5 mistakes students and families make when planning for college expenses

Many incoming students and their families will spend the summer planning how they'll pay for college.

Writing for the Wall Street Journal, Chana Schoenberger spoke with financial aid experts to identify the five most common mistakes students and their families make in college financing.

1. Applying for zero financial aid

Some incoming students don't apply for financial aid because they believe they won't qualify for any. This belief is common among students from middle- and upper-income households, according to Anne Sturtevant, executive director of higher education at the College Board.

Students from these higher-income families don't realize that their eligibility for financial aid might depend on factors beyond income, such as the number of people attending college in the family and the cost of tuition.

Other students worry that applying for financial aid will hurt their chances of being admitted. Schoenberger advises parents to check with the institution whether the family's financial situation will be a factor in admissions.

Students don't speak "financial aid"

2. Not taking advantage of a 529

A 529 savings account allows families to deposit after-tax money to pay for college. The money is invested in mutual funds and is not charged federal taxes. However, only 32% of Americans know about these plans and only 14% plan to use one, according to a survey by Edward Jones.

But these accounts are a family's best strategy for paying for college, says Mark Kantrowitz, publisher and VP of strategy at Cappex.com. Saving money in them is relatively risk-free, Schoenberger writes, because the money can be withdrawn for little or no taxes or penalties, depending on the situation.

3. Creating an unrealistic budget

Most families have a plan for how they'll pay for college—but few of them have a backup plan in case something goes awry, says Sara Goldrick-Rab, a professor of policy, organizational and leadership studies at Temple University who researches higher education economics.

And a lot can go awry. For example, the student might stay an extra semester, struggle to find a campus job, or lose a scholarship.

Families also often underestimate the cost of housing, food, books, and other fees, Schoenberger writes. In 2015, NPR reported that the cost of room and board was rising faster than tuition at many schools.

Why federal financial aid isn't enough for many students

4. Overlooking small scholarships

Just 0.2% of students are awarded $25,000 or more in scholarship money, says Kantrowitz. Rather than focusing on these big prizes, he encourages students to apply for lots of smaller awards.

Kantrowitz recommends students start out by asking their college counselor about scholarships that were awarded to other students at their high school in the past. He also suggests using free scholarship-matching websites.

5. Focusing the search too narrowly

There are thousands of colleges in America, Schoenberger points out. As such, she writes, it's "a mistake to fall in love with one school too early in the process."

The experts agree. Students should look for a college that's both affordable and challenging, but not overwhelming, says Sturtevant. And students should really visit more than one campus to get a better sense of what's a good fit, adds Goldrick-Rab.

What families should do instead

"Many families fall victim to the rumor mill when making decisions about which schools to apply to and whether or not to apply for financial aid," says Sarah Le Duc, an expert on financial aid at Hardwick Day, a division of EAB. She says that when she worked in a financial aid office, she often heard stories of what worked for a neighbor's child, nieces and nephews, and so on.

"But the truth of it is that there is only one way to find out exactly how much financial aid you are eligible for: Apply," she says.

Le Duc adds that many families can get a realistic estimate of eligibility by using the school's net price calculator, which all colleges are required by law to have available on their websites. Families can enter their income and the student's credentials to get an estimate of what their net price would be. Le Duc says the tool allows families an opportunity to be realistic about what their costs will be and plan accordingly (Schoenberger, Wall Street Journal, 6/4).

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