Written by Billie Jo Weis, My College Planning Team

 

As parents of college-bound students, you know that higher education can come with financial challenges. The cost of college can be significant and even strain your family's finances if not managed wisely. That's why creating planning for the cost of college and creating a budget for college expenses early on is essential. 

By planning and budgeting strategically, you can help your child pursue their dreams without compromising their financial future. In this blog post, we'll share some valuable money management tips for parents to help you effectively create a budget for your child’s college expenses.

Start early & set clear expectations

To start, you should begin discussing college expenses and financial planning with your child during their early high school years. Be open about the budget you can allocate for their education so they understand the limitations and can make informed college choices. 

It’s heartbreaking when a student is accepted to a college they cannot afford. So, the earlier you begin planning and talking to your student about the cost of college, the better. That also gives you more time and potential for growth in any investments put aside for college, such as a 529 plan.

Research college costs 

Different colleges have varying tuition fees, housing costs, meal plans (different meal plans carry different costs), and other expenses. So you must research and compare the costs of the colleges your child is interested in attending. 

Consider in-state vs. out-of-state tuition and the potential for scholarships and financial aid. Research health insurance – often, the school’s plan is less expensive than staying on a parent’s insurance. 

You’ll also need to factor in an annual tuition increase. To do that, find out from the school how much their tuition has increased over the past five years and what they expect the next four years to look like. Then, be ready to build this into your budget. At the same time, investigate whether merit or gift aid is renewable yearly.

Consider a 529 Plan  

Saving for college is one of the best ways to make your student’s dreams a reality. A 529 savings plan is a tax-advantaged investment account designed to help you save for education expenses. Contributions are not federally tax-deductible, but many states offer a state tax deduction. 

Earnings grow tax-free and are not taxed when withdrawn to pay for qualified education expenses – a win-win for both the tax-free growth and tax-free withdrawals! Therefore, you should explore this option to maximize your savings and minimize your financial burden. 

Consider asking family members to contribute to a 529 college plan instead of buying gifts for your child.

Estimate total expenses 

As you begin to estimate expenses, consider both direct and indirect expenses. 

• Direct expenses: these include tuition, fees, and housing costs. 
• Indirect expenses: these include textbooks, transportation, personal expenses, and entertainment. 

Living off campus is often less costly than on campus. One sure way to help manage expenses is to make sure your student always uses their student ID to capture all the discounts offered to students. 

You can read more about the hidden costs of college by clicking on the link. 

Explore financial aid options

Encourage your child to apply for scholarships, grants, and financial aid. Above all else, ensure they complete the Free Application for Federal Student Aid (FAFSA). This is a crucial step in determining eligibility for federal and state aid programs. 

Be sure to read up on the New FAFSA that’s being released for the 2024-2025 year. 

Some colleges also require the CSS Profile. So you’ll want to be familiar with these applications and their required documents and information. 

You should also be ready to appeal for more aid if circumstances change at any time. Many parents don’t know this, but there is always an opportunity to appeal a financial aid decision.   

You can also read about common financial aid mistakes here.

Factor in savings and income 

If you've been saving for your child's education, now is the time to factor that in. 

Additionally, discuss with your child whether or not they will contribute to their education through part-time work during college. For the 24/25 FAFSA year (2022 calendar year), students can earn up to $9,410 without it adversely affecting financial aid.

Another thing to consider is if you can claim the American Opportunity Tax Credit. If so, factor this in as money (up to $2,500) back in your pocket at tax time.

Create a monthly budget

Once you clearly understand the expenses your child will have, create a monthly budget that encompasses all these costs. Include essentials like tuition, housing, meal plans, textbooks, transportation, and discretionary spending for personal needs. Then, identify applicable monthly cash flow and any other liquid assets available for college. 

If necessary, consider other sources to pull from, such as home equity or loans, and whether government or private loans are best for you. Student loans might also be an option. Research points paid up front, interest rates, and payback options. You should also stay on top of your credit score, as this will matter with private lenders.

Of course, taking out a loan should always be your last option. Before you reach that point, look for easy places to save at home while paying for college, like increasing your insurance deductibles or switching cell phone plans. Small changes like these add up in total savings over a four-year period. 

Help your student become comfortable with managing a budget

All the financial planning for college is for naught if your child isn’t comfortable living within a budget. But the good news is that, in the digital age, managing finances is easier than ever, thanks to the advent of budgeting apps. 

These apps are a boon for students who find traditional budgeting daunting or time-consuming. They offer various features designed to simplify money management – from tracking daily expenses and setting up savings goals to providing insights into spending patterns. The most significant advantage of these apps is their convenience; with just a few taps on a smartphone, students can have a comprehensive view of their financial health. 

Among the many options available, a few stand out for their user-friendliness and robust features tailored for college students. 

Mint is a popular choice, offering real-time tracking of bank accounts, credit cards, and bills. It categorizes transactions automatically, making it easier to identify areas where you might be overspending.

Another excellent option is You Need a Budget (YNAB), which employs a unique approach by encouraging users to "give every dollar a job," promoting proactive rather than reactive spending. 

For those who prefer simplicity, PocketGuard stands out with its intuitive interface and an algorithm that identifies recurring payments and potential savings. 

Lastly, for students who are also navigating the complexities of student loans, EveryDollar offers a streamlined platform to create a zero-based budget, ensuring that every dollar is allocated purposefully.

Reevaluate and adjust 

Finally, we all know that life is unpredictable, and financial situations tend to change over time. Be ready to reevaluate your budget and financial plan for college periodically. Unforeseen circumstances will likely arise, so be prepared to adapt as necessary.

 

Let Appily help you to compare costs of colleges to plan & save

Creating a budget for college expenses is crucial to ensuring your child's higher education journey is financially sustainable. By starting early, researching costs, exploring financial aid options, and encouraging smart spending, you can alleviate some of the financial stress associated with college. 

One way to research the costs of individual colleges is to use a tool like Appily. You can access essential data points like cost, acceptance rates, and average scholarship awards. Click the button below to get started. It’s always free and easy to use Appily.