How to Make the Best Financial Decision When Choosing a College

Finances play a big role for students and their families when choosing a college or university—because it is expensive. Here is what you need to know to make a smart money decision when it comes to college applications and financial aid.

An image of a piggy bank on top of books.
Photo: Getty Images. Art: Jillian Sellers.

With National College Decision Day right around the corner on May 1, many high school seniors across the country are getting ready to make one of the biggest decisions of their young lives—which college they will attend for the next, oh, two to four (to much longer for some) years. But with the average cost of tuition being $9,687 for one year at an in-state public colleges and $35,087 for private universities, finances play a major role in many families' decision. A 2017 survey by EAB Enrollment found that cost was the biggest factor that students considered when choosing which college to go—40 percent of students who turned down their dream school cited cost as the reason.

BIPOC students, particularly those who are the first in their families to attend college, tend to have less access to resources when it comes to financial aid and college counseling. A 2008 Pell Institute study found that the average amount of unmet financial aid for first-generation college students was $6,000, with an average annual income of $12,000. A report by Lumina Foundation, an organization that advocates for equality in higher education, found that Black students are most likely to have unmet financial need no matter what type of institution they attend.

"No one told me these things," Chris Reynoso, a Los Angeles-based college counselor tells Parents. "All my students are students of color or first-gen students or students from low-income backgrounds. I'm able to say 'Hey, from one first-gen, low income student of color to another, these are some of the things that I would totally have done differently' and I think it makes a world of difference."

Deciding which college to go and navigating financial aid can be daunting. Planning early and having honest conversations as a family about the costs can help you make a decision that is the right fit both personally and financially. Here are some things to consider.

Figure out what the fixed vs. flexible costs will be

Reynoso says the first thing he likes to go over with his students when looking over their financial aid award letter is the fixed and flexible costs of college. "Let's really calculate the actual cost of college. So that you know exactly how much it's going to be, so that you can calculate exactly how much money you're going to need," says Reynoso. Fixed costs are the ones that can't be changed—usually this is tuition and fees. Room and board can be flexible because they depend on where you live. If you choose to live on campus with two or three roommates and choose a lower meal plan, it could save you a couple of thousand dollars on your total cost of attendance.

Award letters will also include some estimated personal costs, but since the college doesn't know how much you need to spend, these are also considered flexible. Books and supplies are part of this, and college textbooks can be expensive. Rent your books to save money or see if you can borrow them from someone—you probably won't use the books once you're done with the class. Transportation is also something to factor into total costs if you're looking at a school that is far from home; ie, if you are planning on having a car on campus, you will likely have to pay a parking fee.

Calculate how much 'free money' you're getting

Once you figure out how much a college is going to cost, it's time to look at how much money they are giving you in grants or scholarships—college counselors like to call this "free money" because you don't have to repay it. This includes the Pell Grant, which is given to those who show financial need. To apply for the Pell Grant, you have to submit a FAFSA form—which you have to fill out every year you're in college to continue receiving aid. The maximum award amount for the Pell Grant for the 2021-2022 school year is about $6,500, according to Federal Student Aid. Also, look for state-specific grants like the CalGrant, which determines your aid is based on your GPA, income, and household size.

And speaking of FAFSA, make sure you update it if you have experienced changes in income during the pandemic. "The last year has been a challenge for a lot of folks," Casey Near, executive director of counseling at Collegewise tells Parents." If things have significantly changed in your financial situation or health, then absolutely you should be filing an update to your FAFSA or reaching out directly to your financial aid officer to update your forms or situation." Near says people whose financial situations have changed drastically due to COVID will likely be the first group financial aid offices will be looking at when determining eligibility.

Lastly, don't forget about scholarships—find the right scholarship at the school you want to attend, or ones from large organizations like Coca Cola, the NCAA, and the NAACP.

Find out how much debt you will have

The balance from subtracting the free money you're getting from the total cost of attendance for the college will determine if you have to take loans. If you don't have a balance, then that's a great award package—but that rarely happens, says Reynoso.

If you do need to borrow money, know that in general, the federal government will offer eligible students about $5,500 in loans—$3,000 subsidized and $2,000 unsubsidized. These federal loans are only available to students who apply through FAFSA. Note that Reynoso urges students from high-income households to submit a FAFSA form regardless; even if you don't qualify for a grant or scholarship, federal loans will typically have a three to four percent interest rate, which is lower than rates for private loans.

When it comes to debt, choose wisely. Reynoso tells his students not to take on more than $5,000 in loans per year. "$20,000 total for a bachelor's degree is actually very manageable," says Reynoso. "Think about your income and where that money is going to go when you get a job. If you're in a ton of debt, a lot of your income is going to be spent on loan payments."

Near recommends not getting too caught up with how well-known a school is, and to focus on the cost instead. "We definitely have brand obsession," says Near. "We have the sense that a better brand equals better value. That often sends people into a lot of debt."

Appeal your financial aid package

Sometimes you get into your dream school, and the financial aid package is just not working out. You can appeal for more aid, but this process may take some time, and it doesn't mean you will get more money. You might be put in a situation where you have to commit to the school without knowing if you will get more aid, or choose a different school.

"At the end of the day, if the school accepted you, and you are able to explain to them that it is a dream school, they might be able to pull out some additional funding," says Reynoso. For example, the school might have additional money from students who got offered scholarships and ended up choosing another school.

Choose a school that is financially sustainable

Don't forget that financial aid and the cost of attendance are per year. "So make a decision that is financially suitable for the next four years," says Reynoso. When you and your family are looking at colleges, keep finances as one of the top priorities, and see where you can cut costs. "If you can go to school for a lower cost and you still go to a school that you really want to go to, take that option," says Reynoso. If living at home and commuting to college is an option, it can save you a big chunk of money—room and board fees can range from $10,000 to $20,000 a year.

College is a big decision, but Near says it's important to keep in mind that it's not all about which school you go to—it's about what you do when you get there. Of course it's important to choose a school that fits your personal and academic needs and goals—but going somewhere that is a wise investment of your money and won't bury you under a mountain of debt will leave you with financial security that will last long after you earn your degree.

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