You've pored through financial aid forms, knocked the priciest schools off your list, reviewed borrowing options, and nudged your kid to think more about engineering and less about English lit.
So you figure you've got this college thing under control. Not quite. Those expensive schools you ruled out? They might actually cost you less in the long run than some cheaper private or public institutions.
The federal loans for parents you're looking at so your kid doesn't graduate with debt? They may not be a better choice after all. As for thinking a technical major will be more helpful to Junior than a liberal arts degree ... sorry, it doesn't always turn out that way.
Even among savvy parents, myths and misinformation abound. Yet with the average four-year tab ranging from $71,500 at in-state public colleges to $240,000 at elite private schools, the last thing you need is to pay more than necessary, borrow more than you can handle, or pass up a college that can provide a great education at an affordable price.
What follow are the straight facts you need to make smart college choices.
MYTH NO. 1
The myth: Saving for college will hurt your chances of getting financial aid.
The reality: Any money you're able to save probably won't appreciably affect your chances for aid. Here's why: Under the federal financial aid formula, what matters most is your income, which is assessed up to 47%.
By contrast, a maximum of just 5.64% of savings in your name will be counted -- after excluding retirement accounts, any small business you own, and your home equity. A savings allowance based on your age and marital status ($30,700 for a married parent age 45 for 2014-15) will also be deducted.
As a result, parental savings typically have little impact in the government calculation of expected family contribution, says financial aid expert Mark Kantrowitz of Edvisor.com. Those savings will come in handy, though, to help pay that high expected contribution from your income.
True, nearly 400 private schools additionally use their own aid formula, which may factor in home and business equity. A high earner with substantial assets might qualify for less or no need-based aid at those schools as a result. Chances are, though, any aid you'd get would be in the form of loans, not grants, so you're still better off saving. Research from T. Rowe Price shows that each dollar you sock away could save you twice that amount in future borrowing costs.
What to do
Make friends with a 529. Only about one in four parents who save for college uses a 529 plan, says student lender Sallie Mae. Big mistake. You get more bang for your buck in a 529, since the money grows tax-free and withdrawals are tax-free, too, as long as the cash is used for school.
Look first to your state's plan; more than half offer a tax break to residents. Other low-fee options include New York's 529, Ohio College Advantage, and Wisconsin Edvest.
Shelter your shelter. "All schools will assess real estate that isn't your primary residence," says financial aid expert Kal Chany at Campus Consultants in New York City. If you own a second home or investment property, taking out a home-equity line of credit and using the money to pay down consumer debt (to avoid having loan proceeds count as assets) will temporarily reduce your equity -- just make sure you can repay the loan.
Play the name game. Have assets in a taxable account in your kid's name? Uh-oh. They'll be assessed at a 20% rate. Fix: Use the account over time to buy stuff for your child that you'd get anyway, such as a new laptop or SAT tutoring. Then put an equivalent amount into a 529 in your name, where it will be counted at the lower parent rate, says Joe Hurley, head of Savingforcollege.com.
MYTH NO. 2
The myth: You can't afford a private college.
The reality: Don't confuse the eye-popping sticker prices at private schools -- $39,500 a year on average vs. $18,000 for the typical public college -- with the price you'd actually pay. Discounting by private colleges, especially for good students, has become the norm.
These discounts are typically awarded as merit aid and are given regardless of financial need. As the college-age population drops, schools are increasingly competing for students, sparking an awards arms race. In fact, today more students receive merit grants (44%) than get need-based aid (42%). Last year the average discount hit 45%, a record high, says the National Association of College and University Business Officers.
To be sure, Ivy League universities and some other top private schools still offer mainly need-based aid, but their definition of need often extends to higher-income families. And merit aid is available at many other high-quality colleges. For instance, Rice University offers academic grants averaging $15,000 to 22% of students; at Denison, about 46% of students get merit awards, which average $16,300.
What to do
Look for largesse. As your child begins to evaluate colleges, you'll want to assess how generous each is with handouts. To find the percentage of students who get merit money, go to collegedata.com. For details about a specific college's grants, check MeritAid.com.
Run a price check. Get a sense of what a certain private college will cost your family in particular, factoring in aid, by using the school's net price calculator. (Colleges are now required to offer this tool on their websites.)
Some schools load in merit awards based on your student's academic profile, while others give only a rough estimate. Either way, the results will be a good starting point for a discussion with the school's aid officer. Also compare the results with net prices at any state colleges your child is interested in; merit awards are on the rise at public schools too.
Improve your odds. Most private colleges are secretive about the formulas used to award merit aid. In general, your child has a better shot if her grades and SAT scores rank higher than the averages for a particular school, says Lynn O'Shaughnessy, head of Thecollegesolution.com.
Other factors that may provide an edge: intended major (a less popular one can help), community service, and musical talent. Some colleges even rate your child's interest in attending -- has yours taken a campus tour?
MYTH NO. 3
The myth: A liberal arts degree won't pay the bills.
The reality: Sure, grads with business or STEM (science, technology, engineering, and math) degrees tend to earn above-average salaries. But many liberal arts majors do as well or better.
