College Financial Planning: Where Parents Should Start
If you’re looking at everything that goes into paying for college and thinking, “I don’t even know where to start,” you’re far from alone.
Between FAFSA, scholarships, financial aid, college savings, Student Aid Index calculations, and six-figure college price tags, families can quickly feel like they need to figure out everything at once.
But you don’t.
The best place to start isn’t with the FAFSA. It isn’t with scholarships. And it isn’t even with your student’s college list.
Good college financial planning starts with your family’s budget.
In this episode of Ol’ College Try, College Aid Pro’s Matt Carpenter and Peg Keough answer three questions families are asking right now: Where should we start with paying for college? Should we complete the FAFSA even if tuition is already covered by a scholarship? And what does your Student Aid Index actually mean?
Here’s what parents need to know.
College Financial Planning Starts With Your Budget
A common mistake families make is starting with colleges.
They tour campuses, research schools, build a list, and eventually their student falls in love with a few options.
Then someone asks:
How are we going to pay for this?
That’s backwards.
Before getting serious about a college list, families should determine how much they can realistically afford to spend each year. Your budget becomes the foundation for the rest of your college financial planning process.
What Should Be Included in Your College Budget?
Your college budget isn’t necessarily one number sitting in a savings account.
There are several places the money could come from.
College Savings
Start with money you’ve already specifically saved for college, including 529 plans and other savings or investments you’ve earmarked for education.
But don’t stop there.
Current Cash Flow
Think about how much you’re currently spending on your high school student.
Sports, lessons, activities, transportation, tutoring, and other expenses may decrease when your child leaves for college.
Some of that existing cash flow could potentially become part of your annual college budget.
Student Contributions
Will your student work during the summer?
Will they have a part-time job?
Families can decide whether they expect their student to contribute toward tuition, books, personal expenses, or other college costs.
Help From Grandparents or Other Family Members
Some families also have grandparents or relatives who plan to help pay for college.
If someone has mentioned that they’d like to contribute but hasn’t given you a specific number, this may be the time to have that conversation.
You can’t build an accurate college budget around a vague promise that someone will “help.”
Understand Financial Aid Before Building the College List
Once you understand your budget, the next step in college financial planning is learning how financial aid actually works.
One of the most important concepts to understand is that a college’s published cost of attendance isn’t necessarily what your family will pay.
Colleges can discount their published prices through need-based financial aid, merit scholarships, and other institutional aid.
And two students applying to the same college can receive very different offers.
That’s why families need to look beyond sticker price and estimate what an individual college could actually cost their family.
Build a College List Around Fit AND Affordability
Once you understand your budget and have an idea of what different colleges could cost, you can start evaluating schools more seriously.
Of course academic and personal fit still matter.
Does the college offer your student’s major? Is it in a location they like? Does it have the campus environment, activities, sports, or opportunities they’re looking for?
But affordability should be part of that conversation from the beginning.
The goal is to identify colleges that check all three boxes:
Academic fit. Personal fit. Financial fit.
That’s one of the biggest advantages of starting college financial planning early. Your student can get excited about colleges your family already knows have the potential to work financially.
Don’t Wait Until Your Student Falls in Love With a College
It’s much harder to have the affordability conversation after a student has decided that one college is their “dream school.”
By that point, the decision is emotional.
A family may discover that the school could require substantially more borrowing than they’re comfortable with, but walking away suddenly feels like giving something up.
Starting with affordability helps set expectations earlier.
If a college isn’t financially realistic, you may decide not to seriously consider it in the first place.
That can prevent a lot of stress later in the process.
Think of College Planning Like Preventative Care
During the podcast, Matt compares planning for college to preventative healthcare.
Instead of waiting until there’s a problem and trying to fix it afterward, families can take steps early to reduce the likelihood of a financial problem developing in the first place.
College financial planning works the same way.
It’s much easier to establish a budget, understand financial aid, and build an affordable college list upfront than it is to figure out how to manage excessive student or parent debt after the college decision has already been made.
Parents Need to Be Involved in the Financial Side of College
Students should absolutely have a voice in where they go to college.
But expecting a 17- or 18-year-old to independently evaluate the long-term consequences of borrowing tens of thousands of dollars is a lot to ask.
Parents should be actively involved in the financial side of the decision.
That doesn’t mean choosing the college for your student.
It means helping establish realistic financial boundaries and making sure your student understands them before making a decision.
Your student can focus heavily on academics, campus life, location, activities, and personal fit. Parents can help make sure the financial side makes sense too.
