Let’s face it, Mom and Dad. A college education costs a lot these days. Even if you’ve been contributing regularly to your child’s 529 plan or another college savings account, you might not have enough funds set aside to fully cover the cost of college.
It’s time to talk with your teen about how your family will fund his college education and other costs associated with living independently. Here are a few tips as you broach this important conversation:
Start with a discussion about college’s importance. Hopefully, you’ve laid the foundation already, but as your teen approaches junior year, it’s important to make it clear that college is important. With a bachelor’s degree, your teen will have greater earning power and more career opportunities. Even if your teen needs to pay for part of college, it’s definitely worthwhile.
Create a college budget. Even if you’re funding your teen’s tuition and fees (or a portion), your teen needs to learn how to manage money and live within his means. That’s where a budget comes in. Have your teen create a simple spreadsheet and detail out the following:
All income sources, including financial aid funds, money from you, scholarship funds, work-study income, his own savings, etc. Some of these line items might be unknown until your teen receives a financial aid package, but build them into the budget anyway.
All expenses, including school expenses (tuition, books and fees), transportation expenses (e.g. gas or a parking pass), housing (e.g. dorm or rent), and any food, entertainment or other expenses (such as a cell phone). Address which of these costs will be your vs. your teen’s responsibility.
It might seem premature to create a college budget before your teen is in college, but getting a start on one will help him or her begin to grasp what kinds of costs your family will need to fund in the years to come.
Go over the types of financial aid available to you and your teen. While the budgeting exercise is important, it helps to follow it up with some dialogue about options to fund all those expenses. The U.S. Department of Education Federal Student Aid website can help you estimate the amount of aid you might receive with FAFSA4caster. Take advantage of this tool to plan ahead.
Generally, though, here are your and your teen’s options. You can take out federal parent loans (called Direct PLUS loans). And your teen can apply for federal financial in the form of loans, grants and work-study aid.
Federal student loans offer benefits that other types of loans (from banks or other sources) do not—namely lower interest rates and the delayed payoff time (until after college). There are four types of loans available to students with or without financial need.
Grants are free money awarded to students based on financial need.
Federal work-study provides part-time jobs to college students with financial need, allowing them to earn money to pay for school.
Talk about other ways to reduce the cost of college. There are a number of ways students can reduce that college bill. Scholarships, of course, can help, so encourage your teen to work hard in high school and apply widely for scholarships large and small. They can add up. Working part-time during the school year is a great way to cover things like books or housing, and working full time over summer break can help your teen replenish the bank account for school-year bills. Your teen could even consider starting at a nearby community college and transferring to save big on tuition and housing (by living at home).
The key to the college cost conversation is to be transparent. The sooner you talk with your teen about what you will likely be able to contribute toward college and what will be expected of her, the better. While college might be on your teen’s mind, paying for it might not. Discuss the financial part of college early and often, which will help your teen prepare and encourage her to make the very most of the investment.