The biggest college planning mistake parents make

http://www.savingforcollege.com/articles/the-biggest-college-planning-mistake-parents-make-850

High school students planning for college have their work cut out for them. Between filling out applications, writing essays and looking for financial aid and scholarships, it's no wonder so many seek help from their parents. Yet while most parents are more than willing to provide advice, many have an outdated perspective on the value of a college degree.

Aaron Greene, founder of CollegeLiftoff, a firm that helps families create an academic and financial plan to for higher education, believes parents who view the college planning process the same as it was when they were students are "looking through the wrong lenses". Back in the eighties and nineties, students often went to college just for the experience of going to college, and not much thought was put into what they would get out of it.

But today, the costs of college have gotten so high that this old way of thinking just doesn't make sense anymore. In fact, since 1980, the average annual increase in college tuition grew 260%, compared an increase of only 120% for the price of all other consumer goods. These higher prices are also outpacing income levels, leaving Americans with over $1.2 trillion in outstanding student loan debt.

According to Greene, parents are often convinced that there's only one path to success, but he helps them understand why this just isn't true. In fact, he says the market is "oversaturated with bachelor's degrees", so students should be very careful when considering their major and expected income relative to the price of the school.

His company helps families develop real parameters to "buying" a college education.

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"College needs to be treated like any other investment," says Greene. "You wouldn't invest $80,000-$200,000 in a stock without first consulting a professional. Especially if that stock wasn't growing – so why spend that much on an education that's not likely to pay off?"

To make logical decisions on how to approach college, parents need to ask the following three questions:

How much debt should parents and students take on?

The hike in tuition prices caught many parents off guard, and so when it came time to send their children to college, they were left wondering how they would cover the costs. A recent study from Fidelity shows that only 58% of parents in 2007 were saving for college. As a result, families too often resort to borrowing to close the savings gap. In fact, the class of 2015 is the most indebted in history, with an average student loan balance of just over $35,000.

The folks at College Liftoff recommend students borrow no more than half of their expected annual starting salary, so that means the average graduate should be earning around $70,000 per year. Unfortunately the actual starting salary for recent grads is much lower – closer to $45,000.

What is your degree really worth?

High school students should start to think about a career path as early as sophomore year. A recommendation from College Liftoff is made based on interviews and conversations intended to bring out the student's passions and how they can apply them in the work world. They provide guidance, but allow the student to lead the discussion. They might have a dream school in mind, but after finding out costs and average indebtedness of graduates they usually want to explore other options.

When selecting a college, families need to make a logical financial decision that is largely based on the student's estimated starting salary. College Liftoff recommends that in addition to only borrowing up to one half of the starting salary, parents should only contribute twice the amount that is taken out in loans. So that means if a student expects to make $45,000 a year, they should borrow no than $22,500 and receive no more than $45,000 in parent contributions, paying no more than $67,000 for their degree. If the desired degree costs more, Greene and his team work to find scholarships and other forms of financial aid to bring costs down.

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Can you afford the school, and can the school afford you?

Another important part of school selection is researching the school's financials. This includes their financial aid giving history, average indebtedness of recent graduates, and average amounts of merit aid and help packages awarded. Students can do their own research with the federal government's College Scorecard, a new tool that provides information earnings data, debt, loan payment and completion metrics for thousands of colleges. However, while it can be helpful, the government's tool only contains data on students who received federal financial aid, and it has no information on any private loans that were taken out.

College Liftoff works with families to dig deeper. For example, they look at a school's endowment fund compared with the number of students enrolled, and the average amount of financial aid received per student. Their goal is to uncover anything and everything that can affect not only the tuition price, but also the student's expected ROI.

Hear more about what Aaron Greene and other industry experts have to say about paying for college on our College Savings Month Webcast recording.

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