8 College-Planning Tips From the Car-Buying World

Note: This article is part of Morningstar's College-Savings Boot Camp special report.

Many parents consider paying for their child's college education to be one of their most important financial responsibilities. However, many then experience sticker shock when they discover just how much it will cost them. These days it's not uncommon for four (or more) years of college to cost well into six figures, so the need to plan ahead, and to make wise choices, has never been greater.

From a strictly dollars-and-cents perspective, preparing to pay for four years of college is almost like planning to buy a new car for four years in a row. And just as you would when buying a car, you'll need to ask some important questions, not the least of which being how much you can afford. Is it worth taking out a loan to get that flashy foreign import you've had your eye on, or will a middle-of-the-road domestic model suit your needs? How will you use the car, and where does it need to take you? In many ways these questions are analogous to those that families must consider when deciding where to send their children for college.

With this in mind, let's apply some basic car-buying principles to shopping for college and see if we can learn a few lessons. 

Do Your Research Before You Buy
Educating yourself as a consumer is important with any big-ticket purchase, and paying for college is no exception. Doing your homework is essential, and that means reading college brochures and websites, to be sure. But also look at independent sources such as the U.S. Department of Education's College Navigator tool, which provides loads of useful information on tuition and fees, financial aid, graduation rates, and more for colleges nationwide. Word of mouth is also invaluable. Talk to parents and students who have first-hand knowledge about schools your child is considering. If you don't know anyone familiar with a school, talk to your high school's guidance counselor and ask what he has heard about it.

Take a Test Drive
Many people won't buy a car they haven't had a chance to test-drive, and for students considering a school they haven't already seen, there's no substitute for a campus visit. At a minimum take the guided tour, making sure to also leave time to walk around campus on your own to get a feel for the place. Better still, spend the weekend, including a chance for your prospective-student child to stay at one of the dorms, sample the cafeteria food, and get a sense of campus life. Can your child see himself there? Another tip: Don't assume the weather during your visit is typical. Find out how hot or cold it gets during the school year so your child gets a fuller picture of what it would be like to go to school there.

Don't Buy More Than You Can Afford 
Just as shopping for a car requires self-discipline, so, too, does shopping for college. If you haven't saved enough ahead of time and your household cash flow won't cover expenses, you could take out college loans, borrow from your retirement account, or take out a home equity loan to fill the gap. But should you? Think about the impact that borrowing from your 401(k), for example, would have on your plans for retirement. Are you willing to work longer to help your child attend the school he is set on, and what happens if career or family-health issues prevent you from working longer? Most of all, think about the return on investment the college provides. Is a more expensive school really worth the extra money, or is a less expensive, but comparable, school a better bargain? (For more on getting the best return on your college investment, see this article.)

Factor In Add-On Charges 
You know those tax, title, and destination charges the dealer tacks on when you buy a new car? They can add thousands to the price you pay, just as expenses beyond tuition, room, and board will add to the child's cost of attending college. The prices colleges publish might not include costs such as books and school supplies, transportation, dining out, and other living expenses that can add thousands to the total bill. And if the student is attending school somewhere that requires a plane trip for visits home, or for you to come visit, that will add still more to your bottom-line costs.

The Sticker Price May Not Be What You Pay
Car salespersons aren't the only ones prepared to make you a deal. Colleges routinely offer students scholarships and grants as an incentive to enroll, especially those who demonstrate a financial need or who meet academic or other criteria. The fact is that published tuition rates, in reality, are the maximum that the school expects anyone to pay, and that many students pay less because of need- and merit-based financial aid. So if your student is admitted to a school that's out of your price range (and even if it isn't) and has a strong resume, it wouldn't hurt to ask the financial aid office what additional help it can provide.

Skip the Undercoating 
Colleges spend gobs of money to send out glossy brochures with artistic, well-lit photos showing how idyllic campus life is at their schools. But as you read through the list of amenities described therein, ask yourself which will provide long-term benefits to your child and which will merely provide short-term comforts. Sure, you can pay handsomely to send your child to a college that offers a beautiful new student health club and living facilities that put a four-star hotel to shame, but a new state-of-the-art research facility and topnotch career services are likely to pay bigger dividends in the long run. And do you really think a job interviewer is one day going to ask your student how many espresso machines her dorm had? Didn't think so.

Your Mileage May Vary 
A school that's a great fit for one student may be a poor fit for another. Some students thrive at large universities while others do better at small schools. Some students choose a college in a different part of the country while others would rather live at home while enrolled. Even if everyone you know agrees that State U is the best college around, it's what's right for your child that matters most. The best school is the one that helps the student get to where he wants to go in life, even if it means helping him figure out where that might be. Spending more for a school with a solid reputation, but a poor fit for the student, is unlikely to provide a good return on your investment.

Objects in the Rearview Mirror Are Closer Than They Appear
Once your child finishes school, he will be ready to start a career. But aside from a degree, what else will he be carrying? About seven in 10 members of the class of 2013 left school with college-related debt, including student loans and credit card debt, according to a survey by Fidelity, with $35,200 being the average amount owed. For them and many other recent college graduates, student debt stands as a near-term obstacle that poses a threat to their long-term financial health. Instead of saving every dollar they can for retirement, to buy their first home, or even to get their first apartment, they will be channeling at least some of their income to pay off loans. In this sense, the decision about how much to pay for college will have an impact well beyond the date of graduation and, in effect, may become a decision about a student's financial future. One last point: Keep in mind that four years of schooling may not be enough. Your child may want to pursue a graduate degree or need more than four years to earn a bachelor's. It may be difficult to see that far into the future when your child hasn't even graduated high school yet, but the point to remember is that you could end up paying for more than just four years' worth of college bills.

Of course, aside from a high price tag, a new car and a college education actually have very little in common. For one, you can't trade in a college education (thankfully), nor does it begin to lose value the moment your child leaves school. Most important, a college education is an investment in your child that should appreciate over time. And, with proper planning, it doesn't have to put a serious dent in your family's finances.