COLLEGE SAVINGS 101

Savingforcollege.com

Curing financial-aid dependence
http://www.savingforcollege.com/articles/curing-financial-aid-dependence

Updated: 2014-04-29

by Joseph Hurley

Our advice to parents is this: Start saving for college now so you'll be able to afford the school that's best for your child—not necessarily the college that offers the best financial aid package.

Of course, for many college-bound families, the financial aid package is a critical determinant. They will compare the "net price" (sticker price less grant aid) of different colleges when deciding which school to attend.

From a purely economic viewpoint, this may not be the best approach. Higher-cost colleges may in fact lead to higher income after graduation. Each year, Payscale.com issues a report ranking colleges based on their return on investment (ROI). By looking down the list, it's easy to see how paying the freight at higher-cost colleges can provide handsome rewards in the future.

Certainly, the ROI is even higher if your child can score some grant aid at those high-cost colleges. But an applicant who depends on grant aid may have a lower chance of even getting accepted for enrollment at the desired school. A recent article on Forbes.com titled "Does Applying for Financial Aid Hurt Your College Admissions Chances?" underscores this point.

Some parents will use the ROI data to justify their decisions to take on more debt in getting their children into the right colleges. But debt creates its own set of problems, especially for students who enter careers that do not offer high financial rewards. Debt is also a much more expensive way to pay for college as compared to savings. Take a look at our 529 Savings vs. Loans Calculator to understand why.

For most families, 529 plans are the best way to accumulate a sizable pool of college savings. So get started now. And if you have already started, try to save even more.

Our advice to parents is this: Start saving for college now so you'll be able to afford the school that's best for your child—not necessarily the college that offers the best financial aid package.

Of course, for many college-bound families, the financial aid package is a critical determinant. They will compare the "net price" (sticker price less grant aid) of different colleges when deciding which school to attend.

From a purely economic viewpoint, this may not be the best approach. Higher-cost colleges may in fact lead to higher income after graduation. Each year, Payscale.com issues a report ranking colleges based on their return on investment (ROI). By looking down the list, it's easy to see how paying the freight at higher-cost colleges can provide handsome rewards in the future.

Certainly, the ROI is even higher if your child can score some grant aid at those high-cost colleges. But an applicant who depends on grant aid may have a lower chance of even getting accepted for enrollment at the desired school. A recent article on Forbes.com titled "Does Applying for Financial Aid Hurt Your College Admissions Chances?" underscores this point.

Some parents will use the ROI data to justify their decisions to take on more debt in getting their children into the right colleges. But debt creates its own set of problems, especially for students who enter careers that do not offer high financial rewards. Debt is also a much more expensive way to pay for college as compared to savings. Take a look at our 529 Savings vs. Loans Calculator to understand why.

For most families, 529 plans are the best way to accumulate a sizable pool of college savings. So get started now. And if you have already started, try to save even more.

 

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