Personal Finance

Return to Article

Choosing a College That's Financially Right

Terry Savage

Families of high school seniors will have some serious discussion about money in the coming weeks.

For wealthy families, the discussion will revolve around allowances and cars. For lower income families, the discussion will revolve around filling out the dreaded FAFSA form -- the "free application for federal student aid." But for many middle class families, the discussion should revolve around which college the family can afford. And in many ways, that's the most difficult discussion of all.

That point was brought home to me recently in an email I received from the father of a high school senior. His child, he explained, is an excellent student and has applied to some top colleges to pursue his chosen career path. The family has saved some money, but not enough to pay for the outstanding colleges their son has chosen. And they have too much in the way of assets to qualify for need-based federal financial aid. So they're considering alternatives.

Among the possibilities: a home equity loan, on which the interest would be tax-deductible; a "PLUS" loan, which is made to parents of college students and isn't based on need; or a withdrawal from the parents' IRAs.

All have drawbacks. A home equity loan typically has a floating interest rate, and could quickly become very expensive. A PLUS loan is given directly to parents by private lenders, and there are no federal forms to fill out. But with most PLUS loans, repayment must start immediately. Borrowing or withdrawing from a retirement plan could severely affect the parents' own retirement, as well as cost penalties and interest.

And then I raised the real issue with the father -- an issue that many middle class parents simply ignore: What if you tell your child you simply can't afford the more expensive college?

Sure, you should search for help, and I have suggestions on where to look. But in this era where we all want everything now, I'm suggesting that it might be possible to get just as good an education at a less expensive school.

For many families, that is a shocking thought -- especially when they've spent many years trying to give their children a better start than they had. But where is it guaranteed that a "better" school ensures a better, or more successful, life?

I asked the father to round up the cost for the two schools at the top of his son's list -- and for the state university, which happens to have an excellent reputation and gives quite a discount to home-state residents.

Here's what the cost comparison looks like for the two schools best known for turning out grads in this chosen discipline, and a look at the cost of the state school which doesn't specifically offer a major in this field:

Multiply these costs by the four years of college, and add a small factor for inflation. Suddenly the numbers, even at the least expensive, but still excellent, state school, are staggering. Then multiply by the number of children in the family.

If you want to learn more about college loans and financial aid, I suggest you go to FinAid.com or the College Board, where you can learn just about everything you'll need to understand college costs, and the possibilities of getting the money to pay for your child's education. You can use the calculators, and even be connected to the scholarship search offered by FastWeb, one of many sites that can raise hopes of finding "free" money.

But eventually, you'll have to face the realities. Students who take out loans to pay for their education will start out mortgaged to the hilt, even before they begin their careers. Parents who go into debt to pay these costs may find they have no possibility of retirement. And those graduates aren't likely to offer help for aging parents.

So, maybe it's time to ask the real question: Is it worth it?

Certainly, a college education is not only worth the expense, but is an absolute necessity in this new century. But, is it worth it to pay top dollar for the most prestigious college? That's the real question parents -- and students -- should be asking. And when enough people say no, then maybe those institutions will learn one of the basic lessons of capitalism: In a free market, competition lowers prices. That's The Savage Truth.