How to Have "The Talk" About Financial Aid

A change is coming, and you're starting to see the signs. College brochures are showing up in the mail. You're getting emails from the school counselor about admission officer visits. Your child may even be planning to take the PSAT or PreACT.

How to Have the Talk about Financial Aid

It's time to have "the talk" with your child…about financial aid and paying for college. Parents need to have this conversation during their sophomore or junior year. But if you've put it off until senior year, that's okay. As you're filling out financial aid forms, there is no time like now to discuss who is paying for college. The guide below will give you a framework for a conversation with your child. It will help you set expectations and make realistic college choices.

Look at your finances.

Before you talk with your child, you need to assess your finances and do some forecasting. Examine your cash flow in the coming years and take stock of any investments or college savings you may have. Can you realistically pay for your child's education? Perhaps you can pay $10,000 a year. Or maybe you can cover textbooks and student fees. You may find that you can't contribute at all.

Utilize Student Aid Index (SAI) and college cost calculators.

Before you tell your child what you can realistically afford to pay for their education, sit down and talk about college choices. Ask them about schools they're interested in. Many colleges host a net price calculator on their website. This calculator allows you to input your own data points and provides an estimate of merit scholarships and financial aid that you will receive. From there, you can see how much an education at that particular college will cost. Keep in mind these numbers are just estimates. You can also use an federal student aid estimator to help estimate the student and the family's contribution towards the cost of attending college for an academic year. This will give you an idea of the Free Application for Federal Student Aid (FAFSA) results for your student and financial situation.

Maximize financial aid eligibility.

There are strategies that families can employ to receive more financial aid potentially. It should be noted here that these are not tips and tricks for dishonestly reporting assets on the FAFSA or other supplemental financial aid forms. Rather, they're helpful strategies for minimizing cash on hand. For instance, if you plan on making a big purchase, like a car or boat, do so during your child's sophomore year of high school. The FAFSA, the most important application for financial aid, looks at the prior- prior year's financial information. Having less cash on hand will make you appear "more needy." If you're looking for more tips to maximize financial aid eligibility, you'll find them on Finaid.

Set a college cost budget for your family.

Now that you've established how much you can contribute, how much colleges cost, and whether you may receive financial aid, it's time to set a realistic college budget. The most logical way to do this is to place colleges of interest into three categories: Reach, Target, and Safety.

Reach School

A reach school is one that is a stretch, both academically and financially. Your child may fall on the lower end of their admit pool, meaning their GPA, class rank, and test scores are lower than the average admit at the school. It would also be a stretch financially for your child.

Target School

A target school is one that is a perfect fit academically and financially. Your child has the grades to get in, and with merit scholarships and a financial aid package, it works for your family financially as well.

Safety School

Finally, a safety school is one that your child will undoubtedly gain admission to and will be easy to pay for with the resources you have as a family. This may be your local university that has a dual enrollment program with your high school, or a community college.

Explore ways to pay for college.

Once you and your child have discussed college costs and made a list of reach, target, and safety schools, it's time to lay out how you will pay those tuition bills. Below are multiple ways to pay for college:

1. Scholarships and Grants – Free money that does not have to be paid back.
2. Financial Aid – Distributed by the government and colleges and comes in the form of grants, work-study, or student loans.
3. Private Student Loans – Money that you must pay back after graduation.
4. College Savings – Any money saved before or while the student is enrolled in college.
5. Part-Time Jobs and Internships – Money received from paychecks can help cover tuition costs.
6. Education Tax Benefits – Credits received for being enrolled in college.