Posted in financial aid, Tuition

Careful Borrowing for College

“When a student debtor is approved for financial aid, those funds are sent and administered by that student’s college’s financial aid office. The financial aid office takes out the necessary money to pay the college for that student’s course load,” LendEDU research analyst Mike Brown writes.

Whatever money remains is sent to the student loan borrower in the form of a refund check. The refund check is intended to be used for living expenses or other school-related expenses, but there is no way of keeping track of where that excess money is spent.”

The above story appeared earlier this month on a site called College Fix, as part of LendEdu’s report.  But, it’s old news, students have been doing this since my early days in college administration (1990’s) but the distinction now is that the amount of money they can borrow is staggering.

First of all, know that your teen can borrow money to attend college.  The federal borrowing guidelines allow for borrowing for 150% of the length of a degree program (if you’re pursuing a 4-year degree, you are eligible to borrow for 6 years)   Your teen will be allowed to borrow $57,500 for their bachelor’s degree per current guidelines.  If they stay in school and continue onto a master’s or doctorate degree, they’ll be able to borrow $138,500 per current guidelines.

Second, know that you can borrow money for your teen to attend college.  In short, parents can borrow whatever deficiency exists between their teen’s borrowed amount and the cost of attendance according to current guidelines.   As you can imagine, there is little incentive for colleges to keep tuition prices affordable when parents and teens can simply borrow for their teen to attend any college at any cost.  

Last week, I wrote about how none of us has unlimited time, talent, or resources.  An encouragement to parents as they guide teens toward high school graduation.  Today, I want to take a shot at helping your teens make smart(er) borrowing choices this fall by avoiding some of the common issues they’ll face as they sign their financial aid “package” documents in the coming months.

Most of the time, a financial aid package is nothing more than a loan or many loans.  If your teen is receiving grants or scholarships, those are gifts that don’t have to be paid back- and should be clearly identified in their package.



2017 CNN Money
credit: CNN Money 2017


Let’s look at the above example from CNN Money.   If you can get past the sticker shock of a family borrowing $53,342 for ONE YEAR, you’re looking at a total borrowed amount of $217,368 between the parents and teen by the time he’s finished.   If future borrowing matches this sample, the teen will borrow at least $22,000 and the parents will borrow at least $195,000.

United States Department of Education reports that it takes, on average, SIX years to complete a 4-year degree.

Parents here know that you can complete the first 2 years of almost every college major for pennies on the dollar in high school by using:

  • credit by exam programs like CLEP and AP in some amount
  • free tuition through your state’s dual enrollment program. List of States
  • using your community college to complete transfer courses or full degrees.

Let’s assume you’ve been exceptionally efficient with your teen’s high school program.  You’ve injected college credit where it makes sense, and you’ve found a program that allows them to transfer a full Associate degree into their Bachelor’s degree program perfectly.  You’re still faced with the question of how to fund “the last 2 years.”

It might surprise you to learn that I think borrowing for the last 2 years isn’t a problem.  In fact, there is a lot of data that tells us most of the problems and unnecessary costs happen in the first 2 years.   Everything we talk about here – credit by exam, dual enrollment, distance learning, transfer credit- it all saves time and money off the first 2 years.  If you have to borrow, your best shot at using your money wisely is to fund their last 2 years.  The last 2 years are harder to “hack” with alternative or inexpensive credit.  So, if you’re trying to stretch every last dollar, it’s best to hang tight, and use it (or borrow) at the very latest possible moment- but when the finish line is within your view.

Look again at this financial aid package- there is one line I want you to notice:


Did you see the “Financial Need” row?  Where did that number come from?  It should surprise you to learn that the college doesn’t cost $51,845- but the college wants you to borrow that amount.  (Albion College in Albion, Michigan)  If you go to the college’s cost page, you’ll see a breakdown like this:

Tuition & Fees  $39,313 USD
Room & Board  $11,066 USD
Books & Supplies  $800 USD
Other Expenses  $906 USD
Annual Cost of Attendance
$52,085 USD

(final cost differs slightly from CNN’s graphic- but not significantly)

The amount the college expects you’ll “need” to attend there makes a lot of assumptions!  Tuition and Fees are what you’re going to get a bill for.  $39,313 isn’t flexible, and if you allow your teen to attend, they’ll have to pay that amount.

