The next step is to create a budget. Capstone uses a one-page college financial plan to work through how much money will be available for total college costs over four years. The budget looks at 529 savings, other assets, monthly cash flow, parent loans, student savings, student work contribution and more. He encourages his clients to ask their own parents if they will be able to help. If grandparents can financially help, it’s important to consider when that money will come in because the timing can cut financial aid by as much as 50%, he says.
When the student does come in, Messinger often plays the “bad cop” if he needs to, setting expectations better than parents can.
“Never take out more in student loans than what you think you are going to make your first year out of school,” he tells the kids. “What we know is that not all majors are created equal.” He encourages most students not to take out more than $27,000 in loans in their own name, which will likely cost them about $275 a month over the 10 years after they graduate, he says.
Parents often take out federal Parent Plus loans, although he cautions them to think carefully about whether they can afford them. “The current rate is 7.6%. You pay almost 5% up front. The financial aid award says the school costs $50,000 a year, and we are going to give you $20,000 in scholarships, so you’ve got $30,000. If you’d like a Parent Plus loan, click here. Approved in about 48 hours. We know it’s an expensive loan, but it’s an easy way out.”
Capstone also points out to families the cost of a student taking more than four years to graduate. “We show that 44% of kids get done in four years at public schools, and it’s not much better at private schools, 52%,” Messinger says. “The most expensive part of college is the fifth year, mainly because most aid runs out in the fourth. The fifth year is full price. … None of us look at college as a six-year proposition, but that’s the reality for a lot of students.”
Opaque Financial Aid Process
Families, of course, hope to get financial aid to decrease the cost of college. Capstone uses a four-quadrant system: On one side, it looks at whether a student is likely to get a high or low merit award and on the other it considers whether the student will likely have high or low financial need.
“The way you shop is completely different depending on which quadrant you fall into,” Messinger says. “If you are a talented student with low financial resources, you want to find schools that will give you 100% of what you need. There are schools [especially Ivy League schools like Penn, Harvard and Yale] that don’t want money to be a barrier for you. If you have a low family contribution, they will meet 100% of what you need.”
The picture changes for a high-merit, no-financial-need student applying to an elite private school, such as one of the Ivies. “They say you can afford the $75,000 per year. They do not have merit scholarships. Let that resonate. You will pay full price at Penn or Cornell or any of the top universities. And a lot of the families we serve are in [that] quadrant,” he says.
A lot of families think that, given the high college price tags, they will qualify for at least some aid. Think again. Qualifying for need-based financial aid varies from school to school. In general, Messinger says, schools expect parents to pay 20% to 25% of their adjusted gross income for college expenses, he says. A married couple that files a joint tax return and makes more than $110,000 usually will be expected to pay 47 cents of every dollar above that toward the cost of education, and if they earn more than $250,000 they won’t qualify, he says.