How to Plan and Ahead and Pay Less for College

We get asked every day by middle and upper-middle income parents if there is anything they can do to pay less for college. The problem for these families is that they don’t expect to see much in the way of financial aid but they will definitely be challenged by the high cost of college. If they have more than one child to educate - oh boy - their concerns multiply.   

The short answer is to start thinking strategically about your funding plans when your child is still 1-4 years from going to college - 9th grade is optimal; 10th grade acceptable; 11th grade is 911! 

Parents should ask themselves these questions: 

• How much can we comfortably afford?
• Have we saved enough for all our children?
• Will my child’s college choices be limited by cost?
• Which of our financial resources should we draw upon?

It’s OK if you don’t have all the answers just yet, but delaying the conversation could cost you tens of thousands of dollars. 

The full retail cost of attendance for a four-year undergraduate education currently runs between $80,000 to $320,000 or more. Most families have not saved that much or don’t have enough cash flow to cover it.  Many also believe that the Financial Aid system is for lower income families, so they don’t engage in the process at all. 

The reality is that the Financial Aid system is much larger and more inclusive than most families realize, even for those in the middle and upper-middle income ranges.

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Expected Family Contribution

When you submit your information during the financial aid process, the schools and government will determine the minimum amount they’ll expect you to pay out of pocket - this calculation is called your Expected Family Contribution (aka Student Aid Index). 

We have rarely met a middle or upper-middle income parent who got their EFC estimate and said, “No problem, this is what we can reasonably afford.” No, it’s usually more like, “ARE YOU KIDDING ME? This is ridiculous, why is it so high???”  

The reason is simple - for many middle and upper-middle income families, how they have their financial life organized can artificially inflate their EFCs. It is critical for parents to review their profile in the years before their child applies to college and mitigate any red flags inadvertently elevating their Expected Family Contribution calculations. When you give yourself the time to organize your finances - including how your income is derived, how your assets are configured, how your taxes are structured, etc - you put yourself in a position to be more favorably assessed. Your tax return offers the best analogy - you’ll pay more in taxes if you don’t take every legitimate deduction available to you, right?  

Timing is Key      

The tax year that will become your base-year for financial aid consideration is not last year’s, but the year before that. Referred to as your “prior-prior year,” it means that your tax return from the year your student is a sophomore or first-semester junior in high school will become the basis for future grants, scholarships and loan offers!  You have the power to impact that tax return but only if you start thinking strategically in advance. 

More To it Than Financial Aid

How you pay for college will impact how much you pay for college. When you use your resources in the most tax-advantaged, cost efficient way possible, you can potentially save yourself tens of thousands of dollars.  For example, let’s say you withdraw from your retirement account to help cover costs for freshman year.  When you submit financial aid forms for sophomore year, they’ll assess those funds as income which will reduce your aid eligibility. So now you’ve damaged your retirement and reduced your financial aid package. 

But when you learn to leverage your income and assets to maximize what’s available from the government and the colleges, it will reduce the amount you may have to borrow, which will save you mightily.   

College Generosity

Another big factor in maximizing your savings is to include good-fit schools likely to be generous with your student and family.  A generous school is one that can meet your family’s financial need with more grants and scholarships (free money) and that has the resources to provide merit aid to incentivize your student to accept their offer of admission.  A school is not considered generous if they fill your aid package with nothing but loan offers. Many families will miss the boat here because they’re deterred by the high price tag of private schools that might actually be very generous, making those institutions more affordable than expected.   

Bottom Line: How to Pay Less for College

For middle and upper middle income families with students heading to college in the next 1-4 years, now is the time to get your financial house in order. This will help you maximize your eligibility for grants, scholarships and financial aid, and set you on a path to paying for college in the most affordable way possible given your personal circumstances.