With more and more high school students deciding to attend college, the race to find the “perfect” college often begins as early as a high school student’s sophomore year, though more typically their junior year. Students may consider a school’s “vibe,” and its ranking when picking a college, but there are more important things to consider. As the parent, stepping into your child’s college search with a dose of reality is necessary. After all, attending college can cost tens of thousands of dollars. Advise your child to beware of these financial pitfalls when choosing a college.
Financial Pitfalls When Choosing a College
College is expensive! Even if your child attends a local university and lives on campus, the price tag could be $20,000 per year or more. For that kind of investment, you should carefully consider these factors, which will save you money and help you and your child choose the right college carefully.
The Retention Rate
How many students who come in as freshmen come back for their sophomore year? That is the college’s retention rate. Colleges with high retention rates are likely doing something right for their students. If the college your child is considering has a low retention rate, be concerned.
Transferring to a different college because your child is unhappy at the one she initially chose can be expensive. Not all of your child’s credits may transfer, which means she may have to pay more to complete her college degree, which happened to me. I left my initial college after one semester. It ultimately took me five years to graduate college, in part because of the college I initially chose and the fact that some credits didn’t transfer.
The average retention rate nationwide is 78%. If the college your child wants to attend is lower than that, make sure you understand why before sending your child.
The Graduation Rate
How likely are incoming freshmen to graduate in four years? That is the graduation rate. Unfortunately, the nationwide graduation rate is surprisingly low. “According to the National Center for Education Statistics, just 41% of first-time full-time college students earn a bachelor’s degree in four years, and only 59% earn a bachelor’s in six years” (CNBC).
What do those lower graduation rates represent?
First, some students drop out and never complete their degrees. My cousin dropped out of law school after one year, and he had tens of thousands of dollars of debt to show for it without the law degree. He did eventually get his Master’s in a different field, but paying off the law school loans took him years. This is the worst-case scenario.
Second, if your child does graduate but takes five or six years to do so, your child is in a better position—he has his degree. However, do you have the money to pay for an additional one or two years of college? Most families expect their child to graduate in four years and budget for that. When graduating takes longer, many families are left taking out additional loans they hadn’t planned on. Unfortunately, this scenario is surprisingly common as most schools have fairly low four-year graduation rates.
Some Scholarships Aren’t Renewable
If your child qualifies for financial aid, be forewarned that the college can usually manipulate the first-year financial-aid package to make attending the school possible. However, they often do that by finding scholarships the college offers. Yet, what you may not realize is that some of these scholarships aren’t renewable.
Perhaps for the first year of college, parents need to pay $7,000. However, for sophomore year, after some of these one-time scholarships end, you may be looking at a bill of $15,000 a year. Can you afford that if you were expecting to pay just $7,000 a year? That can be a shock to many parents.
Make sure when you sign your financial aid agreement that you know which scholarships are renewable and which are one-time scholarships so you’re not surprised next year.
Paying for College Can Increase Your Income
Some parents choose to pay for college by taking money out of their retirement accounts. However, when they do this, the money they withdraw counts as income in the next tax return that they file. Then, when the college sees this, they see that the parents’ income has gone up, and financial aid is further reduced.
Ideally, have a way to pay for college that won’t make your income increase and reduce the amount of financial aid for which you qualify. If you feel that taking money out of your retirement fund is the only way to pay, consider choosing another college. Or, choose to take out PLUS loans and either pay them back traditionally or pay them back with money from your retirement fund after your child graduates. Then, doing so won’t affect your financial aid offer.
Consider Living Expenses
When people think of the price of college, they most often consider tuition and room and board. However, your child will have many more expenses than that. Consider the following additional costs students may incur:
- travel home for vacations,
- clothing if the climate at school is different from the climate at home,
- entertainment,
- food when the college cafeteria is closed,
- fraternity or sorority fees if they are pledging,
- laundry,
- parking fees,
- summer storage for their college furniture and other goods when they are home on summer break
Final Thoughts
Choosing a college can be exciting, but make sure your child isn’t swayed by the college’s slick advertising. More importantly, consider the many financial pitfalls when choosing a college. Investigate the college’s retention and graduation rates. Understand your financial aid package, especially if the scholarships that your child receives are renewable or one-time scholarships. Don’t forget to also account for living expenses. If you consider all of these variables, you will be more financially prepared for what is to come in the next four (or six!) years your child is a college student.
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