As parents of college-bound students, you know that higher education comes with not just academic challenges, but financial ones as well. The cost of college can be significant and can put a strain on your family’s finances if not managed wisely. That’s why it’s essential to create a budget for college expenses early on. By planning and budgeting strategically, you can help your child pursue their dreams without compromising their financial future. In this blog post, we’ll share some valuable money management tips for parents to create a budget for college expenses effectively.
1. Start Early and Set Clear Expectations
Ideally, begin discussing college expenses and financial planning with your child during their early years of high school. Be open about the budget you can allocate for their education, so they understand the limitations and can make informed decisions about college choices. The earlier you begin the more potential for growth in any investments put aside for college such as a 529 plan. Ask family members to contribute to a 529 college plan in lieu of gifts.
2. Research College Costs
Different colleges have varying tuition fees, housing costs, meal plans (different meal plans carry different costs), and other expenses. Research and compare the costs of the colleges your child is interested in attending. Take into account in-state vs. out-of-state tuition and the potential for scholarships and financial aid. See if you can negotiate tuition and fees not increasing. Research health insurance – oftentimes the school’s plan is less expensive than staying on the parent’s insurance. Factor in an annual increase in tuition, find out from the school how much their tuition has increased over the past 5 years and what they expect the next four years to look like and build this into your budget. At the same time confirm that any merit or gift aid is renewable every year.
3. Estimate Total Expenses
Consider both direct and indirect expenses. Direct expenses include tuition, fees, and housing costs. Indirect expenses include textbooks, transportation, personal expenses, and entertainment. Living off campus is often less costly than on campus. Make sure your student always uses their student ID to capture all the discounts offered to students.
4. Explore Financial Aid Options
Encourage your child to apply for scholarships, grants, and financial aid. Completing the Free Application for Federal Student Aid (FAFSA) is a crucial step in determining eligibility for federal and state aid programs. Some colleges require the CSS Profile. Make sure that you become familiar with the appropriate document. Appeal for more aid with any change in circumstances at any time, the doors to the FAO are always open.
5. Factor in Savings and Income
If you’ve been saving for your child’s education, now is the time to factor in those savings. Additionally, discuss whether your child will contribute to their education through part-time work during college. For the 24/25 FAFSA year (2023 calendar year) students can earn up to $9,410 without it adversely affecting financial aid.
6. Consider a 529 Plan
A 529 savings plan is a tax-advantaged investment account designed to save for education expenses. Contributions are not federally tax-deductible, but many states offer a state tax deduction. Earnings grow tax-free and are not taxed when withdrawn to pay for qualified education expenses – a win-win for both the tax-free growth and tax-free withdrawals!
Explore this option to maximize your savings and minimize the financial burden.
7. Create a Monthly Budget
Once you have a clear understanding of the expenses, create a monthly budget that encompasses all the costs associated with college. Include essentials like tuition, housing, meal plans, textbooks, and transportation, as well as discretionary spending for personal needs. Begin with your monthly cash flow and any other liquid assets available for college. Consider other sources to pull from such as home equity or loans and whether government or private loans are best for you. Always take out a loan as a last option but if you do
research points paid up front, interest rates and payback options. Stay on top of your credit score, this will matter with private lenders.
Look for easy places to save at home while paying for college, increasing your deductibles, switching cell phone plans etc..
Are you eligible to claim the American Opportunity Tax Credit? If so, factor this in as money (up to $2,500) back in your pocket at tax time.
8. Reevaluate and Adjust
Life is unpredictable, and financial situations may change over time. Reevaluate the budget periodically and adjust it accordingly. Be prepared to adapt to unforeseen circumstances.
Creating a budget for college expenses is a crucial aspect of ensuring your child’s higher education journey is financially sustainable. By starting early, researching costs, exploring financial aid options, and encouraging smart spending, you can alleviate some of the financial stress associated with college. Remember to communicate openly with your child about the budget, involving them in the process and teaching them valuable money management skills that will serve them well beyond their college years. With careful planning and a sound budget, you can help your child focus on their studies and make the most of their college experience without the burden of excessive financial worries.
Billie Jo Weis is vice president of client services for My College Planning Team and is a FAFSA and CSS Profile specialist. She has more than 20 years of experience in accounting and finance at a variety of companies and, as the mother of three boys in high school, knows first-hand the challenges and concerns of preparing for the cost of college. www.CollegePlanningTeam.com