Financial Fit For College

Everyone talks about colleges’ academic and the social environment — but what about the financial piece of the puzzle? To us, financial fit weighs just as heavily as the academic and social fit.

Most students and their families can’t pay for the sticker price for just any college. As a result, determining college affordability is a key aspect for assessing the financial fit.  But how do you do that?  Here is our 3-step process to assess college affordability.

Step 1:  Understand Your Net Price

Paying for college — like other major purchases (think car or house) — has a sticker price, but most people tend to pay the net price. For college, the sticker price is the fully loaded price or cost of attendance — tuition, fees, room and board, books and supplies and other miscellaneous expenses. The college net price subtracts all the gift aid — that is free money from merit scholarships and need-based grants.

For students and families that are kicking the tires for college, the federal government created a requirement that every college has a net price calculator (NPC) available. The problem is that some NPCs vary in their level of sophistication and accuracy because there is not a common standard of requirements. The more sophisticated NPCs will take you through almost the entire admissions and financial questions. They will assess your qualifications to receive their merit and need-based aid. This means be prepared to take 30-60 minutes to complete the NPC.  Other NPCs ask less questions to get you quick answers. These NPCs give you more directional information on how much the average net price is for broader categories of students.

For students who already have aid offers from colleges and universities, calculating your net price is specific and personal. Every college is required to disclose the cost of attendance.  Then, it’s just a matter of subtracting all the gift aid.

Whether you are exploring specific colleges to narrow down your application list or you are assessing aid offers, North Shore Bank makes it easy to understand college net price with our College Cost Estimator.  We only ask a few questions like the name of the college and the start year to display the average net price or income-based net price.  If you have an aid offer, you can input your cost of attendance details as well as all your gift aid, to calculate your personal net price.

Step 2: How Far Will Your Financial Resources Stretch

Many students and families plan to use savings and cash from income to help pay for college.  When it comes to college savings, some parents start saving for college at their child’s birth by setting aside money regularly in a college savings account like a 529 plan. For others, students have their own savings account with its primary goal of saving for college.
When it comes to income, some parents re-allocate some of their cost of raising their child to college costs once the child is enrolled. The USDA estimates the average teenager costs $1,093 a month to raise. Although 26-33% of this monthly amount is calculated for housing, it should mean that some of that $732-809 cash could be used to pay college costs.

Students also plan to use their cash from wages to pay for college costs.  Georgetown University Center on Education and the Workforce reported that 70 percent of full-time college students are working. Many students work part-time jobs or work-study. Typically, students use wages to pay for needs like indirect costs like books, transportation and miscellaneous expenses.

Our College-Cost-Estimator asks students and their families about their cash and savings to help determine how far it will stretch over 4 years of college. This helps them see the power of paying now and reducing borrowing needs.

Step 3: Assess Your Financing Options and Their Costs

Taking out loans to pay for college is the reality for 70% of students who receive a bachelor's degree (source Urban Institute). According to a study by Fidelity,  81% of parents don’t want their children to be heavily burdened with student loans. So if loans are a part of the college equation, it’s best to know your options and the financing costs and borrow only what is needed.

Both the federal government and private sector offer loans to help pay for college. Federal student loans tend to use the one-size-fits-all approach and private loans offer customized pricing based on creditworthiness. The Federal Direct Loan Program offers fixed rate loans for students and their parents. Plus, they offer amazing features like deferment, forbearance, forgiveness, and cancellation options. Private Student Loans and Private Parent Loans offer the lowest financing options for borrowers with strong to excellent credit. Ensure you know the difference between federal and private student loan options.

Some parents want to use their home's equity to pay for college — taking out a home equity line of credit (HELOC). HELOCs let homeowners borrow against their home with a credit line over the course of several years, called the draw period. Many families who use this option to schedule the release of HELOC funds just in time to cover each semester’s payment. Most often HELOCs only require interest-only payments during this draw period.

North Shore Bank wants to help students and their families evaluate their best financing options. That is why we’ve made it easy with detailed financing options side-by-side ​in one place to make the best financial decision. In just a few minutes using our College Cost Estimator, families can compare the costs of their eligible federal and private finance options (including home equity) and understand their aggregated monthly payments to ensure it fits in the family’s monthly budget — both during school and after graduation.

Putting It All Together

Once you know your net price and see how far your financial resources will stretch, you can then determine your financing needs and costs . Since most students consider more than one college, make certain to compare the financial fit of each school. Our College Cost Estimator simplifies the process and allows you to create a personalized plan based on your family’s unique financial circumstances.

College financial fit is just as important as academic and social fit. We encourage students and their families to be comfortable with how much they are paying while in college and after graduation.