College Commitment Day is May 1 — the day on which students and their parents must decide not only on which college to attend but which college they can afford! No longer do students wait for an acceptance package in the mail, along with details of financial aid offers. Now almost all of that information is posted securely online at the college's admissions portal.
The excitement is in being accepted. The reality check comes in figuring out the total cost of attending. Some financial aid is expected by most families that qualify after filling out the FAFSA form and receiving feedback about their Expected Family Contribution. But a school may offer additional benefits, such as work/study programs offering money that does not have to be repaid. And the school may offer additional scholarships or benefits.
So the first step is to compare the real , out-of-pocket costs of attending that school, including books, fees and even travel expenses. Sometimes a more expensive school will offer a package of aid that makes the total cost to the family less than your state university. But you won't know until you actually compare the numbers.
If you're staggered by the magnitude of this decision, which will impact your finances for the next 15 years of both college and repayment, you might want to read this advice from the government's student aid website: http://studentaid.ed.gov/fafsa/next-steps/accept-aid. It will walk you through the process — and the consequences — of each type of aid that might be offered.
There are several websites that make the task easier. Notably, the Consumer Financial Protection Bureau has a tool on its website that not only compares average financial aid at universities but lets you input numbers from the aid packages offered by three different schools, to make for an easy comparison. Go to http://www.consumerfinance.gov/paying-for-college/ to get started.
Perhaps the easiest financial aid comparison tool can be found at Finaid.org, the well-known website hosted by financial aid expert Mark Kantrowitz. The site offers an "Award Letter Comparison Tool," which lets you take the actual offers from three schools and see how much each will really cost you (the net real cost), and how much more you might have to borrow. The Finaid calculator can be found at: http://www.finaid.org/calculators/awardletter.phtml.
Of course, part of figuring out the additional amount each school will cost, above and beyond the aid package, is getting a realistic look at all the costs of attending the school. That can require some work on your part. Don't be afraid to contact the school to make sure there aren't any "hidden" costs, and be sure to include your own travel as part of the comparison plan.
Getting Help from a Professional
Jodi Okun, founder of College Financial Aid Advisors, is a former financial aid officer at a university, and she provides a range of services to college-bound students and their families. One of the most useful is a personal hand-holding process of evaluating and comparing financial aid offers. Her standard fee of $750 covers a lot of work, and while it may seem expensive, her advice could save big money over the long run.
Okun is also a paid spokesperson for Discover Financial Services, one of the three largest private financial aid lenders. And she has strong thoughts on the debt burden that both students and parents often take on without considering the ultimate financial costs and consequences.
Says Okun: "An education is necessary to compete in today's career market, but you must be a responsible borrower, manage your expenses and ask questions before taking on the burden of student loans."
She notes that of the more than $1 trillion in outstanding student loans today (taken out by 37 million borrowers and 8 million co-borrowers), the private student loan market represents just under 10 percent of the loans outstanding. But layering on these loans on top of Federal student aid can prove quite a burden.
Parents' private savings can be used to fill the gap between the school financial aid package and total costs. But more frequently, parents are taking money from retirement funds or co-signing private loans to fill the gap. Those private loans may have higher interest rates, fewer repayment options for those who are burdened with loans after graduation and require a co-signer as well as a credit check to approve the loan.
In the rush to "fill the gap," Okun fears that many borrowers — both students and their parents — don't appropriately consider the repayment costs. She urges parents to "just say no" if they can't afford to take on the burden of debt, something I have also been advising for years. But in the excitement of being accepted to a prestigious school, it can be difficult to keep emotions under control.
The three largest private student lenders are: Sallie Mae, Wells Fargo and Discover Bank. If you want to learn more about the differences between the government's student loans and those made by private lenders, there's a good chart on Discover's website at: https://www.discover.com/student-loans/compare-undergraduate-loans.html.
So as you rush toward the May 1 deadline for committing to the college of your dreams, make sure that dream doesn't turn into a financial nightmare. Use these resources to make smart financial decisions. And then when you get into college, be sure to pick a major course of study that is likely to land you a good-paying job so you can get out from under the burden of student loan debt as quickly as possible.
An education isn't guaranteed to pay you back, but you are promising to repay your loans, no matter what your financial circumstances. And that's The Savage Truth.
Terry Savage is a registered investment adviser and is on the board of the Chicago Mercantile Exchange. She appears weekly on WMAQ-Channel 5's 4:30 p.m. newscast, and can be reached at www.terrysavage.com. She is the author of the new book, "The New Savage Number: How Much Money Do You Really Need to Retire?" "Terry answers readers' personal finance questions on her blog at www.TerrySavage.com. To find out more about Terry Savage and read her past columns, visit the Creators Syndicate Web page at www.creators.com.