If you’re a high school senior fortunate enough to have received an offer from that “reach school,” now’s the time to make sure it won’t be a reach financially. For many, cost is the factor that tips the scales toward one college over another.
Financial aid availability and attendance costs are among the top concerns that prospective students have when picking a school, according to a 2015 survey from New America, a nonpartisan think tank. As National College Decision Day nears on May 1, keep in mind that fewer than half (44%) of students expressed complete confidence they made the right financial decisions in paying for college, according to a 2016 study from private student loan lender Sallie Mae.
Here’s a short course in how to determine whether you and your family can afford that acceptance offer.
Compare financial aid packages
First, compare each school’s award letter to see what costs you’ll be expected to cover, after any grants and scholarships. This, in student aid parlance, is the expected family contribution — the bottom line on what you’ll have to come up with.
The Student Aid Report that is generated from the Free Application for Federal Student Aid shows all federal aid you qualify for and your expected family contribution. It includes federal grants, scholarships, work study and student loans. Full-time undergraduate students for 2015-2016 received an average of $14,460 in aid, according to the College Board’s Trends in Student Aid website.
Most students bridge at least part of the college financing gap with student loans. Among the class of 2015, 68% graduated from public and private colleges with student loan debt, according to the Institute for College Access and Success.
The math is pretty simple. Say a college you’re considering costs $45,000 per year. If you receive $18,000 in grants and scholarships to attend your first year of college, you’ll have $27,000 to pay that year. If you max out your first-year federal direct loan at $5,500, the remaining $21,500 must come from private loans or other sources.
By contrast, let’s say a public in-state college you’re considering costs $20,000 a year. And let’s say you can expect $5,000 in grants and scholarship aid in your first year of college, leaving you to pay $15,000 for that year. After maxing out your federal loans ($5,500), you’d need to borrow $9,500 in private loans.
Keep in mind that the government, private lenders and your college don’t check to see whether you’re borrowing too much. A good rule of thumb is to borrow, in total, no more than your expected first-year earnings after graduation. So if you expect to make $50,000 your first year out of school, try to borrow no more than that in total.
Max out federal student loans before applying for private loans. Federal loans may be subsidized, which means they don’t accrue interest while you’re in school, and they carry fixed interest rates that are usually lower than those on private loans. Federal loans also offer loan forgiveness, income-driven repayment and forbearance, unlike most private loans.
If you do need private student loans, make sure to shop around and compare options.
Look ahead to your postgrad income
How much you’ll earn years from now is anybody’s guess. But you can look into the future somewhat to see whether your field of study can generate sufficient income to pay the loans you accrue. Sites like PayScale and Glassdoor can help you research incomes in various fields and locations to estimate your earning potential.
Let’s say you want to major in business administration and get an entry-level job as a marketing assistant. Average salaries will vary by location: According to Glassdoor, in San Francisco, the average salary for an entry-level marketing assistant is $52,450; in Minneapolis, it’s $46,056; in Atlanta, it’s $42,164; and in Phoenix, it’s $38,431.
Once you have a sense of how much you might need to borrow for each college, use a student loan calculator to estimate monthly repayments. Repayment on student loans typically starts six months after graduation, when the grace period ends.
Assess the loan track record of students at the colleges you’ve been accepted to. In 2016, 1.1 million federal direct loan borrowers defaulted, according to an analysis of Department of Education data from the Consumer Federation of America. You can find each college’s most recent cohort default rates using a search tool from the National Student Loan Data System. Be wary about attending a college with a high default rate.
Other factors can affect college affordability, depending on your lifestyle needs. This could include availability of transportation, part-time job options, off-campus living possibilities, travel expenses or even study abroad costs.
Finally, consider internships at prospective colleges. Gaining work experience through internships can affect your job options and income. The starting salary for college graduates who completed a paid internship was $52,000, compared with $37,000 for grads who did not complete an internship, according to a 2015 report by Georgetown University Center on Education and the Workforce. Paid internships can also help defray some college costs.
By factoring in all the potential expense variables, you’ll have a fuller picture of what’s within reach when it comes to affordability. To make the choice that’s right for you, weigh the cost against academic quality and programs, campus lifestyle and fit.