How to talk to your kid about the cost of college

It can be a touchy and emotional conversation. But you've gotta have it.

Talking with teen about college
(Image credit: Shutterstock)

It may just be the biggest expense of your life. Meanwhile, it's the biggest four years of your kids' lives. (Or so they see it.) So how do you sit down and calmly have the talk about paying for college?

First, know there are many schools they can choose from, and many ways you can pay for a higher education. We'll walk you through the process step-by-step to help you make the right choice for your finances, and your family.

We spoke with Suzanna de Baca, VP of Wealth Strategies at Ameriprise Financial, to find out how she counsels parents. Read on to get some sage advice on how to not only choose a college now but set your kids up for financial and career success later.

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1. Start early and honestly

"A candid conversation with your kid about paying for college needs to start as early as possible," de Baca says. That can even be as early as middle school. It can save you and your kid a lot of grief to set expectations early, instead of bursting her UNC-blue bubble right before she applies.

"If your kid is excited about or set on attending school outside your price range, have a conversation about whether that is realistic," de Baca says, "and what you as a family can do to make that happen." It might not be as simple as saying no, because there are other ways to pay for college than with a 529 plan. We'll get to more on that, below.

2. Consider consulting a professional

Paying for college is a huge financial commitment, which is why you should get help from someone who is well-versed in financial planning. Friends or family who have already sent a child or two through college could provide some tips, but they won't be familiar with your financial situation. De Baca suggests working with a financial adviser, financial aid counselor, guidance counselor, or even talking with your accountant and attorney.

Just remember that school counselors aren't necessarily trained in matters of money. "They may have a lot of experience in planning for and selecting a college, but depending on their background, they may or may not give you good financial advice," de Baca warns.

3. Compare school prices

Together, you and your child should research the cost of a school or schools in general to figure out what is in your price range.

This calculator lets you type in the name of an American college and spits out the annual cost for tuition, fees, room and board, and books. It can be a good way to help compare and contrast the cost of different schools.

Then, compare the prices against what is in your college savings account and what kind of discretionary income you can put toward tuition while your kid is in school. Also, consider whether he or she may be eligible for scholarships or financial aid. It's difficult to predict which families will receive financial aid — or how much — so you should definitely apply by filling out a FAFSA (Free Application for Federal Student Aid form).

4. Don't forget other costs

While you may have calculated what tuition and room and board may cost, the other fees associated with getting a degree have been known to give some parents sticker shock. Extras like study abroad, fraternity or sorority expenses, travel to and from campus, as well as dorm decor, sports tickets, and on-campus parking can add up to an extra $28,000 over four years, according to a survey by New York market research firm MRY.

5. Consider loans last

Loans are certainly a tool to pay for college, but they should be considered after other sources. "Just because you can qualify for a loan doesn't mean it's prudent for you and a student to take it," de Baca counsels. You and your child should look at what you as a family can pay, then scholarships and aid, work study, and finally, after that, student loans.

And be smart as you compare your options for loans. "Looking at student loans is really no different than looking at the kind of debt you can take on for any other obligation — a mortgage, a car loan, etc. You need to look at the type of the loan, terms of the loan, and the interest rate." Ask yourself questions such as: Are you getting a good deal? How long is it going to take you to pay it back? What will the monthly payments be?

Also consider your child's potential major and subsequent career. If she's set on an in-demand major that will likely get her a good job with higher pay, you might feel more comfortable taking out loans. If she's undeclared or wants a degree in theater, you may want to be more cautious.

6. Co-sign with care

Before you co-sign on your kid's loan, understand exactly what that means. "You're not just co-signing to provide good credit; you're assuming responsibility in the event they can't pay," de Baca says. That means if your son or daughter can't find a job after graduation, the lender will go after you for the money. "If the payment will be $500 a month, can you actually afford to pay $500 a month over the course of the loan? If not, co-signing is not in your or your child's best interest," she explains.

7. Be a good financial role model

It may be hard to say no to a dream school, but the alternative — saying yes when it's unrealistic — is often worse. "It's your responsibility to model good financial behavior," de Baca tells parents in this situation. If your kid is disappointed he can't attend his favorite school, "reframe the conversation as, 'We want to set you up for success, and strapping you with student loans or debt won't help you.'"

The plus side is that by the time your child arrives to college, they will have already had a crash course in budgeting for a large expense, responsibly taking on debt, and saying no to something outside of their budget.

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