Understanding and Assessing Your Affordability Threshold

Information adapted from the Financial Fit Video Library.

In the planning phase, you need to understand affordability and you need to find your affordability threshold, or the amount you (and your parents) are able to contribute toward your college education.

You might think affordability doesn't really matter because you can just take out student loans, but you have to remember that student loans are not free money. You will have to pay back all of the money you borrow plus interest. Some students take big loans and have such large loan payments after college that they can't afford to do all the things they want to do.

So finding colleges you can afford is important, but how do you figure out what you can afford?

To figure out what you can afford, you and your parents should consider these four questions:

• How much money do you think you could afford to spend on college per year from your current cash flow?
• Are there expenses that you will no longer be paying for when your student is in college?
• Do you have savings or retirement accounts you could draw from?
• How much are you willing and able to borrow in student and parent loans?

Once you have answered these questions, you should be able to determine your affordability threshold, or the maximum amount you would be able to spend on college per year. If you need help, you can check out Frank Palmasani's myfinancialfit.com for a financial questionnaire to help determine your affordability threshold. For more information on affordability and finding affordable colleges, check out the Financial Fit Video Library.

Once you have established your affordability threshold, you can then start searching for colleges that are affordable for you, your financial fits.

Ready to start finding your financial fits?