But, they’ve assumed your teen will live on campus (not everyone does) and will purchase the meal plan (board) which not everyone does.  Further, they’ve written in a loan for $1706 to cover projected books, supplies, and “other” expenses (pizza?) that your teen may or may not have.  Either way, those aren’t billed costs, so 100% of that money will be given to your teen as a “refund check.”

If your teen signs their financial aid package as written, but chooses to live at home, your teen will receive a “refund check” for  $12,772.  If they do live on campus, their refund check will be $1706.

This isn’t a “refund,” it’s a “cash advance loan.”

“Polling “1,000 student loan borrowers who are currently enrolled at a four-year college,” LendEDU sought to determine “how many are using student loan money to help pay for their spring break trips this year.”

Nearly 57% of respondents affirmed that they would be using financial aid to help finance their vacations.”  -LendEDU

spring break

10 Careful Borrowing Tips

  1. Borrow only the amount you’ll be billed for.  The “extras” that the school automatically includes can usually be budgeted for or paid for using cash. Your package probably includes money for buying textbooks (smart students rent or buy used textbooks!) as well as things like parking passes.  If your teen’s financial package doesn’t spell this out for you, you’ll need to get those numbers yourself.
  2. Declining a loan will require a lot of paperwork, and will likely confuse the financial aid office.  Our family experienced this last year when my husband’s employer paid 75% of his MBA degree, and though we needed to borrow to pay his portion, the financial aid office automatically offered him a loan to pay 100%.  When he declined their “generosity,” he had to sign no less than 5 forms before they agreed to reduce his loan amount to just the part of tuition he owed.
  3. Earn the maximum allowable credit in advance.  Whether you choose CLEP, AP, or dual enrollment, this advanced credit shaves money and time spent finishing a degree.  Some colleges allow 15-30 credits in transfer, but others allow as many as 90!  This reduces the time spent finishing a bachelor’s degree by 1-2-3+ years!
  4. Many majors are available through your state’s colleges and universities via distance learning- reducing housing costs to zero.  These degrees are identical to those earned on campus, so if your teen is studying something that doesn’t require “hands-on” labs, you may be able to avoid borrowing living expenses and dorm fees entirely.  Good majors that work with distance learning:  psychology, history, business, communications.
  5. Juniors and seniors can earn scholarships!  Scholarships aren’t only for incoming freshman.  Check the professional association linked to your teen’s major- majors like nursing or business usually have huge scholarship opportunities.
  6. A part-time job can have big rewards.  Many companies offer tuition reimbursement in some amount.  List of 100 employers.
  7. Price shop.  You may not realize this, but hundreds of colleges offer the same degrees.  As a general rule, public colleges/universities in your home state are usually a fraction of the cost of attending a public college/university in another state.  Private colleges don’t often care what state you’re from but are almost always the most expensive choice.
  8. Credit shop.  If your teen worked hard in high school to earn college credit, choose a college that recognizes their credit.  While having completed 1-2 classes may not necessarily sway your decision, some of you will have teens with 1-2 YEARS of college credit in the bank- it’s worth finding a school that will take it all.
  9. When in doubt, wait it out.  If you’re not sure – or if your teen isn’t sure that they need a 4-year degree in their field, take the time to be sure.  Use their credit earned toward a 2-year degree or take a gap year.  Additionally, doing unpaid volunteer internships offer an exceptional opportunity to explore careers without borrowing a dime.
  10. If you must borrow, save the loans for the last 2 years. It is nearly impossible to find discounted tuition for upper level (300/400 level) courses, but if you start homeschooling for college credit in high school,  you can cash-flow the first two years of almost any degree… and that is what I call resourceful high school planning!