Mellody: The next step is to compare the financial aid packages from each school when you receive them. These packages will include the grants that your kid has received or is eligible for, what your expected family contribution is, and the remaining balance you will have to make up, before you include any scholarships or college savings.
They will usually offer options of student loans to fill this gap. When you are comparing packages, there are 3 big things to remember. First, you have to read the fine print. You want to know whether the scholarships or grants through the school are renewable, and whether they are contingent on grades or other metrics. Second, you want to understand the gap that you have to bridge between tuition and what the package offers. And finally, you need to determine your ability to make up this gap, and set a threshold beyond which you are not willing to go.
Tom: You mentioned that student loans are often offered to fill this gap. Is there a way to know how much is too much when it comes to student loans?
Mellody: Like all loans, student loans are a tool. In and of themselves are not bad. However, there are certainly some things that you have to keep in mind when considering student loans, and your ability to take them on without having negative consequences. To do this, you have to be clear eyed and think long-term. Work with your kid to understand their ideal career path and earning potential after graduation. Research starting salaries for jobs related to their expected major.
By doing this, you can begin to determine how much debt you can manage. A good rule of thumb is to work to keep your child’s total student loan debt below 75% of their expected first year salary. If you make sure you have applied for student aid, you know what you can reasonably contribute, you take advantage of scholarships and other non-aid options, and you are clear eyed about your child’s ability to manage student debt, you are very likely to be successful in your efforts to pay for their college.
Tom: Thanks for joining us, mellody.
Mellody: You are welcome, Tom.