Have you made a college money plan with your teen?
The expense of college is a major investment, whether you pay for it or your child does. And managing college money issues – from paying tuition to adulting prep to dealing with college debt – can cause a lot of stress for parents and students.
Every family’s strategy for surviving the college years is different, but the sooner you start thinking about a college money plan, the more effectively you’ll be able to reduce or eliminate a strain on your monthly budget.
My son’s a senior, so to say I’ve been thinking about this for a while is an understatement.
Here are my tips for creating a college money plan that will let you sleep at night.
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#1 – Create a 529 Savings Plan to Save College Money
Looking back, this is probably the best thing we did to prepare for our son’s college expenses. We started the account when he was under 2, and although we didn’t add a lot to it (sometimes only $50 a month), that invested money grew through some strong years in the stock market.
Now we have a nice chunk to apply toward my son’s college expenses, including tuition, room and board, and even school technology purchases.
529 plans work great if your child is younger – if your child is a later high school student, you might just want to put any savings in a CD or high interest savings account, since you won’t have much time to benefit from compound interest in the stock market.
One resource you can use for planning for college is CollegeBound Plans.
This program helps families craft an academic plan for their college bound kids, helps with access to scholarships and tuition discounts, and even helps kids find tutoring resources. CollegeBound Plans is a one-stop shopping resource for families who know they want their kids to go to college, but don’t feel like they have enough experience to navigate today’s tough college market on their own.
#2 – Figure Out a Ballpark Price for What You Can Afford
You can’t plan for unknowns, and many people aren’t aware of the actual cost of college – or believe it’s inaccessible to them.
If your child is in high school, it’s time to begin investigating the likely costs of college for your student in your state.
Colleges and universities are required by law to publish a Net Price Calculator (just search for “[college or university]” and “net price calculator”. This calculator asks you to put in some basic info about your child’s age, your family demographics, and your income level, and it spits out a ballpark figures of what you’d pay to attend school there, including tuition, room and board, and fees.
Look at the NPC calculations for private universities, state schools, and any college your child is interested in.
I ran numerous NPC calculations for schools my child showed interest in, and after he received his acceptance and financial aid packages, the NPC predictions were remarkably accurate.
Even if the NPC calculators haven’t been updated in a few years, make sure you run your numbers through to see the likely costs of what your child will have to pay for private and public universities and colleges. Sometimes it will surprise you – in my state, the cost of a public liberal arts college is thousands below the cost for a flagship state university.
#3 – Identify What You Can Contribute for College Money
Once you’ve got some ballpark numbers using the net price calculators, sit down with your teen and talk about how much you’re willing to pay and what you anticipate being able to contribute. It only leads to heartbreak if your child is set on a school where you’ll have to lay out $70K a year for expenses and you can only contribute $10K.
For many families, taking on student loan debt is useful and necessary. Please know I’m not judging that at all.
All I’m saying is that everyone, parents and student included, should have a conversation about how much money is at stake and can be contributed long before the tuition bill comes due in August.
#4 – Talk about Career Aspirations and Job Outcomes
A college degree in and of itself is no guarantee of employment upon graduation. It can be difficult to think so far in advance, but what is your child’s goal AFTER college graduation? What are the job prospects for recent graduates and is graduate school a requirement before they can be employed?
When my son was beginning the college selection process, it was very helpful to him that we had conversations about career prospects before he visited any campuses. He knew the professional requirements of the career he intended to pursue, so he could ask specific questions about internships and graduate placement rates of professors on campus. The answers he received played a large part in his final college decision. It also helped us feel much better about the financial outlay.
Of course there are no guarantees anyone will get a job after graduation. But thinking about what the path looks like after graduation (and what you’ll need to get a job in your field) can save some serious college money stress.
And if your child does not plan to attend college, instead opting for the military, employment, or a trade school, you’ll want to take those plans into account when evaluating how much you’ll need to pay or save.
#5 – Find Free Money for College with College Scholarships
Are you banking on your child getting a full tuition scholarship of his or her choice? Although full rides and full tuition scholarships aren’t typically easy to snag, you may be able to score some free money for college in the form of scholarships.
Here are a few tips to finding free money for college and college scholarships:
- Evaluate whether the schools your child is applying to offer merit or institutional scholarship awards. Typically these are based on high school GPA and standardized test scores, and many schools publish their award amounts and cutoffs so you can get an idea of whether your child will qualify.
- Apply for college or university honors programs, which may offer tuition discounts.
- Evaluate any education benefits you have in your state of residence. North Carolina, Florida, Virginia, New York, and Texas all offer significant scholarships to bright students who choose to go to school in state.
- Start applying for scholarships in late junior/early senior year. Your child may have luck finding free college money from local scholarships, those associated with your employer or your child’s employer, or civic organizations.
Encourage your child to keep up a steady flow of college scholarship applications. It’s not easy to handle scholarship applications along with a senior year workload and college applications, so offer lots of encouragement to your child to get those apps in.
There are several books I’d definitely recommend if you’re starting the scholarship process. You can find them on Amazon at the links below:
#6 – Teach Teens to Adult with a Job
You could just write a check for the balance of your child’s college expenses. But a lot of parents (I’m including myself in that group) believe it’s important for teens to have skin in the game when it comes to their college education.
Encouraging your child to earn money through a job and save for college expenses not only teaches kids the value of work, it also provides the opportunity to learn how to manage money.
When my son got his first job in fast food, he had to quickly learn the following:
- How to get a savings and checking account
- How to set up direct deposit
- How to write out a deposit slip
- How to make automatic transfers from a bank account
- How to balance a checking account
- How to set up a budget
- How to save a percentage of his income for long term expenses, like college
- How to manage day to day expenses, like gas expenses and food
These lessons are invaluable for teens who are just learning how to adult. If you teach them when they’re living with you, they’ll have the knowledge once they move out on their own.
#7 – Encourage Future Investment
Planning for the future is an important part of the college money plan, and your child doesn’t have to wait until his or her first job after college graduation to begin investing for retirement. If your child has even a part-time job, you can accelerate future savings by opening a Roth IRA. Here’s a great info piece on Roth IRA by Forbes.
In 2019, your child can contribute up to $6,000 of earnings to this retirement vehicle.
As part of your college money plan, get your child investing early and harness the power of compound interest – even just $2,000 invested at 7% interest will be worth $115,00 in 60 years. Helping your child set up a retirement savings strategy is a powerful way to set your child up for financial success. Even minors can have a Roth IRA as long as they have earned income. Once the child is over 18, the account can be changed from a custodial account to one they hold in their own name.