When families think of their financial award letters, it is often never in the context of the college major or career requirements. Families typically make college comparisons based on the line items of their child’s merit scholarship, financial grants, and amount of student loans. If you have read any of my blog articles, you know that I believe that the outcome of the college decision is paramount to getting college value. This is why the career requirements and the financial aid award letter analysis should be discussed as you make your college decision. Many students do not visualize the financial outcome and the college value unless you have this goal identified at the beginning of the process.
There is another reason why I mention career requirements and the award letter analysis in the same sentence. Today, there are over 44 million borrowers that owe over $1.4 trillion in student loan debt. I do not see this number going down and more families today will need to supplement the cost of paying for college with some sort of student loan. Engaging the student in their projected debt in relation to their future career and financial future is so important. Due to the lack of transparency in student loan repayment, borrowers are unable to visualize the complexity of their future financial responsibilities.
As part of the college decision, the academic strength of the college should include the career or major the student is considering as a career. This process needs to include selecting a major and a possible career. I suggest discussing the anticipated earnings upon graduation and the amount of education needed to attain that career.
This may seem harsh but the reality of the situation is that at some point the loans need to be paid back. Finding the salary of the anticipated major helps the student get an idea of what their life style may look like after graduation. For the student loan borrower, now is also the time to review and estimate the amount of student loans that will be needed over the next four years and longer if graduate school is a consideration.
Once the student has a rough estimate of their future salary, a quick calculation can be made to see if the anticipated salary will support the student loan payments on their projected debt. Students often do not understand that their student loans have interest that will be added back into their loan total while they are attending college.
For students, I like to show the salary, net pay, projected student loan debt and other personal living expenses. I believe that understanding the cost of college and the debt that will be theirs at graduation with actual numbers is very impactful for most young adults.
For the student who has not yet committed to a defined major, now is the time to do their homework. I understand it is difficult for most 18 year olds to pick a major and career as a freshman. Now is the time for exploration but they need to remember that college is not free.
It is important to use the resources around them, such as the college career centers, family networks and other discovery methods available at college. Have them involved in researching careers and talking to professionals about their interests. Delaying the career decision can increase the amount of college time and the cost associated with it. This delay incurs another significant opportunity cost that is rarely discussed, earning a salary. If you add the additional college cost plus the lost salary, this delay could easily exceed $60,000. Career exploration is not cheap.
In the beginning of the blog, I wrote about understanding the outcome of the college education. For many students, their college education will not end with their undergraduate degree due to the career path they select. More careers are requiring post-graduate or additional education. This cost needs to be part of the college decision. The sooner you can determine the career, the sooner you can plan for the amount of education needed and what it will cost.
I am seeing more mistakes in this area over the past few years. Many parents grew up in a time when a college degree was all that was needed to get a good job. This is still true but there are also many new careers that require post-graduate studies. Too often I see parents paying for a higher priced undergraduate degree and burden their child with graduate school debt. In most cases, it is unintentional but many parents do not realize this change and overlook the financial consequence to their child.
Reviewing the Financial Award Letter
Of course, families will need to review their award letters on academic, financial and environment fit. EFC PLUS will be having a webinar in March 21, 2018 to help families review the line items of their award letter. The webinar will also highlight the award letter appeal process and payment options. Click here to register for this webinar.
Over the past few years, I have written various article to help parents and student review their financial aid award letters. Here are some links to those articles that you may find very helpful.
Paying for College: 10 Ways to Avoid Excessive Debt
As students and parents make this important college decisions try to have the student envision a life as a young productive adult with the income that will support their desired life style.
Think of the college decision similar to a home purchase. Just image that you have the down payment and move in but shortly after you move into your dream home you realize you can’t stay because you can’t afford the mortgage, taxes, and utilities. How disappointing that would be. Don’t let this happen to you with your college decision. Doing a four-year analysis will give you the information to plan and pay for college with no surprises.