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What parents of new college students should know about money
Before your kids head off to school, enroll them in Budgeting 101
To paraphrase the esteemed bard Drake: If you’re reading this, it’s not too late. If your child has just started college and you’re worrying about money — which, given the rising cost of tuition, you probably are — you can still do some financial prep, and you can still take action to make college more affordable and help set your child on the right financial path. You might say that, financially speaking, there’s still time to find … more life. (Thank us later.) If you are looking for college finance tips, you have come to the right place.
The first thing to do? “Be transparent and upfront about what you can afford, what you are able to contribute,” and what college really costs, says Tamika Thomas, a client service manager at My College Prep, an organization that helps with financial solutions and budgeting as they relate to college. You should discuss all of the following college finance tips with your child in the same way: candidly. For many kids, college is the first step on the road to adulthood, so when you’re telling them what they need to do and what the financial stakes are, talk to them like grown-ups. By handling these situations from the beginning, your college student will be able to start developing their own personal finance goals and create an appropriate budgeting and spending plan.
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College expenses are high. Teaching your college student about private student loans, grants, and other financial aid options is essential if you want to help them plan out their financial future. Robert Farrington is the founder of The College Investor, which helps families work out how to pay for college and get out of student loan debt. He considers it fundamental that “every year the student is in school they fill out the FAFSA (the Free Application for Federal Student Aid),” he says. “This form unlocks scholarships and grants from the university and the government, as well as student loans. Even if the student doesn’t think they’ll qualify for aid, they should fill this out,” he adds, because it may turn out they’re eligible for funds they didn’t know about, and it leaves options open when planning for their financial situation.
“Students can always be applying for private scholarships every year,” says Farrington. “If a student is coming up short on financial aid, this is the key way to do it. However, applying for scholarships does take time and effort. The results can be rewarding, but to get the most in scholarship money, a student should plan on searching out and applying to 40 to 50 scholarships. That’s not an easy task, and it’s something parents can help with.”
Thomas, from My College Prep, notes that “there are various scholarship websites which allow students to apply for scholarships throughout the year for all kinds of things that match their interests or skills.” This list is a good place to start. Note that there is an enormous variety of scholarships available, including some that are based on ethnicity, whether you have a family member with cancer, or how creative you can be with duct tape, so applicants should cast a wide net if they want to receive help for their college costs.
When a student is applying for scholarships, they shouldn’t just aim high, says Thomas. “The thing about big scholarships like the Bill Gates scholarship is that a lot of people are going for those and they only have a handful of awards,” she says. “Everybody goes for the $10,000 scholarships, but because they’re so popular it means you’re less likely to receive it. So I always tell students to go for smaller scholarships, too. $500 — that’s a semester of books. $1,000 — that’s money towards tuition.”
“Families also need to understand that a big source of scholarships is going to be scholarships that the student receives from their college,” she adds. “Private colleges have a high sticker price, but many of them have more money to put towards scholarships because they have endowments and support from alumni.”
Although it’s wise to apply for scholarships before you start college, “some colleges have scholarships for students after they’ve been admitted, so the student should go to the financial aid office and ask if they have any available,” says Thomas.
Taking out loans
“Parents should never borrow money to pay for their child’s college,” says Farrington. “Children have a variety of ways to get money for college, even student loans. But parents… there are no loans for retirement. So if parents borrow money and don’t save for themselves, all that happens is they end up being a financial burden for their children later in life. With that in mind, parents can help their children apply for scholarships, help them find jobs and save money.”
If private or federal loans are needed, “I always recommend that the student go for the Stafford loans,” says Thomas. “Those are not income-based. All you have to do to be eligible is complete the FAFSA. They’re government direct, the student is eligible for $5,500 the first year, $6,500 the second and $7,500 for years three and four. Government direct federal loans have favorable interest rates and repayment options — a student won’t have to start repaying them until six months after they graduate or stop taking classes. So if someone is going straight to graduate school that would delay when they have to pay the loan back.”
