Top Financial Mistakes Students and Parents Make When Preparing for College

Young college student and her mother saying goodbye.

While pursuing higher education could lead to more fulfilling and profitable career opportunities for your child, the price tag certainly shouldn’t be overlooked. The average federal student loan debt is currently just over $37,000.

That’s quite steep, especially for new graduates just setting out into the work world. And depending on your child’s professional trajectory, they could potentially be saddled with student debt for decades.

Want to make sure you get a handle on financing your child’s college education? If your kid is college-bound, here are some financial common mistakes parents and their kids should avoid, and what to do instead:

Not thinking about the ROI

The first thing that every parent and student need to think about is the return on investment of attending college, explains Robert Farrington, founder of The College Investor. “Sure, it can be difficult because it's not just about money, but about your kid’s dreams, aspirations, and goals,” says Farrington. “However, paying too much—and borrowing too much—for college can lead to a lifetime of financial hardship.”

A good rule of thumb? Never borrow more for college than the student is expected to earn in the first year after graduation, recommends Farrington. “For example, if your child wants to become a teacher, you shouldn't borrow more than $35,000 to pay for school. If they want to be an engineer, there is more leeway to spend upwards of $60,000.”

If your total loan amount is more than how much your child anticipates earning their first year out of college, it could limit choices on where they’ll be attending school. But by being smart on education spending, you can prevent overspending and financial hardship. If your child isn’t sure what they want to major in — or you would like to save on the overall costs of college — consider attending a community college first, then transferring, says Farrington. Or enroll in less-expensive schools that are in-state and living at home.

Not considering financial fit when choosing a college

Besides a college being a strong fit academically, socially, and environmentally, you and your child should compare their total resources, explains David Levy, co-author of Filing the FAFSA. So look at college savings, contributions from income, scholarships, grants, and taking on a reasonable amount of debt against the full net price of the college.

“If the total resources are equal to or exceed the four-year net price, the college is affordable,” says Levy. “But, if total resources fall short, you and your child might need to borrow excessively to cover the college costs. In turn, this might force the student to drop out of college or transfer to a less-expensive school when the financial realities set in.”

Bottom line: In addition to whether the college is a good match for the student’s academic and social needs and career pursuits, it’s best to also consider whether the college is affordable.

Borrowing too much

Beware of over-borrowing, warns Levy. “If the total student loan debt at graduation is less than the annual starting salary, the student can afford to repay his or her student loans in 10 years or less,” says Levy.

Let’s say the total debt is more than their annual income. In that case, the student will probably struggle to make the student loan payments. In turn, to keep up with monthly payments your child might need to look into an alternate student debt repayment plan. For instance, the income-driven repayment plan, in which payments are based on your child’s income after they graduate; or an extended repayment plan. Both of these repayment plans lower the monthly payment by stretching out the term of the loan.

“This means that the student will be in debt longer, thus delaying certain life-cycle events—possibly, even until their children enroll in college—and will pay more interest over the life of the loan.” So you’ll want to carefully review your child’s financial needs before they enter college and each subsequent year that they’re enrolled.

Cosigning a student loan

While you want to help alleviate your child’s debt burden and make it easier on them, you’ll want to set boundaries and be aware of how co-signing a student loan could affect your financial well-being. Parents need to understand that a cosigner is essentially a co-borrower, explains Levy. In turn, they’re on the hook to repay the debt. “The cosigned loan will affect the parent's credit history, too,” he says.

So if your child is late with a student debt payment or defaults, it will ruin not just your child’s credit score, but yours as well. “Even if the student manages the cosigned loan responsibly, making every payment on time, the loan can affect the parent's ability to borrow,” says Levy. “For example, if the parent wants to get or refinance a mortgage, the cosigned loan will count as part of their indebtedness, potentially affecting approval for the mortgage or the interest rate they are charged.”

Not applying to scholarships early

As you might’ve guessed, scholarships are one of the most under-utilized tools for most students. The reasons are many, points out Farrington. Scholarships can be hard to find, take time to apply to, and the odds of winning could be slim.

But the beauty of scholarships is that they’re a form of “gift aid”—and the money is plentiful if students take the time to apply to as many as they can. Don’t forget to follow the instructions and provide all the required documents and information. You’d be surprised at how many people overlook that last step. “Following the instructions can give you a big leg-up on the competition,” says Farrington.

Along the same lines, some students don’t apply to enough scholarships. While there’s no magic number, Farrington suggests applying to at least 40 to 50 if possible. Some of these scholarships have an application fee, so do your research beforehand and create a “scholarship fund” if you can. “The odds will be in your favor to pay for a good portion of your schooling if you follow this plan,” says Farrington.

Not planning to work during school

One of the best things that college students can do, not only for their budgets but for their future careers, is work during school, says Farrington. “Beyond the extra money, working provides students with real-world career skills—specifically business communication and business problem-solving skills. These can't be taught in a classroom. By working during school, you can develop these skills, and improve your post-graduation job prospects.”

There’s no shortage of ways to work while in college: work-study programs, paid internships, or on-campus jobs. Scour listings at college career centers, or a job fair. You can also bypass traditional, on-site jobs and look for freelance gigs on boards such as Upwork or Fiverr. While at first you might not be making a ton of money, freelancing can give you a wide range of experience. It could eventually be more lucrative than, say, working a job on campus.

Failing to file the FAFSA

The FAFSA (or Free Application for Federal Student Aid) is your key to not only qualifying for federal grants, work-study and scholarships, but is also your key to unlocking federal student loans, explains Farrington.

“You should plan on filling out the FAFSA every year, as early as possible,” says Farrington. “The reason? Many school-based awards are limited, and they go to those who file early and qualify. So, even if you may qualify, if you don't file early enough, you won't get an award.”

You’ll want to file the FAFSA as soon as possible, adds Levy. You can file as early as October 1, and the FAFSA has an 18-month cycle. You’ll also want to check for state and school-specific deadlines. That way you don’t miss the cutoff.

Plus, if you do need to borrow student loans, federal loans are the best—and not filling out the FAFSA won't get you any federal student loans.

If you're already struggling with student loan payments, take advantage of MMI's student loan counseling. We can review your loans and help you find the plan that best fits your goals, whether that's saving the most money, finding the smallest monthly payment, or paying off your debts as quickly as possible.  

Tagged in Advice for students, Advice for families, Student loan options

A corporate headshot of Jackie Lam.

Jackie Lam is an L.A.-based personal finance writer who is passionate about helping creatives with their finances. Her work has appeared in Forbes, Mental Floss, Business Insider, and Bankrate. She's also a 2022 Financial Literacy and Education in Communities (FLEC) award winner. You can find her at

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