Paying for college has only gotten more expensive. Only 40-odd years ago, students paid for college tuition by working summer jobs. Sure, they would have rather enjoyed relaxing or traveling, but it was a fair exchange for a college degree. But in the last 20 years, the cost of college has gone up four times faster than inflation. That means most people in the US simply cannot save enough to fully pay for college.
How can people afford higher education? Roman Polanr, Founder of Pillar6 Advisors, has some insights on how parents can pay for college and avoid debt. Roman's goal is to make sure that you never pay the sticker price for college education. Just like my love for expensive shoes doesn't mean I pay full price for them, neither should parents be paying astronomical tuition costs. "The first thing that I would tell people is: understand the difference between saving for college and saving on college," says Roman.
Loans - for students and parents - won't help you save. Student loan debt has become a beast of mythic proportions in the US, with the total now exceeding $1.75 trillion. People owe more for student loans than they do on cars, credit cards, and everything else.
"It is an absolute epidemic," Roman says.
Instead of loans, Roman recommends financial aid. And there's a lot available. In fact, every year, more than $2 billion of financial aid goes unclaimed. But many families don't even realize they're eligible. In 2021, 44% of people that could have received financial aid never applied because they didn't think they qualified. Families of all income levels are leaving money on the table.
There are different kinds of financial aid too, so you need to plan your path. Think of this as a journey in your car. You want to avoid speedtraps, but you don't want to waste time on side streets and traffic lights, either.
If you figure out your financial aid profile when your kids are starting high school, you can plan your roadmap and take the most reliable route to your destination. Even middle income and high income families can find money to pay for college.
There are different financial aid systems: Need-based financial aid; merit-based financial aid; private scholarships; and tax credits and savings. Not every option works for every family. You need to know where you're starting from and where you're going so you choose the best system, or route, for your situation.
A high-income business owner won't qualify for needs-based aid, but they can hire their child as an employee. This shifts their income to a lower tax bracket and accumulates money under the student's name, which can pay for college. If they pay 51% or more, they may qualify for IRS tax credits like the American Opportunity Tax Credit. That's like a $10,000 tax scholarship for their education.
But this isn't the route for a low- or mid-income family. If that student works for the family business, the money they earn will disqualify them from traditional financial aid they could have received. So, know your financial aid profile before you start.
Another important tip from Roman: keep your kid out of the driver's seat when choosing a college. "When kids pick colleges, they're thinking, Where are my friends going? Do I want to be in the big city or by the beach? Do I want a big college experience or small? What do I want to study? All good things! But how many of them are asking, How much is this going to cost us?"
Parents should work with their kids to choose colleges. If your children understand how financial aid works and which route will yield the most money for your family, they'll choose better fit colleges for them and for you.
Here are Roman's four steps to saving ON college:
- Start early. Don't wait to think about financial aid options until their senior year. In fact, colleges use the income from two years prior to determine your eligibility for financial aid.
- Know your income, your assets, and your plan. Know your financial aid profile and target your efforts at the system that will work for you.
- Work with your children. Don't let your student become emotionally attached to a college you can't afford, when a perfect fit school is out there and willing to give you aid.
- Always negotiate. Your financial aid offer is just the first offer. It's not the final offer and it's almost never the best. This is where the financial aid appeal comes in.
"Do you know how many colleges - especially private ones - can simply discount tuition because they want your kid to go there? Many. But they won't offer it up front."
Don't be afraid that an appeal will hurt your child's acceptance. Once your student is in, they're in. So, you can and should appeal the offer you get, even more than once.
The cost of a college education should not dominate our lives. With planning, preparation, and the proper roadmap, you can find your way to an affordable destination.