Should You Complete the FAFSA If You Already Have a Scholarship?
The second question Matt and Peg tackle comes from a Florida family whose daughter expects to receive a Bright Futures Scholarship and attend an in-state public university.
If tuition is already covered, do they still need to complete the FAFSA?
Their recommendation is simple:
Complete the FAFSA.
Families shouldn’t automatically assume they won’t benefit from filing simply because they have a higher income or already expect to receive another scholarship.
Some colleges may want a FAFSA on file for certain forms of aid, and completing it can preserve access to federal student aid opportunities.
Filing the FAFSA also doesn’t automatically eliminate a student’s merit scholarship simply because the family has a high Student Aid Index.
Need-based and merit-based financial aid are different, and understanding both should be part of your college financial planning strategy.
Can Merit Scholarships Help Pay for Room and Board?
Merit scholarships aren’t necessarily limited to tuition in every situation.
Depending on the college and the terms of the award, institutional merit aid may help reduce other eligible college costs.
However, scholarship policies vary substantially by school.
Families should investigate how each college awards merit aid, whether their student is competitive for it, and whether an award can be combined with other scholarships.
The bigger takeaway is not to assume that tuition being covered means there are no other opportunities to reduce your remaining college costs.
What Is the Student Aid Index?
The third major question in the episode is one that causes a lot of confusion:
What does my Student Aid Index actually mean?
The Student Aid Index, commonly called the SAI, is a number used in determining a student’s eligibility for need-based financial aid.
It is influenced heavily by a family’s financial circumstances, including income and certain non-retirement assets.
But there’s one extremely important thing parents need to understand:
Your SAI is not automatically what you’ll pay for college.
Understanding that distinction is an important part of college financial planning because families shouldn’t build their entire college budget around their SAI.
An SAI of $50,000 Doesn’t Mean Every College Will Cost $50,000
Let’s say your student’s SAI is $50,000.
That does not mean every college will send you a bill for $50,000.
One college could cost your family more.
Another could cost approximately that amount.
Another could cost less.
Why?
Because colleges have different financial aid policies and different approaches to meeting a family’s demonstrated financial need.
Matt uses several hypothetical college examples in the episode to demonstrate why the same family and same SAI could experience very different prices at different colleges.
Your SAI is a starting point for understanding need-based financial aid eligibility, not a guaranteed college price.
You May Have More Than One SAI
Another complication is that some families may effectively encounter more than one financial aid calculation.
The FAFSA produces the federal Student Aid Index.
Some colleges also require the CSS Profile, which collects additional financial information and can be used by colleges to determine institutional financial aid.
That means a college’s assessment of your family’s financial need may not perfectly match the number you see after completing the FAFSA.
This is another reason families shouldn’t build a college budget around their FAFSA SAI alone.
Your SAI Can Still Be a Valuable Planning Tool
Even though your SAI isn’t your college price, you should still know what it is.
It gives you an important starting point for understanding your family’s potential eligibility for need-based financial aid.
From there, you can compare your estimated costs across different colleges.
Instead of asking:
“What’s our SAI?”
The more useful question becomes:
“Given our SAI, our budget, and this college’s financial aid policies, what could this school actually cost us?”
Answering that question is where college financial planning becomes much more useful for your family.
Don’t Assume a High SAI Means You’re Out of Options
Seeing your estimated SAI for the first time can be surprising.
But a high SAI doesn’t necessarily mean you’ll pay full price everywhere.
Need-based financial aid is only one way colleges discount their prices.
Merit scholarships may also significantly reduce costs at colleges that want to attract your student.
Rather than trying to find a magic strategy that promises to dramatically reduce your SAI, focus on understanding the financial position you’re starting from and identifying colleges where your student could receive favorable pricing.
The Bottom Line
If college planning feels overwhelming, don’t try to solve everything at once.
Start with your budget.
Figure out what your family can realistically contribute from savings, current income, student contributions, and any help from relatives.
Then understand your SAI and how financial aid works.
After that, start evaluating colleges based on academic fit, personal fit, and financial fit.
And even if you think your family won’t qualify for need-based aid or your student already has a significant scholarship, don’t automatically skip the FAFSA.
The goal of college financial planning is to understand the numbers early enough that your family can make informed decisions before emotions and deadlines take over.
The earlier you understand the financial side of college, the easier it becomes to build a college list that gives your student great options without discovering an unaffordable price tag at the end of the process.
