If you or someone in your network is a parent of one of the over 18 million students headed off to begin or continue their undergraduate studies this fall, we want to highlight an important aspect that often arises during this time of year: financial considerations for college students.
With tuition more than doubling since the 1960s, it's essential to plan wisely to ensure a smooth transition in and through the college years. Here are some practical tips and considerations that will help:
1. Budgeting Basics
Encourage your student to create a budget, outlining their expenses such as tuition, books, housing, food, and miscellaneous costs. Adjust this budget each year as necessary to reflect changes in expenses and income.
2. Educate About Responsible Borrowing
Understanding the implications of student loans and the importance of borrowing responsibly is crucial. Regular discussions about the long-term impact of student loan debt on financial goals post-graduation can help your student make informed decisions.
3. Explore or Revisit Financial Aid
Securing financial aid isn't a one-time affair — it's an ongoing process. Every fall, revisit your student’s financial assistance, from scholarships and grants to student loans. Remember, the Free Application for Federal Student Aid (FAFSA) must be completed annually to ensure continued support throughout college.
4. Understand Your Tax-Advantaged Savings Plans
If you have a 529 plan or Coverdell Education Savings Account (ESA), ensure you and your student know how to use it. These accounts offer tax benefits and can help offset the burden of tuition and related costs, but distributions must be used for qualifying expenses.
5. Take Advantage of Tax Credits
An education credit can significantly help with the cost of higher education by reducing the amount of tax owed on your tax return. There are two education credits available: the American Opportunity Tax Credit and the Lifetime Learning Credit. These credits can lower your tax bill or even result in a refund if the credit reduces your tax to less than zero.
6. Encourage Part-Time Work
While focusing on academics is essential, encourage your student to consider part-time work or internships to supplement their income and gain valuable work experience.
7. Utilize Student Discounts and Resources
Apple, Verizon, Sam’s Club, and Amazon Prime are just a few companies offering education discounts. Additionally, encourage your student to utilize campus resources such as career services and financial literacy programs.
8. Plan for Post-Graduation Repayment
Whether graduation is one or four years away, help your student develop a plan for post-graduation loan repayment. Consider factors such as income-driven repayment plans, loan consolidation, and strategies for accelerating debt repayment.
9. Prepare for Emergencies
Establishing an emergency fund is crucial to prepare for unexpected expenses that may arise during the college years. Additionally, consider creating essential legal documents such as a power of attorney, a living will, and a HIPAA authorization for your young adult.
These tips provide helpful insights into managing college expenses and optimizing financial aid and tax benefits. For personalized guidance and support to navigate this formative time in your student’s life, contact Wayfinder Capital. We’re here to help you make the most informed financial decisions for your family’s future.
