There’s no doubt that college is expensive. Just ask any parent helping their son or daughter enroll this fall, or even file the FAFSA in preparation for next year. College affordability is at the heart of the issue, but real potential solutions to the problem can be swept away under the daily sound bytes generated during this aggressive political season. But politics aside, there is no easy fix for college affordability regardless of voter preference, leaving families to decide on their own how to navigate. Let’s consider how financial literacy helps manage decisions about college affordability.
“It’s cheaper to save than to borrow”: Parents that recently started a family, and even more recently paid off their student loans are very debt conscious, perhaps spurring the trend of greater college savings. The “How America Saves for College 2016” report from Sallie Mae shows that a full 57% of families are now saving for college, a 9% swing in just the past year. In particular, it’s millennial parents taking the lead on goal setting and developing a plan to pay for college, all hallmarks of financial literacy teachings. It’s inferred from these findings that new parents recognize the importance of education, but are wary of student loans. While Washington needs to work out the student loan mess, families are taking control of their savings plans to make a smarter and more affordable investment in higher education.
Using college financial calculators: It’s easier now than ever to make and compare estimates on college costs, student loan repayment and savings, helping families look at the big picture first. Before zeroing in on a college choice, it’s wise to take a look at a wide variety of options for perspective. Consider questions like potential financial aid eligibility versus the sticker price of select schools, or if the lowest priced option is really the best fit. These questions are simplified with use of financial calculators as reasonable comparisons are grounded in logic, ensuring informed decisions on college choice.
Power of compound interest: Long term savers know one big secret. Over time their money can grow with the power of compound interest. Financial literacy helps families harness the power of compound interest through simple knowledge, like demonstrated with the “Rule of 70”, to show how money can double over time. While financial calculators help with the details, the impetus behind saving begins with the motivation to start early, rather than later, to make college more affordable.
Identify college value: Know thyself! If financial literacy can teach us one thing, it’s that everyone needs to make their own choices based on their own needs. Financial literacy helps with perspective on this issue, recognizing that college value really depends on individual factors managed on the personal level. When weighing the many variables, from majors, school reputation, and internships and compare them to facts like costs, student loan debt and out-of-pocket expenses a pattern is revealed. Some colleges will be too expensive while others may be a bargain relative to the needs of the student. Using practical teachings from financial literacy promotes sound decisioning through the process to make the college experience an affordable one.