The USDA estimates the cost to raise a child to be $233,610. While you wipe up the coffee you just spilled, think of this: for many families it’s as much as twice that amount, since that estimate only reflects expenses up to age 18. College is in addition to that.

Too often, the high cost of college is made even riskier by the failure to plan for it. Which is unfortunate because after all, no one should be surprised to find an 18-year-old high school senior who plans to attend college in their home. But a recent study by Sallie Mae on how families pay for college showed that less than half of families—only about two in five—planned how they would pay for college. Good news for students coming from those families: they enrolled in four-year colleges at higher rates than students whose families who didn’t plan for college, and they borrowed about 1/3 less than their counterparts in non-planning families.

Too many families see the goal of college planning as getting the student into the “best” college that they can. They focus on academic “reach” schools, adding an academic “safety” school into the mix only to be sure to get an acceptance or two. There’s a short-lived celebration if the student gets accepted to a reach school, with the celebration often tempered by receipt of a minimal, and often loan-heavy, financial aid package. With private school costs pushing into the $70,000-per-year range, if you’re not a Gates, you need to approach college planning differently.

Many parents believe that attending an elite school is a prerequisite for success in life, and that no price is too high to attend one of those schools. Plenty of data rebuts that notion. Which schools produced the most CEOs of the top 100 US companies? That honor goes to the University of Michigan and Texas A&M, with four each. Stanford tied with, among others, Michigan State, Penn State and University of North Carolina – Charlotte. What about academic achievement? This year’s Rhodes Scholars include students or graduates of Montana State University, the University of Georgia, and the University of South Carolina, among their elite private school counterparts. Graduate school? Harvard Business School’s class of 2015 admitted students from 264 undergraduate institutions including Arizona State University, North Carolina State University, and SUNY Binghamton. The point of this is of course not to criticize any of the schools mentioned but to illustrate that many, many schools do an outstanding job of educating and preparing students, just as “elite” schools do, and often at far lower cost.

When affordability is a factor, there are four primary areas of planning for college:

  • Saving. Throw out the notion that you should only save for college after you’ve maxed out retirement savings. If you expect to send a child to college, you need to save for college in parallel.
  • Cash flow. Get a sense for what you can afford to pay out of pocket each year for college, as well as what tax credits you’re likely to be eligible for.
  • Research. Find out what the schools your student is interested are likely to cost you. Find out what types of financial aid are offered—merit or need-based—and what you’re likely to be eligible for.
  • Academic preparation. Colleges want to attract good students, and they dole out more gift aid to good students than to anyone else, including good athletes. Being a good student involves having a high GPA, taking high school courses that are suitably rigorous for the desired school, and getting good test scores, relative to the population at the schools you’re interested in.

Savings and cash flow go hand in hand because they combine to determine what your family can afford. What’s affordable for you comes from several buckets:

Notice that scholarships are not on that list. Why? Because your starting point for college planning is what you can afford to pay, not what you hope to pay. In fact, when you develop a funnel of criteria for choosing a school, affordability should be the top-level screening criterium, above majors, big-versus-small, public-versus-private, and just about everything else. That doesn’t mean you rule out private colleges; it means you are candid with your student about what you can afford, you get informed about what aid you’re likely to receive at which school and be clear with your student early in the process about what package needs to be offered for a school to be considered. And remember, no matter how generous the scholarship, you’re almost always still going to be paying quite a bit to attend college.

Let’s say a family has $40,000 in college savings, can pay $8,000 annually out of cash flow, is eligible for the American Opportunity Tax Credit ($2,500), and plans for their student to take out a Direct Student Loan. That means they can afford $10,000 ($40,000 / 4) + $8,000 + $2,500 + $5,500 = $26,000 per year.

Now it’s time to research: the next step is to find colleges that are likely to cost that much. It’s easy to find costs for your state’s public schools. In addition, every college now has an online Net Price Calculator. The best ones ask a range of questions about both finances and academics (GPA and test scores), and then detail what awards (grants, scholarships or loans) the student is likely to get. (Don’t wait until fall of senior year to do this. If the net price report includes merit aid such as an academic scholarship, repeat the process using an SAT score 50 points higher to see if the aid award goes up. If it does, get to a test prep class ASAP.)

Families should also estimate their Expected Family Contribution, or EFC. The EFC is calculated using one of several formulas: Federal Methodology, which uses the FAFSA; Institutional Methodology, which uses the CSS PROFILE; and Consensus Methodology, which uses both the FAFSA and the PROFILE. Each is slightly different but calculates a family’s overall financial strength based on a combination of parent and student income and assets. You can estimate your FAFSA EFC using the FAFSA4caster; the CSS PROFILE is likely to give a somewhat higher EFC. More often than not, your EFC will be higher than the amount you can afford based on the formula above. However, it is unlikely that your student will receive need-based aid that brings your cost of attendance below your EFC.

Academic preparation, the final piece, is probably already on your radar screen because of admissions. But think of it from an aid perspective, too. Because GPAs can be hard to change, test scores are a vital part of the planning process. Adding 50 points to your SAT score or 3 to your ACT can result in $1,000 – $3,000 more financial aid. Multiply that by four years of college and you can see why test prep is popular. Remember, too, that while you may be pushing your student to raise their GPA for purposes of acceptances, more aid is likely to come from schools that may be your academic safety schools because your student ranks high among the incoming freshman population.

College is a huge expense, and it’s not unusual for it to double the cost of raising a child. Families that plan for it are far more likely to make college an investment in their children’s future, rather than a liability that curtails opportunities in their adulthood.

Ann Garcia, CFP®, is a NAPFA-Registered Advisor with Independent Progressive Advisors and author of The College Financial Lady blog.

Ann Garcia
Ann Garcia