Get Smarter Than a 12th Grader

08/20/2012 10:25 am EST

Focus: MONEY MANAGEMENT

Terry Savage

Author, The Savage Truth on Money

These six ideas should be in the minds of any parent of high school-age children, writes MoneyShow personal finance expert Terry Savage.

Everyone’s back to school by now, but not everyone has learned the most important lessons about money.

Grade school students need to learn how to handle their lunch money. High school students should be learning some spending discipline. And college students should be very concerned about piling on more student loans.

But there’s a special lesson to be learned by high school students—and their parents—about the way to plan for college. That planning should start by the first day of high school, and move into high gear if you’re heading into senior year.

By now we know that this economic slowdown is not going to reverse itself quickly, despite what the politicians may promise. And that means taking an entirely different look at college costs, and having a family discussion about what is a reasonable possibility.

There is no doubt that a college education will pay off over a lifetime of earnings. But that payoff may not beat the debt load and the interest you will pay if you borrow too much money! So here are some things to take into consideration when choosing a college and paying for it!

Community College or University?
While this is an important decision, fortunately it is not an all-or-none choice. Start preparing your teens in high school for the fact that your family may not be able to afford a four-year out-of-state college.

A compromise might be to consider a local community college for two years, and then a transfer to a university to complete their degree. This can save a small fortune in living costs—though you and your student may face the uncomfortable situation of living together for another two years!

In-State or Away?
The immediate presumption is that you will save money if your child attends an in-state school. But you might receive more in financial aid from a school in a different state that is looking to diversify its student population.

So, work with your high school guidance counselor, who is likely to know which schools are seeking students these days—and offering extra financial aid to fill their classrooms.

Financial Aid
The time to start understanding how federal student aid works is in your child’s junior year of high school—when you still have time to adjust your situation to qualify for more financial aid.

For example, money saved in a child’s name (in a traditional “UGMA” custodial account) weighs seven times more heavily against you in the financial aid formula. So spend down that money for a new computer or other legitimate expenses before you have to disclose it in the senior-year aid application.

To learn exactly what you’ll have to disclose in the aid application, go to www.FAFSA.ed.gov.

Scholarships
There are so many misconceptions about scholarships. Yes, there is a lot of money. Yes, a lot of scholarship money goes undistributed every year. But no, it’s not that easy to qualify, because many scholarships have restrictions and qualifications your child may be unlikely to meet.

To search out scholarships, go to www.Scholarships.com or www.Fastweb.com and register. This is a project for sophomores and juniors as well as seniors—because getting some of these great deals requires planning ahead.

And remember, each year a new round of scholarships is issued—first come, first served. Check deadlines and be first in line.

Athletic Scholarships
It’s not just the star football and basketball players who get college scholarships. And it’s not just boys who get athletic scholarships. Federal rules level the playing field. Yet, because parents, students, and coaches don’t know about all the opportunities to get full or partial scholarships, money gets left on the table every year.

Basically, to get a true athletic scholarship at a Division I, II, or III school, your student must first register at the NCAA Clearinghouse. Go to www.NCAA.org and then click on “Eligibility Center.” That’s something to do when your child is just starting high school—to encourage a budding interest in golf, tennis, volleyball, track, and other physical education activities that could turn into real college money—even though your child will never turn pro.

Private Student Loans and Parental PLUS Loans
These look like easy money—but they carry the highest rates and the toughest repayment terms. Lenders make the offers look enticing, knowing they will get repaid eventually, since these loans cannot be discharged in bankruptcy.

With mortgage rates so low, you might be better off refinancing and taking out home equity to pay for college. But don’t do a floating-rate home equity loan, or you will be at the mercy of the interest rate market.

Bottom Line
Planning and saving for college should start when your child is born, but if you missed that opportunity, the next best chance is when your child is in high school. This is a family project—and it requires cooperation and attention to all the possibilities.

But there is some good news in the current economic downturn. Colleges are competing for students to fill their classes—and if you pursue all these avenue, and then negotiate beyond the initial financial aid offer, you could make college a wiser investment. That’s the Savage Truth.