Don’t Forget to Plan for College Costs
You’ve been through the college admissions roller-coaster: researching schools, endless test prep, and sending what probably seemed like countless applications. You went through the waiting game, the tours, and the comparisons. Finally, you and your child picked the right college, and his or her case of high school “senioritis” blossomed into maturity.
It may feel like the end of a long journey, and in a way it most certainly is. But this is also just the beginning, and it’s a great time to start helping your college-bound senior plan for the financial road ahead.
Managing the cost of college
Paying for college and all its related expenses is no small feat these days. According to College Board, the cost of college has grown faster than the overall inflation rate for decades; since 2005, tuition and fees for public 4-year schools grew an average of 3.4% every year, after accounting for overall inflation.1
There are many ways to cope with the cost of education. Some kids commute from the family home, others choose schools based on convenience or cost, and some study part-time. In a 2015 survey, lender Sallie Mae found that 70% of students worked while in school, and 53% chose a school closer to home to cut down on travel expenses.
Regardless of how you’re approaching these issues, building a budget is a critical first step in making it work.
It all begins with budgeting
Budgeting is a skill that will bring your child lifelong benefits. What’s more, by helping your new college student develop a plan for income and expenses, you’ll also have a perfect forum for broader discussions about the importance of saving, monitoring spending, and planning for emergencies. Utilize the chance!
As you start working on the financial picture for college, it might be easiest to start with the costs. These could include big-ticket items like books, tuition, and housing, but should also cover everyday needs like groceries, commuting, and clothes.
Sometimes, identifying a budget for certain expenses can be mystifying. If your child will be in a new city, how can you possibly predict commuting costs? How much will he or she really need for clothes? This is where research comes in. Let your college freshman use their internet search skills to nail down the details on the projected cost of living and common expenses.2
From here, talk about who will be covering what — and how. Will your son or daughter be working? How much can he or she expect to make after taxes? What can put aside in savings?
If you’ll be using loans, have a frank discussion about their total lifetime cost and the importance of making sure they can be paid down as soon as possible. For 16% of students and 6% of parents, loans are a reality, but they can be extremely costly over time.3 Your family needs to have a plan to tackle the debt and ensure it doesn’t get unmanageable.
Try it out
Once you have an outline of what your child’s costs will be and how they’ll be covered, you’re ready to take your budget for a test drive. Encourage your child to manage his or her money over the summer so that there’s time to learn before school starts.
This means empowering your son or daughter to manage the budget in the way that works best for his or her personality — even if it’s something that could never work for you. Maybe your daughter is glued to her phone and would love an app that automatically tracks her spending. Maybe your son does best with a cash-only system. Figuring out what works will likely take some experimenting, so offer ideas and let your child take the lead in implementing them.
Keep the lines of communication open
It’s important to make sure your child knows that managing a budget is an ongoing process and that there might be bumps on the road. You may need to revisit an unsustainable estimate later on, or you might find that your son or daughter really struggles with spending in one or two areas.
That’s okay: sometimes reality doesn’t conform to our idea of what it should be. Keep the door open for future conversations so that your child feels comfortable asking questions. That way, you can focus on building a budget that works.
Personal money management is a skill that will last a lifetime, so make this milestone count: with open communication, a supportive environment, and the knowledge that help and guidance are always available, your child can set out into this exciting new phase of life fully equipped for success.