Most college students get some form of financial aid. Whether it’s a student loan or athletic scholarship, having your tuition covered takes a major financial weight off your family.
Financial planning for college involves both parent and student contributions. With a strong plan in place, you’ll offset many of the common college expenses without having to go too deep into debt.
Take a look at this overview of the importance of financial planning for college.
Benefits of a College Financial Plan
Many students begin hearing questions about their college plans very late in their high school years. Does this mean that college planning doesn’t happen until you get accepted to your first school?
Absolutely not. Financial planning for college begins way before high school. Parents who get ahead of the coming tidal wave of undergraduate costs will avoid going into too much debt.
Financial planning for college can be the difference between accepting a large loan that’ll take a lifetime to repay and finding grants.
Fewer Disruptions in Education
Families who plan for college expenses in advance can avoid potential distractions due to financial problems. One common reason why students have to take a semester off or stop going to college at all is not having a financial plan.
Students are surprised by shortfalls in their aid packages or may not have a plan in place for all the college-related costs that come up. The overwhelming amount of money it takes to go to school is too much to plan for while trying to keep up with your classes.
More Extracurricular Fun
Financial planning for college on the part of students and parents can minimize this. Students can help by getting a list of costs associated with both taking classes and the extracurricular activities they want to pursue.
For example, students who want to get involved in Greek Life should check on the cost of living in a frat or sorority house before even choosing a school. These small costs quickly add up and can make the experience more stressful.
Ask the admissions team to send you more information about extracurricular options like studying abroad. Getting involved in school beyond the classroom is a great way to feel connected to your college community.
That sense of belonging in your school community can motivate you to push forward when courses get tough. Time spent learning and connecting outside the class can provide deeper insight into course majors.
More Tax Savings
For parents, planning for college can begin decades before their child sets foot on campus. This early planning means being able to research all available tax breaks related to education.
College savings plans like a 529 plan can provide a wide range of tax benefits no matter your income level. Lifetime Learning and Hope Scholarships also provide tax credits of up to $2,000 during tax time.
Getting Ahead of Inflation
It’s no secret that the cost of college goes up every year. Students experience small tuition increases that help the college manage its expenses under the weight of inflation.
Inflation is the rising cost of goods or services over time because of the changing value of the dollar. Inflation has to be factored into financial planning for college in order for parents to avoid falling short on tuition.
Expect colleges to raise tuition costs by around 5 percent each year to keep their costs in check.
Needs Get Met
Not every parent is lucky enough to save for college tuition. The Free Application for Federal Student Aid (FAFSA) helps the government decide how much your family can afford to pay for tuition.
The amount they decide you can pay is your expected family contribution. You’ll receive an aid package based on what’s left over after the family pays what they can afford toward tuition.
Need-based aid is important for low-income families because it includes grants that don’t have to be repaid. Think about your expected family contribution well ahead of filling out financial aid applications.
One way to plan is to avoid putting certain assets in the student’s name. If you’re not going to fully commit to funding a custodial account for college, for example, it’s best not to open these types of accounts in the student’s name.
It counts as an asset in your expected family contribution which lowers your need-based aid package. There are ways to legally designate your child’s assets to the right types of accounts to avoid claiming too many assets on your FAFSA.
Students Can Take Responsibility
It’s helpful for parents to give students a role in financial planning for college. Students are about to enter the world of adulthood with lots of freedom that could impact how they view their education.
With skin in the game, they’re more likely to take the role seriously than if they have no concept of the cost of college. Once parents plan out the amount they can contribute, students should begin applying for scholarships, work-study and educational grants to help make up the difference.
This puts the student in charge of their education which gives it more value in the long run.
Financial Planning for College Can’t Wait
Financial planning for college makes both the student and parents accountable for creating an easy transition after high school. Parents may or may not have a large lump sum saved and ready, but there are ways to get help if you plan your expected family contribution correctly.
Guard against any fast investment schemes that promise quick returns to help you pay for college expenses. Aggressive investments also come with the chance you’ll lose your entire savings making them unreliable for college savings.
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