Lesson #2: College Affordability: Creating a College Cost Ceiling

How to avoid getting pressured in making bad college choices and avoid financial decisions that aren't in your best interest.

  • College Cost Ceiling
    College Cost Ceiling

    College will probably be your second largest expense in your lifetime other than purchasing a house. Let’s think of how most people go through the process of purchasing a house. The first step usually is to determine how much of a house you can afford to buy. A bank will ask you to gather up all your financial records of assets and liabilities. They will also review your credit report as well. They will use these numbers determine your net worth, cash flow, debt ratios etc…so they can determine the maximum mortgage you will be able to afford. Once you get preapproved for a mortgage, you now know your maximum purchase price.

    This is a step most families do not do when it comes to college planning. Most families start by going to the computer to do a college search. On these various computer programs, a family can narrow down their college search using preferences such as location, size, major, extracurriculars, etc… Are you noticing something they are missing in this search? Yes, the price! You need to know how much a family can afford to pay for college on a yearly basis before moving on to any other search criteria.

    Sure, these programs list the cost of attendance or “sticker price” of a college. These are just the advertised prices, and not the actual cost a student might pay if they did attend. These programs do not take into account grants, scholarships, tuition discounts, and loans that will ultimately tell you the net price to attend college. Much like purchasing a house, a car, or even a prom dress the first step is to determine our college budget or “College Cost Ceiling.”

  • Cash Flow Is King: Financial Leaks and Opportunity Cost
    Cash Flow Is King: Financial Leaks and Opportunity Cost

    Increasing cash flow during the college years is essential to helping parents pay for or save for college. Most parents want to know how they can achieve higher rates of return on their college saving investments. Most parents want to know where they can get products that achieve higher rates of return and superior performance on their current college savings investment, which can lead to more risks.

    Since expenses will go up considerably while a child is in college, focusing on avoiding unnecessary fees and expenses is essential to a good plan to pay for college. Parents will multiply their returns and increase cash flow if they concentrate on eliminating these fees and avoiding areas that erode their college savings.

  • Quit smoking: One pack costing $5 a pack, and you smoke a pack a day, seven days a week. That is $1,825 that can be used to pay for college.
  • Vacations: The Travel Industry Association estimates the avg. family spends $2,200 per year on leisure travel. This is a lot of money that can be used toward college.
  • Keep Cars Longer: The avg. car payment is $384 per month. If you do not have to make a car payment the four years your child is in college, you could pay $18,432 towards their college education.
  • Lattes, energy drinks, vitaminwater, soda, movie tickets, eating out for lunch etc...: If you just eliminate $7 dollars a day, that is $2,555 a year for college.
  • Second Job or Increase Hours: If you increase your take home pay by $250 a month while your child is in high school, you will have $12,000 saved for college.
  • Student Works: Student can work hard on weekends, holidays, and during the summer months they are not in college. Students can work less during the school year (15 hrs). A student can average 20 hrs per week easily. Using an average of $9 a week (after taxes) this equals to $9,360.

Takeaways from the video lesson….

College search software programs are great, but do not start without considering how much you can afford.

Understanding how much you can afford and where will you get the money to pay for college before starting your college search is very important.

Share and discuss the results with your student.

Discuss how student excessive student loan debt can negatively affect the rest of the student's life.

Do not get emotionally attached to one school.

Choose the right colleges and avoid excessive debt.

 

 

 

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Great job! After watching this video lesson, you are on your way to "college planning mastery."  You have completed 35% of your training to become a "college planning master."

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