Preparing Your Child for College: Budgeting, Financial Aid & More
The jump to college is a leap that most parents know has to come for their children, but seldom are prepared for it. After all, it seems like only yesterday you were cradling your baby in your arms, and in the blink of an eye that adorable baby has grown into a not-so-fully-adult-but-thinks-they’re-an-adult adult that has their bags packed and ready to head off for college.
Because this jump to college life is often an emotionally turbulent time for both parents and children, what is often overlooked is how to ensure your child is financially astute for this critical time period.
In this post, we’ll be outlining specific advice for parents on how to ensure their child learns budgeting, borrowing, and proper spending during college, as well as strategies to ensure you get the best financial aid and savings plan at your child’s college.
- Budgeting basics: Encourage your student to create a budget, outlining their expenses (i.e., tuition, books, housing, food, and miscellaneous costs) and adjusting it each year as necessary.
One of the biggest challenges that college students face, especially in their first year of college, is learning how to properly budget. Although your teenager might have learned this to a certain extent in high school if they had a part-time job, college presents new challenges in the unfamiliar world of budgeting due to your child’s first time being alone and independent.
Our team at Foundation also worked on this tool you can share with your teens to help them start thinking about things with “budget lenses.” It may also help them to take the following steps before heading away:
- Break down monthly total income. This could be money sent from Mom & Dad, paychecks from a job or work study they could have at their college, as well as money sent to them from grants, scholarships, and even the financial aid office at their college. Certain grants and scholarships send money directly to your child instead of automatically applying to your child’s expenses, further emphasizing how important it is for your child to understand how to budget.
- Categorize expenses by importance and necessity. Advise your child to note down all of their expenses, such as books, meals, room & board, and subscriptions. We recommend categorizing them as “Necessity” (absolutely necessary), “Semi-Necessity” (not absolutely necessary, but makes life a lot better if they have it), and then “Want” (not necessary and is more for personal enjoyment). Breaking down expenses and categorizing them by importance (usually on a spreadsheet) allows your child to be more organized and aware of what their expenses are and how they interact with their monthly cash flows.
- Compare income and expenses. Continue to re-evaluate the two until they net zero or equate to savings.
- Educate about responsible borrowing: Knowing the implications of student loans and the importance of borrowing responsibly is crucial. Talk honestly and regularly with your student about the long-term impact of student loan debt on financial goals post-graduation.
With rising tuition costs and a job market that seems to be constantly increasing in competition, we’ve all heard the horror story trope of the recent college graduate drowning in debt and unable to find a job. We are aware no parent wants to see their child in that position.
If how much you, as a parent/parents, are willing to contribute is less than how much your child will have to pay for their prospective university, then consider taking out student loans for your child’s education. However, proceed with caution. Ask yourself and your child many questions before taking out any loans:
Is a higher-cost university worth going into debt for, or are there other colleges as options that could present similar post-graduate opportunities at a much lower cost?
Will your child’s plans as a career have high enough average salaries to pay back the student loans?
Oftentimes, students will take out loans too quickly without considering alternative options and drawbacks thoroughly.
- Explore or revisit financial aid: Securing financial aid isn't a one-time affair — it's an ongoing process. The Free Application for Federal Student Aid (“FAFSA”) must be completed annually to ensure continued support throughout college.
The two magic words parents of college students love to hear: “financial aid.” While financial aid is usually a massive benefit for students and can often sway students where they want to attend college, we understand that as parents, navigating the world of financial aid can be overwhelming and stressful. After all, even small differences in financial aid can still turn out to be thousands of dollars in the long run, so making the correct decisions when navigating financial aid can pay dividends in the long run.
It’s extremely common for parents to not negotiate financial aid offers once they receive them from schools. We’re not advising you to be too aggressive towards the financial aid officers, but approaching them calmly and explaining any extenuating circumstances/why you should receive more financial aid is a low risk, high reward endeavor that can potentially pay off with more money given for financial aid.
Approaching the new world of college can be a stressful and turbulent time not only for your child, but also for your family as a whole. However, here at Foundation, we’re committed to ensuring the financial side of college is less stressful and easier to manage for your family.
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