Case in point: The top-earning 25% of history majors earned a median annual lifetime income of $85,000 vs. $82,000 for computer-programming majors, per a recent analysis by the Georgetown Center on Education and the Workforce.
And in some careers, lower salaries are offset by better job security. The typical education major earns $42,000, but only 4% are out of work. Biomedical engineers pull in $68,000, but 11% are unemployed.
Major isn't the only determinant of pay, either, notes Anthony Carnevale, the Georgetown Center's director: "Whether your child attends grad school, changes careers, gets promoted, or loses a job has a big impact on lifetime earnings."
Besides, many people end up in fields unrelated to their major -- an analysis of alumni by Williams College math professor Satyan Devadoss found that some arts majors went into banking, engineering, and tech, while some chem majors ended up in government and education. Also, a Chronicle of Higher Education survey of employers found that previous work experience was more important than one's major in hiring recent grads.
What to do
Focus on practical help. When comparing colleges, see what each offers to assist your child in developing work skills, says Andy Chan, VP of career development at Wake Forest University. Find out if the career office reaches out to freshmen, offers courses in résumé building, and helps students land paid internships. Some 60% of 2012 grads who held a paid internship got a job offer, according to the National Association of Colleges and Employers.
MYTH NO. 4
The myth: Student loans will cripple your child financially.
The reality: You've heard the horror stories about college grads hobbled by debt, and the facts can indeed be scary: The typical student at schools such as American University and NYU leaves with over $35,000 in loans; 2% of all student borrowers owe more than $50,000.
Rising costs are one reason for those hefty debt loads, but a less obvious problem is the increasing time young people are taking to get their degrees. Just 32% of public college students and 52% who attend a typical private school get out in four years -- taking six years is more common.
At more selective schools like Davidson and Lafayette, on the other hand, 85% or more of students finish in four years. Plus, such schools tend to offer strong alumni networks that can help with job leads.
"If you can attend a good school that helps you graduate on time with great skills and contacts, borrowing can be worth it," says O'Shaughnessy. That's especially true if taking on a manageable amount of debt will help your child attend a better school than your family could otherwise afford. "Manageable" is the operative word.
What to do
Get your kid's stats. Check graduation rates for the schools your child is interested in at collegenavigator.gov. Find the likely salary of careers he might pursue and the typical income of students who graduate from schools on his list at PayScale.com.
Use the right benchmark. To ensure payments will be bearable, your child should borrow less than what she can expect to make in her first job, says Kantrowitz. The average grad's $27,000 in loans would total $33,000 with interest over 10 years, if the 3.9% rate recently worked out by Congress goes into effect. (That rate is tied to 10-year Treasuries and is likely to rise in coming years for future borrowers.) If your child earns a typical starting salary of $45,000, she could afford that debt.
Don't fight the feds. For student borrowers, government Stafford loans, which limit debt to $31,000 over four years, are the best bet. Unlike private loans, the federal program offers income-based payment and public-service debt forgiveness, says Lauren Asher, head of the Project on Student Debt.
See PLUS as a minus. Parent borrowers should just say no to federal loans. PLUS loans let you borrow the full cost of college regardless of income, at expected rates of about 7.21% (plus fees of at least 4%), which can rise to 10.5% for future borrowers under the new rate formula. "You can borrow more than you can afford at a high rate -- what can possibly go wrong?" says policy analyst Rachel Fishman at the New American Foundation. A lower-rate option that limits how much you can borrow: a home-equity line of credit (4.5% to 5%).
MYTH NO. 5
The myth: Starting at community college, then transferring, is a great way to cut the cost of a BA.
The reality: Sure, community college is a lot cheaper than a four-year school, but students who start there are less likely to earn their bachelor's degree..
Part of the problem: Many four-year colleges make transferring credits tough. While two-thirds of states have articulation agreements to ensure that community-college courses are accepted at specific four-year schools, loopholes abound -- some allow discretion about which credits to accept, or a certain GPA may be required. And articulation agreements shouldn't be confused with a guarantee that your child will get an open slot at a four-year college, says Stephen Handel, a College Board specialist in community colleges.
For many teens, the lack of a strong peer group also makes it hard to stay focused, says Tatiana Melguizo, a USC associate education professor; community college students tend to be older and attend part-time.
What to do
Go for ironclad. See if any community colleges in your area offer a guaranteed transfer to a four-year school. In Virginia, 23 community colleges guarantee admission for students with high GPAs into certain programs at 20 state four-year schools. Others, such as Portland Community and Portland State University in Oregon, offer co-enrollment programs that allow students to shift seamlessly into the four-year program after earning a two-year degree.
Talk to the target. Ask the admissions office at the four-year school your child wants to attend about the transfer requirements and how many two-year college students it accepts. The good news: "If your child does transfer, her odds of getting a BA are as good as those for four-year college students," Melguizo says. Savings and a degree? Maybe you can afford grad school after all.
This story has been updated to reflect an increase in the PLUS loan rate.