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The College Pre-Approval Mindset

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Welcome to Epsiode 1 of Paying for College – a 7 Minute Quickcast! I’m Dean Lyman and I’ll be your guide through the process of paying for a college education. We all know how much college costs have increased. According to the College Board, the average cost to attend a private college in 1988 (30 years ago) was a hair over $17,000 a year. All the numbers I’m using are accounting for inflation and are in 2018 dollars. In the 2018-19 school year, the average is $35,830. An increase of 110%! And unfortunately public schools are increasing at an even greater rate. State budgets have been cut and state schools are required to fund more of their operations from student tuition. A four-year public college in 1988 cost an average of $3,360 (again these are inflation adjusted). Now, for 2018-19 the average has grown to $10,230 per year for tuition, putting the public college growth rate at 204%. Wow!

Let’s compare to something that many people think has also increased in price, housing. Median price to buy a single family house in 1988 was $113,000 – adjust that for inflation to get it in 2018 dollars means about $245,000. The median home sale at the end of 2018 was $325,000. This gives us a growth rate of 33%. This is far lower than the 110% for private college or 204% for a public college tuition.

And these numbers are not including room and board! Add another $11,000 to $13,000 a year to pay for your student to live and eat there at college.

Unfortunately, scholarships, grants, and other aid has not kept up with the pace of this increase, resulting in students and parents having to pay for more of their educational expenses and just like that, we have the current crisis in student loan debt. It now stands at $1.4 Trillion dollars! This is as much as all of America has in credit card debt. And it cannot be wiped out in a bankruptcy, this is debt that is not easy to get rid of. And we keep telling students – you have to go to college, a college degree will get you a good job. So the demand is there, will continue to be there, for these costs to keep rising in the foreseeable future.

What can be done? The good news is you are fixing this right now. Educate yourself. Be smart about how you and your student together make this decision. Find help if you need it. Most importantly, change your mindset. I see too many families that approach the college process unlike what they would for any other comparable cost. You are going to be spending $80,000 to $200,000 dollars on your chosen college degree. It will save you headache, worry, and often a large amount of debt if you have a ‘Pre-Approval’ mindset. Credit for this goes to Joe Messinger, a fellow financial advisor, who introduced this concept to me. Let’s start with an example; you are going to buy a house. What is one of the first steps you need to take? Define how much you want to or can spend to buy this house. You may use tools online, go to a mortgage broker, or local banker to help you get a pre-approval amount. This is not the last word in how much you can buy nor is it a commitment to use their services to get a loan, but it does give you a good amount that you can then take and look for houses that would meet your needs that are in your price range. This same process should take place before we start searching for a college. I see too many families that jump right into college tours and picking out the most decked out dorms, then when they get accepted and see the financial aid letters from the college, they realize they can’t pay for this. Before you know it, you are up to your eyeballs in debt. We need to have a conversation before we put colleges on the list about how much it will cost and how it will be paid for. This can be thought of as a ‘College Pre-Approval’ process.

When you change your mindset and have prepared for the college decision ahead of time, your will feel less stressed about your student going to college and how together you can tackle that big upcoming bill. Your student will be more in control of their own future with knowledge about their options. Parents and students will also be on the same page about their college options, resulting in less

Let me tell you what the College Pre-Approval process is not; it is not admissions or essays, it isn’t test prep or tutoring, and I won’t guarantee you any scholarships. I’d carefully examine anyone who claims that they can get you hidden scholarships. There are many scholarship opportunities out there, what I’ve found is that it can be difficult to sift through them to find ones you qualify for and to motivate your student to apply for them in large numbers. So don’t dismiss scholarships, but don’t hang your hopes of going to college on getting it all paid for you. And test prep may be a great option for those students that are close to getting a specific award at one of their targeted schools. By boosting a SAT/ACT score by just one or two points, you can in some cases save yourself thousands of dollars. Or it may help you look more attractive to one of your ‘stretch’ schools. It could be well worth the cost of professional test prep. All these tool may be used by students and their parents to work toward getting into particular schools. And in future podcasts we’ll talk about each of these so you can be informed.

What is included in the College Pre-Approval process? I walk you through through 3 steps; 1) Determine your Personal Resources, 2) Establish Maximum Student Loan, and 3) Shop for Schools within your Approval amount. Each of these steps will be broken out and covered individually in the next couple of podcasts. I also keep track of all the dates for your student so they don’t miss any deadlines. For parents, a full financial plan is a given, as you need to decide how your current cash flow or savings may be used to help fund college. And we want to know how choices you take now will effect your future goals, like retirement.

Who can use the College Pre-Approval process? Anyone who has a student preparing to go to college. Most useful is to start when a freshman, sophomore, or early junior in high school. The principles this podcast that we will talk about can be applied at any time during your education, but once you’re too far along in the college process, there’s only so much that can be done. The best timing is to prepare ahead of the decisions and use your newly found knowledge to save on the cost of college.

Thanks for listening today! If you like this podcast, please subscribe and leave us a review on your favorite podcast platform. Thanks and be smart about how you pay for college.

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