08/31/2012 01:50 pm ET Updated Oct 31, 2012

You Better Shop Around

It's funny. I typically find myself on the left side of the aisle in politics, and there are things I question about Mitt Romney's proposed education policies. One is the idea to make the Pell Grant available to fewer students; another is telling students to borrow money from their parents; and third is having students turn to private lenders when taking out loans for their education. But there is one thing Romney says that, although he is taking a lot of heat for it, is actually good advice: shop around.

The Pell Grant is only available to lower-income families. Romney makes the statement that he will reduce eligibility for the Pell Grants--not reduce the amount. Needy families will not lose any eligibility. Where I live in Albany, NY, a family of four with one student in college must earn below $60,000.00 to be eligible for a Pell Grant. Since it would be difficult for a family of four to support themselves here on $60,000.00, reducing the eligibility even further will hurt many lower-income families. Students from these households are clearly unable to borrow money from their parents.

In fact, I think it's fair to say that most families don't have the money available to loan to their child. When a FAFSA is filed, the government takes the information and calculates an expected family contribution (EFC). This number is how much the government thinks the parents should contribute toward the student's education. For most families, it is difficult, if not impossible to come up with this initial amount. That is why there are loans for parents (ParentPLUS loans) to cover this amount. To think parents would have money to loan, over and above this initial contribution, is unrealistic. I've helped families for the last 17 years, and the number of families that can afford the EFC is miniscule. Currently, when students go off to college, their parents are already borrowing money to pay the EFC. For them to borrow more means they will turn to their retirement accounts, or take out second mortgages, and this creates a long-term problem for parents.

Borrowing money for college is the reality for most parents and students. Borrowing money from private lenders is more problematic than borrowing from the government. Private lenders don't have any of the safeguards for repayment that government loans offer. I am totally against blanket student loan forgiveness (other than the forgiveness through volunteerism or certain types of work already in place), but students need to have some level of protection over the long course of repayment.

Private loans usually come with a variable interest rate. They have no provisions for students who find themselves unemployed, and the interest rate for loan consolidation is based on their credit score. Students should be very careful when choosing how they will fund their education. This is why students need to, in Mitt Romney's words, "shop around."

Too often, students choose a college that has made them a poor financial aid offer when they have been offered an excellent aid package from another school. This may be emotionally satisfying to the students, but it makes no sense financially.

We suggest that students get estimates on what their out-of-pocket costs will be before they apply. This helps students and parents know what they can expect ahead of time. Parents and students may be surprised at the results. Colleges with the biggest price tags are often not the most expensive schools once financial aid is added in. The only way to decide which schools the parents and student can afford, and which schools the student should spend the application fee on, is through estimates.

Students should apply to at least four schools. We suggest to our clients that they apply to six. The reason for this is it gives students options and a back up plan. If the student's top choice college doesn't admit them or makes a poor offer of financial aid they have other colleges to choose from. If they only apply to one school and either don't get in or can't afford to attend, their choice of colleges that they can apply to at this late date will be limited.

Students need to know the entrance requirements at each school they will apply to. When they apply to schools where they fall in the top 25% of the entering freshman class, they will be a more attractive candidate at that school. Being an attractive candidate translates into a good financial aid offer. The more the college wants you to attend, the better their offer will be.

Students should only apply to colleges they would attend. Yes most students will have a top choice for college but each school on their list should be one they would attend. Students really should stop thinking that there is only one school they will be happy and perform well at. For each student there are typically a handful of schools that would be good choices. Once students start receiving their offers of financial aid they need to think about college exclusively from a financial standpoint.

Students need to carefully assess each financial aid offer, looking closely at what the offers mean long-term. Compare the offers side by side. How much debt will they be taking on at each school? Students should not take on more college debt than they would likely earn during the first year on the job.

If the offer includes loans, study the terms of those loans. What type of loans are they? Private or government? Is there a possibility for loan forgiveness? What is the interest rate? Does it offer deferred payments while you are in school? Are there penalties for early pay off? How long do you have to pay the loan back?

Most students will take on debt while they are in college, and most students will not take on more debt than they can afford to pay back. But, Mitt Romney is right: "shopping around" for the college that makes you the best deal is exactly what students need to do.