So Many Choices (part IV): It’s Time to Have “The Talk” About Family Finances

There are over 4,000 colleges in the United States. In this article, we continue our series discussing how students and families narrow down the options to make choosing a college easier. Once a student has reasonable idea of their major or career pathway, a fantastic next step is to have the “The Talk” about how the family plans to pay for college.

Just like the “Birds and Bees,” talking about family finances can be awkward, embarrassing and/or overwhelming. But, it’s necessary.

Every family I deal with falls into one of four categories when it comes to paying for college –

  1. In some, the parents pay for everything.
  2. In others, the student pays for everything.
  3. A majority split the cost between the parents and the student.
  4. And many families feel really confused about it all and don’t know where to start or how to tell if they can afford college.

It’s important for you to know (and clearly communicate to your student) which category your family fits into. This is almost assuredly the largest purchase your student will have made which makes it critical that you model smart consumer behaviors. Some good news is I have two decades of experience having these conversations with families and they almost always go better than the parents had expected. I want your conversation to go just as well, so I have some tips to make it easier and more beneficial.

Take Inventory and Start the Conversation Early
The summer before high school is an amazing time to have the cost and finances conversation with your student. It sets a tone and helps you create the expectation for them to give their best in and outside the classroom. Before you dive in, it’s a good idea to get a sense of what your ability to contribute is likely to be in a few years:

Let’s make a list of these things now so we know what we’ve got while still have time to create a plan. Just as importantly, discuss the list with your student!

Focus on Net Price and Use Real-World Numbers
College pricing has become a lot like shopping at Kohl’s- the sticker price is rarely the price you pay, which makes things difficult. Fortunately, we have a simple car-buying analogy that will help your family get familiar with the biggest factors involved, the lingo, and how they affect your out-the-door (net) cost. Once you have a grasp of the concepts, do an internet search for ‘net price calculator’ and the names of a few colleges (nearby schools or that your student is interested are best). Then run the calculator to see how your income and their grades affect might lower the out-the-door cost. Even better, go through this process with a financial aid representative as you take your first college visits!

Put Debt Into Perspective
According to the U.S. Department of Education, over 50% of college students incur debt. Let’s be real, though, all debt is not created the same; using credit to buy basic transportation for work isn’t the same as using it to splurge on a fancy vacation. Similarly, a modest amount of student loans which enable your student land a lucrative career are very different than loans for a dead-end degree or living in campus luxury.
It’s also important to note that dependent students get total federal loan eligibility of $27,000 over 4 years. For a fifth year and beyond, an additional $7,500/year is available, up to the limit of $57,500 for a bachelor’s degree. At many schools, this is not enough to cover the net cost and other options must be employed.

Discuss What Is Driving Costs and Reasonable Steps to Mitigate Them
As I discuss at length here, housing, meals, and travel are significant drivers of cost and may be optional. Talk to your student about the costs of attending an out-of-state school versus one they can commute to. Revisit the net price calculator projections and divide up just how expensive the meal plans are- at my most recent college, it’s currently $220/week for meals in the main cafeteria! Some great options for reducing college costs are:

Set the Right Tone for Having a Difficult Conversation
A few years ago, I read a great article from Joel Garfinkle in Harvard Business Review about “How to Have Difficult Conversations When You Don’t Like Conflict.” In it he gives some great advice which I’ll outline (full article):

  • Begin from a place of curiosity and respect, and stop worrying about being liked. Even when the subject matter is difficult, conversations can remain mutually supportive. Respect the other person’s point of view, and expect them to respect yours.
  • Focus on what you’re hearing, not what you’re saying. You don’t actually need to talk that much during a difficult conversation. Instead, focus on listening, reflecting, and observing. 
  • Be direct. Address uncomfortable situations head-on by getting right to the point. Talking with people honestly and with respect creates mutually rewarding relationships, even when conversations are difficult.
  • Don’t put it off. How often is your response to conflict something like, ‘I don’t want to talk about it’ …or ‘It’s not that big a deal?’ If you’re always promising yourself that you’ll ‘bring it up later,’ well, now’s the time.
  • Expect a positive outcome. You’ll struggle to follow this advice if you continue to go into a conflict telling yourself, ‘This is going to be a disaster.’ Instead, tell yourself, ‘This will result in an improved relationship.’”

Conclusion
For many, it isn’t easy to talk about money- especially telling our kids we can’t afford something they want. My experience says it’s more effective to talk to your child candy being off-limits outside the store than in the middle of a tantrum at the checkout. And it’s a lot more effective to talk to them about cost before they fall in love with a college than after. I’ve watched parents liquidate their retirement, take out second mortgages and cosign on Parent Plus Loans just to avoid breaking their kids’ hearts. My sincere wish is for you to avoid that agony and use these tips to build a strong financial relationship and a strong list of potential colleges all with your student, all at the same time.

As always, CCA is here to help facilitate these discussions and answer any other questions you have about college!

Keep Reading:
So Many Choices (part V): 40+ Questions to Ask on Your Next College Visit

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