If you're preparing for your child's college journey, you're likely aware that tuition costs are climbing. In fact, students are taking on more debt than ever to meet these rising expenses.

In 2017, graduates who borrowed for their education left school with an average debt of nearly $29,000. This figure doesn’t include the amounts that parents may borrow to assist their children. Last year, the average cost for tuition and living expenses was $21,400 for in-state public colleges and $48,500 for private institutions.

Despite these staggering numbers, it's important to note that three-quarters of families secure grants and financial aid that help lower these costs. Effectively navigating financial aid can significantly impact what your family ultimately pays for college and the interest accrued on any student loans. Here’s what you should consider:

Focus on Net Price Instead of Sticker Price

To truly understand your family's potential expenses at a college, look at the net price, which reflects what you’ll actually pay after factoring in scholarships or grants. Most schools provide a net price calculator (check it here) to help you estimate costs based on your situation and their aid policies.

Although private schools often have higher sticker prices, they might also offer more substantial financial aid packages, making them just as affordable. Regardless of the net cost, having a financial plan to cover that amount through savings, income, and loans is essential.

Complete the FAFSA Every Year

The Federal Application for Student Aid (FAFSA) is a vital step in securing financial support and should be filled out even if you believe your income is too high for need-based aid. Completing the FAFSA is also necessary for federal loans, and many schools require it for merit scholarships.

Roughly 85% of students receive some form of financial aid, whether it’s scholarships, loans, or work-study programs. Be mindful that the FAFSA filing deadline is June 30, but you can submit applications starting October 1 of the preceding year. Filing early is crucial since some aid is awarded on a first-come, first-served basis.

Start with Federal Loans

Federal loans are an excellent initial option since they have no credit requirements and are accessible regardless of family income. They come with flexible repayment plans after graduation, and your child might qualify for Public Service Loan Forgiveness if they pursue careers in non-profit, government, or specific education sectors.

However, federal loan limits can be relatively low. Freshmen may borrow up to $5,500, while upperclassmen can access up to $7,500. If your child needs more, they must seek private loans, which typically require a co-signer. Remember, co-signing means you're equally responsible for the debt, which will affect your credit report.

Addressing Any Gaps

If you still have financing gaps after exploring all options, review offerings from various private lenders. Interest rates will fluctuate based on your credit profile, potentially leading to higher or lower rates compared to federal loans. Most undergraduate loans require a co-signer.

Unlike federal options, private loans usually lack income-based repayment plans or loan forgiveness. Ensure you understand these options well to make informed decisions for you and your child.

Ensure Financial Safety Nets

Your college list should have an academic 'safety' school where your child is likely to be accepted, and also a financial 'safety' school, one that can provide a strong financial aid package. Include at least one state school and a private institution among these choices.

Once acceptance and financial aid letters arrive, review them with your child to assess the impact on your family's finances. Remember, offers with higher proportions of free funds, like scholarships and grants, are generally more advantageous than those mainly composed of loans. If you have questions, don’t hesitate to reach out to the college’s financial aid office.

Prepare for Loan Payments

When discussing payment strategies and financial aid, it's essential to talk about how your child's future salary will correlate with their loan repayments. A good guideline is to avoid borrowing more than what they expect to earn in their first year after graduation (you can estimate this here). If they're considering different career paths, base your borrowing estimate on the lower potential salary.

Utilizing a calculator like this can help illustrate how various loan amounts may affect their budget post-graduation.

“Using a calculator makes it more tangible and allows them to see the real impact of college costs on their future,” says a certified financial planner.