Reducing the cost of college
It’s an understandable question: Is there any way to make college cost less? The short answer is, well, good luck with all that. Many college costs are fixed, and your child will presumably still need to eat several times a day while they’re away at school. However, “the cost of textbooks can vary a lot semester to semester,” says Farrington, and there are ways to save money on those. Thomas mentions online trading sites for books, and of course a student can buy books second hand, having made sure that the appropriate edition is available. This article is ten years old, but its tips on how to reduce the potentially considerable cost of textbooks are well worth reading.
Farrington also notes that “the biggest overrun I see is students who enjoy going to dinner or events with friends. Small spending can add up each month, quickly exceeding any budgets set in place,” he says. By setting a spending or savings goal, your child will be able to manage their college expenses and stick to a monthly budget.
Speaking of budgets: Make one. Once you and your child know how much money is available, you should make a monthly budget together and be sure your child sticks to it. “Students should budget by figuring out what approach and tools work for them,” says Farrington. “The best budgets and financial tracking methods are the ones the student is comfortable with. Do they like using an app on their phone? Then look at app-based budgeting tools to track their money. Do they like pen and paper? Then get a journal.” Setting a budget will allow your child to manage the money in their bank account and hopefully prevent college debt in the future
The budget should say who pays for what — you may be enthusiastic about subsidizing books, but not beer — and should take account of costs beyond tuition, accommodation and basic survival. Says Thomas: “Consider travel expenses to and from home, snacks, entertainment, initial costs — maybe a student needs a new computer. Add all that to the budget and discuss who is going to be responsible for what.”
This is also the time to make your child aware of some living costs they may not have considered while they resided under your roof. For example, “I do remember in college our dorm had the worst toilet tissue ever, so we bought our own,” says Thomas. “Afterwards I called my mother and said ‘Mom, tissue costs a lot.’”
Joining the workforce
Should college students get a part-time job? “100% yes. This is non-negotiable. All college students need to work in school,” says Farrington. “Not just from the financial aspect of it, but from the business aspect of it. Employers are looking for two key traits from college graduates — problem-solving skills and business communication skills. College students don’t typically learn these skills in a classroom. They need to work to learn these skills. So, beyond improving their personal finance situation to help pay for college and fun activities, working during college helps students build the skills they need to be successful after college.”
Also, “now’s the time for students to learn the basics of saving for things they want — especially when it comes to big travel or excursions,” says Farrington. “Students should be working in college and take some of that money and set it aside for events and things they want. Building these behaviors in college can help grow their savings account and set them up for a lifetime of financial success.” And that’s something no degree can match.
About Michael DavisRead more by Michael Davis
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Haven Life is a customer-centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our editorial policy
Haven Life is a customer centric life insurance agency that’s backed and wholly owned by Massachusetts Mutual Life Insurance Company (MassMutual). We believe navigating decisions about life insurance, your personal finances and overall wellness can be refreshingly simple.
Our content is created for educational purposes only. Haven Life does not endorse the companies, products, services or strategies discussed here, but we hope they can make your life a little less hard if they are a fit for your situation.
Haven Life is not authorized to give tax, legal or investment advice. This material is not intended to provide, and should not be relied on for tax, legal, or investment advice. Individuals are encouraged to seed advice from their own tax or legal counsel.
Haven Term is a Term Life Insurance Policy (DTC and ICC17DTC in certain states, including NC) issued by Massachusetts Mutual Life Insurance Company (MassMutual), Springfield, MA 01111-0001 and offered exclusively through Haven Life Insurance Agency, LLC. In NY, Haven Term is DTC-NY 1017. In CA, Haven Term is DTC-CA 042017. Haven Term Simplified is a Simplified Issue Term Life Insurance Policy (ICC19PCM-SI 0819 in certain states, including NC) issued by the C.M. Life Insurance Company, Enfield, CT 06082. Policy and rider form numbers and features may vary by state and may not be available in all states. Our Agency license number in California is OK71922 and in Arkansas 100139527.
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