saving are further illustrated when you consider the ramifications of the alternative: hefty loans. To be sure, the burden of debt is not only financial. The impact post-graduation can be far-reaching and long-lasting. Studies show that students left with large loan payments often compromise in their career choices (choosing pay over passion), opt not to pursue graduate degrees, can’t afford a car or home, delay marriage and children, and sometimes resort to bankruptcy. In our example, savings was able to reduce the monthly debt payment to $388, a much more manageable proposition for a recent college graduate.
The Bottom Line
What do I hope you’ll take away from all of this? A couple of things (at least):
First and foremost, know that every single dollar saved for college really does count. It means more choices in the school selection process, and can lead to a better financial position, more vocational options and overall increased life satisfaction for your child post-graduation. And remember, the numbers don’t lie: In the example above, $1 of savings reduced the debt payment by a whopping $2.51.
Second, don’t fall victim to sticker shock. Do the work to understand the real price of a given school so that you can make a real decision. Most schools provide a net price calculator that allows you to project your cost based on information you provide and the average aid awarded by that school. It gives you an idea of what people in similar situations have experienced at that institution. You may be surprised to find that expensive schools you thought out of reach come with more generous financial and merit aid and, ultimately, may be more affordable than those with a lower starting price.
Once you have a handle on a school’s true cost, you are able to plan accordingly and develop a program to save what you can and minimize and manage any debt. You can also take satisfaction in knowing you have expanded your child’s options exponentially.
Rob Kron, Managing Director, is the head of Investment and Retirement Education for BlackRock’s U.S. Wealth Advisory group. He provides practical information on topics that are important to every saver and investor of every age. You can find more from Rob here.