Can Your Family Afford College?

I'm a firm believer that the more knowledge you acquire, the richer your life will be. But as college tuition and fees continue to skyrocket, students and parents increasingly are asking, "Is a degree really worth the cost?"

For many people it certainly is: On average, college graduates earn $550,000 more than high school grads over a lifetime, according to a Pew Research Center study. Not only that, the current unemployment rate among college grads is only half that of high school grads.

So, assuming your kid is interested in college, ask yourself, "How much can we afford to spend without digging ourselves into a hole?" Unless you started socking away money long ago or Junior can count on a full-ride scholarship, you'll probably need to take out student (and parent) loans to pay for that degree.

Tread carefully so you're not saddled with too much debt. Here are a few factors to remember:

Not all degrees are created equal. The average college graduate now carries roughly $25,000 in student loan debt, but many families rack up far more, especially if they have several children. Students should follow their passions – in education and in life – but remember, someone with a degree in engineering or computer sciences will probably garner much higher pay and more easily pay off loans than graduates in lower-paying fields like education.

In other words, don't take on debt that will overwhelm your future ability to pay it off. To save money, many students start out at a community college then transfer to a four-year institution.

Calculate college's true cost. As with buying a car, when tallying a college's true cost there's the sticker price – the stated full cost for tuition, fees, room and board, etc. – and there's the net cost you'll actually pay after subtracting grants, aid, work study and other adjustments that may apply.

Thanks to a new federal law, all post-secondary institutions must post a "net price" calculator to help families more accurately estimate the true costs of attending, based on the student's individual situation. Colleges may either use the Department of Education's basic calculator template or develop their own if they require additional information.

Although you won't be able to do exact comparisons, the new calculators do provide a good starting point for estimating the true costs of various colleges. Indeed, some students find that because of financial incentives offered, such as grants, merit-based scholarships and low-income subsidies, they can actually afford schools they'd previously ruled out. Expensive private schools sometimes end up cheaper than comparable state schools.

Another good comparison tool is the Department of Education's College Navigator (http://nces.ed.gov/collegenavigator), which lets you search for details about colleges throughout the U.S., including tuition and housing costs, majors and degrees offered and typical SAT scores of students attending. You can even build a list of schools for side-by-side comparisons.

Fill out a FAFSA. Even if you think your income's too high to qualify for financial aid, you still should fill out the Free Application for Federal Student Aid (FAFSA), since it's also required by virtually all institutions for access to federal student loans. Federal loans generally have more favorable interest rates and repayment terms than private loans so it's best to exhaust those alternatives first.