How Much College Can You Afford?

You've made it into your dream college, but can you afford that institution?

May 4, 2014 at 3:00PM

Congratulations! You've made it into your dream college, but can you afford that institution? That's the question facing students nationwide as they grapple with multiple acceptance letters, each of which comes with its own set of costs. For incoming freshmen and adults returning to school, figuring out how much debt they can afford and where they can cut costs is complicated, but oh-so-necessary. Here's a crash course to help you decide how much debt you can handle.

Know Thy School Costs
If you've been accepted to several schools, you'll need to figure out how much each one will cost. That's easier said than done. Financial aid award letters aren't standardized, meaning that schools use different formats to inform applicants about how much in scholarships, grants, loans and work-study money they'll be offered. That makes it easy to confuse loans you'll repay after college with scholarships you won't.

"The best way to cut through the confusion about comparing is to talk directly to each financial aid officer," says Betty Lochner, chair of the College Savings Plans Network, a nonprofit information source on 529 college savings and prepaid tuition plans. In addition to explaining your actual cost of attendance, aid officers might be willing to negotiate, she adds. "You can say, 'Wow, that's not going to work and here's why.' ... A lot of times they can have conversations about how they may want to repackage the financial aid for your situation."

Once you understand each school's aid offer, you can compare it to the institution's estimated cost of attendance, which factors tuition, room and board, meal plans, books, supplies, fees and some miscellaneous expenses, but might not include incidentals like car repairs, Lochner says. Building in an emergency fund to cover these unexpected hiccups should be part of your plan.

Know Thy Future Prospects
Over-borrowing is a classic -- and often devastatingly expensive -- mistake students make, but it can be sidestepped with planning. In addition to understanding each school costs, you'll also need a clear idea of what you can afford. That starts with examining your financial resources and your career possibilities after graduation, says Phyllis Leonard, a Wells Fargo At Work Financial Literacy Relationship Manager.

"The career must fit how much you borrow," Leonard says. "... If you're looking at an annual salary of about $50,000 ... that's going to translate into about $3,350 [monthly] in take-home money after taxes, and then you've got to think about how much monthly income you're going to need for rent, car, student loan debt and other costs."

The average starting salary for 2014 graduates is $45,473 per year, according to the National Association of Colleges and Employers' April 2014 Salary Survey, but that varies significantly between majors. The 2013-14 College Salary Report from online salary information company PayScale.com shows that students majoring in petroleum engineering rake in, on average, a little more than $100,000 per year fresh out of college. However, their counterparts with child and family studies degrees bank just over $30,000 annually on average, according to the same research. Your college's career services office can potentially provide information on how quickly and where students in your major find jobs. They might also be able to connect you with alumni in your field who can help make the postcollege job hunt easier.

If you're unsure about your future career, that's OK. Opt for a community college or economical four-year school for the first few years, Leonard says.

Know Thy Debt
After you know each school's cost and have a ballpark figure on how much you might earn, see if each college is within a reasonable debt range. The easiest way to do that is by figuring out how much your monthly loan payments would be for each institution -- the College Board has a helpful calculator on its website for doing that -- and comparing that figure to your future estimated salary.

"The 'experts' say that a recent graduate shouldn't have more than 10 percent of their gross monthly income going toward servicing their student debt," says Kevin Walker, CEO of the financial aid info and student loan comparison site SimpleTuition.com.

Walker says that students can also keep over-borrowing in check by understanding how their monthly payments will decrease as they cut costs. Scaling back on food, transportation, clothing or entertainment costs can substantially reduce your postgraduate loan payments.

"If they can save $1,000 over the course of a year, that's going to save them $10 or $15 a month once they're in repayment," he adds. "That doesn't sound like a lot, but it adds up quickly."

There is a boatload of ways to cut costs while you're in school, ranging from taking a work-study gig to renting textbooks instead of buying them, but one of the simplest strategies is to make a monthly budget.

"It's one thing to make a budget. It's another thing to stick to the budget and make trade-offs. If you have an unusual expense this month, maybe you don't want to go out for pizza on Friday," Betty Lochner says. "... We've been raised in this instant gratification world, and sometimes you have to have the discipline to say, 'No. I don't want to take out more loans, so I'm not going to do this.'"

This article How Much College Can You Afford? originally appeared on Schools.com.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

You may also enjoy these education-centered articles:

How to find a quality internship

How to navigate online forums

Tips for strong college recommendation letters

Schools.com Fool has no position in any stocks mentioned. The Motley Fool recommends Wells Fargo. The Motley Fool owns shares of Wells Fargo. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of fool.com.

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to www.fool.com/beginners, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at www.fool.com/podcasts.

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.


Compare Brokers