A mother daughter conversation with a laptop.

How to Have the College Finance Talk With Your Children

Make an appointment with your child and have hard numbers ready to discuss borrowing for college.

A mother daughter conversation with a laptop.

Borrowing money for college is a big commitment, so parents should break down college costs in terms students can understand. 

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"The talk." Those two words could refer to any number of troubling things: relationship problems, work issues or a midday TV gabfest.

However, for parents sending kids to college, "the talk" refers to one thing: how to pay for it. Likely, the answer will be "with student loans."

Also likely is that parents will oversee the process by filling out the Free Application for Federal Student Aid, known as the FAFSA, and loan paperwork themselves. If you haven’t helped your children understand what they’re borrowing, it’s getting late – but not too late. Here are four steps to start talking. 

This Student Loan Ranger has never had this talk with his children, because he won’t even have one until about a month from now. And while I secretly hope this whole "college cost" thing is figured out in 18 years, I worry you thought the same thing back in 1994. Let’s help both of us out by running through how to talk about loans.

1. Put it on the calendar: Before you get to the "fun" stuff, set your conversation up for success by carving out some official time for it. Don’t just grab your daughter for a random kitchen table sit-down.

Instead, tell her in advance that you’d like to talk about paying for school on "X" date. You can even let her choose a favorite restaurant or other location for the chat, so she feels engaged and comfortable. 

2. Know your number: Before your meeting, think about how much your family should borrow. Finding that number can be tough, but a good ceiling is the annual maximum for undergraduate federal student loans: $5,500 for first-year students, $6,500 for second-year students and $7,500 for years thereafter.

If that’s not enough to cover costs, Parent PLUS loans or private loans can help – but they can also lead to overborrowing. Be careful.

[Learn strategies for keeping college borrowing to a minimum.]

3. Put the cost in context: Borrowing is a big commitment. Unfortunately, students sometimes take it lightly because they don’t see loans as real.

Since the brain fears losing money, you have to make this on-paper total tangible. To do that, put the amount into the context of your child’s life.

Remind her of how long she had to scrimp for that new game console. Then, tell her how borrowing $25,000 is like saving up for that $400 console – 62 times.

Or, mock up a budget based on her anticipated salary. Include things like rent, utilities and estimated student loan payments. That will show her how much she’ll have for nonessentials – you know, like food – and get her thinking.

4. Set expectations: Many parents want to tell their child to go wherever he or she wants – and they'll figure out the rest later. If figuring out the rest includes borrowing a Parent PLUS loan, think about your retirement plans, other children yet to go to college or whether you anticipate caring for your parents before you borrow.

After all, the borrower – you – is responsible for this debt. If you take out this loan thinking your child will repay part or all of it, outline your expectations and set up a repayment schedule.

You may even want to put this in writing. After all, what’s a friendly family chat without paperwork?

[Determine how much to borrow for college.]

Talking about student loans isn’t easy. Just remember: You’re not doing this to turn the "dream" school into the "school that requires the least debt" – though that's not a terrible dream. It's to set your child up for success, not only during school but also after he or she graduates. 

Ultimately, how much educational debt to take on is a personal decision for each family. So, if you haven’t already talked about it with your son or daughter, you need to start today. Sorry, only I have 18 years left to prepare.