As high school students begin to think about their future beyond graduation, preparing for college becomes a significant milestone for both students and parents. Higher education costs continue to rise, making financial preparedness a crucial aspect of the college journey. The average cost of college in the United States is $36,436 per student per year, including books, supplies, and daily living expenses. In the face of this challenge, how can parents prepare their children to be financially fit for college? We explore key financial tips to help parents and students be financially prepared for the college years ahead.
Start Early and Create a Budget
Financial planning for college should ideally start during the early years of high school. Families can begin by creating a comprehensive budget that outlines expected college-related expenses, such as tuition fees, accommodation, meals, textbooks, and living costs, including discretionary items such as travel and entertainment. Students should take an active role in the process to help instill financial responsibility and understand the impact their choices can have on the budgeting process. A helpful guide for creating a budget and other essential material can be found at Studentaid.gov.
Determine Sources of Funds
Parents and other family members, including grandparents, can play a role in contributing to funds to cover college expenses. Parents can contribute to a college savings plan, such as a 529 plan, which offers tax advantages and allows savings to grow over time. Students can take an active role in this part of the process by searching for scholarships matching their skills, talents, and academic achievements on individual college websites and looking at online resources like Fastweb and Scholarships.com. Parents can also encourage students to take up part-time jobs during high school and save a portion of their earnings.
Parents can seek advice from college counselors or financial experts to understand the various types of financial aid, including grants and loans, that may be available. Federal Student Loans are a primary resource, and the FAFSA form should be filled out annually. A helpful online resource, The College Funding Coach, can tell you
- how much colleges think you can afford
- If you will qualify for grants or scholarships
- how much you will be expected to pay out-of-pocket
Tips for Limiting Student Loan Debt
- Identify schools that fit within your family’s budget.
- Consider post-college earnings potential. A general guideline is to keep student loan amounts less than starting salary expectations for the student.
- Agree that student loans are to be used for tuition, room and board, and books and not to supplement the student’s college lifestyle.
- Borrow only what is necessary and have a clear plan for repayment after graduation.
- Consider taking core classes at a community college or through online courses and then transferring to a university.
Build Credit Responsibly
A good credit score (700+) might be low on the priority list for most college students, but entering college is an excellent time for them to start building a strong credit history. Parents can begin by explaining what a credit score is and what it means for future financial planning, such as obtaining loans, renting an apartment, or securing a favorable interest rate on a credit card. As a first step, students can open a checking account with a debit card. When used correctly, credit cards can also help build credit history. Parents can educate their children on ways to build and maintain a good credit history, such as paying bills on time, limiting the amount of debt, and only making purchases they can comfortably pay off each month.
Tips For Using Credit Cards Wisely
- Consider opening a student credit card account designed specifically for students that often has lower credit limits and more relaxed approval criteria.
- Become an authorized user on a parent or guardian’s credit card account to receive benefits from the primary account holder’s positive credit activity.
- A secured credit card, offered through banks and associated with a savings account, can provide an option for students who cannot qualify for a traditional credit card.
- Make credit card payments on time. 35% of the credit score is based on payment history.
- Pay off the whole balance every month and strive to charge only necessary purchases, such as groceries, gas, or cell phone bill.
Financial fitness for college requires careful planning, discipline, and proactive decision-making. A few final words of wisdom: start early and have ongoing discussions with your child to prepare them for college; help your child find schools that are a good fit academically and socially, as well as budget-wise, to limit the possibility of a transfer to another college; introduce your child to software that the family can use track budgets and account balances; and remind your student that the purpose of going to college is to make them financially independent. Encouraging financial responsibility and utilizing available resources will ensure a smoother college experience and set the stage for a more secure financial future beyond graduation. At Method Financial Planning, we can help you create a well-thought-out financial plan so that your family can confidently embrace the college years. Just ask. We’re here to help.