Wow, that’s a great question! While some parents know exactly how much they can contribute each year, the majority don’t know. That’s okay when you are early in the process; however, before your child decides on a school to attend, you’ll need to have an answer to that question so your child knows exactly what their financial situation will look like before they make a decision.
To put this into a more everyday example, suppose you are going to buy a car. Some people will have saved and can walk in and pay cash for whatever car they want. Most of us aren’t so lucky and we need to take out a loan. In that case, the bank will ask us our income. If our income is lower, we may be buying a Honda Civic. If our income is higher, we might be buying a Porsche. While my dream might be to drive a white Porsche convertible Boxter, I definitely shouldn’t buy one if I only have the budget for a Honda Civic. Likewise, students who only have the budget for a state school shouldn’t be attending an out of state public university or a very expensive private university. Having a clear picture of how much money a student can expect from their parent helps them select a college that fits in their budget.
As parents, we will be the main free source of income for our students. We need to be very clear on how much money we can offer our child. In order to do this, we need to think very hard on our budget. If you haven’t created a budget, it is important to do so as soon as possible. I can recommend Dave Ramsey’s Financial Peace University as an excellent resource. Courses are starting all the time at a location near you and the price is very affordable.
There are a few things that you must keep in mind through this process:
- Your plans for your future retirement must come first
- If you have other children, you should have a plan to support each of them
- When your funds will be available throughout the year
- Alternative forms of support can you provide
Retirement Planning Retirement planning is something most of us start early with our 401Ks in our first job. We set a little aside each month so we can retire and by the time our children start college, our 401Ks will likely represent the bulk of our savings. This savings is not for college. This savings is to sustain us when we are older and no longer working.
The best thing you can do for your children is to make sure that your financial house is in order. Covering your bills and saving for your future set you up for success so your children will not have to worry about you when you are older and ready to retire.
Pulling money out of your retirement fund hurts you in several ways:
- Pulling money out early sacrifices the money you will have to live on when you no longer are able to work or no longer want to work.
- Money pulled out of retirement savings comes with a stiff penalty. Not only will you pay higher taxes during your peak earning years, but you will also pay a 10% penalty on early withdrawal, thus causing you to withdrawal more money to pay for college
- You will miss out on the long term growth that money could have for you. The success of 401K savings is based on the principle that money grows in part because of the interest and gain compounding on that money over time.
Support for Other Children It is important when planning to pay for college that you think not only about the child about to embark on college, but also additional children you may need to support through college. If you provide all of your financial resources for one child, will you be able to support the others in the same way?
- Think through how many children will be enrolled in college or university are the same time. How much money can you afford to set aside each month or year? Also consider how much money you have saved for college educations. Do you have an equal amount for each child?
- Consider how much education your student may need to achieve their goals. If a master’s or other professional degree is required, are you prepared to provide any funds towards advanced education? If so, you may need to budget longer.
When Funds will Be Available It is important to remember that college funding is due at different times. For instance, tuition and fees are usually due at the beginning of every semester but living expenses continue month to month.
- Think through how you plan to provide these funds. Will you only have money available each month? Or, will you be able to provide a lump sum at the beginning of each semester when tuition is due? Does this change by the number of children you will be supporting over time?
- Does your student have the skills they need to create a budget to manage this money? If not, consider enrolling them in a budgeting program. Or, consider what items you will pay directly and which your student will need to manage themselves.
- Make sure these funds are available when they are needed. If you promise to pay a certain amount each month, do you have mechanisms in place to make sure you can meet your commitment to your student?
Alternative Forms of Support College is more than paying tuition and fees and sometimes we can forget these smaller things which can make a substantial difference. Even if you cannot cover tuition and fees or living expenses, there are other ways to show support for your student:
- Transportation- Perhaps you could consider providing funds to purchase a metro or public transportation card. Or, if your student has a car, perhaps you could consider keeping their car insurance on your policy. Even gas money each month can help make a difference and help them get back and forth to an off campus job.
- Health Insurance- If your child remains a student, they can remain on your health insurance policy until they are like out of college. That can make a significant contribution to your child’s health and wellbeing.
- A Place to live at home- While our students may be eager to leave home as fast as they can, living expenses can take a large amount of money each month. Offering your student a place in your home where they can live while attending college can make a significant difference in the type of college they can afford.
- Buying tickets home- In some cases, our students may be far from home. Helping them come home for visits during the summer or holidays can make a difference in keeping your child grounded and connected to home.
- Books and supplies- Books and school supplies can be a significant expense each semester. Consider covering the cost of books and new schools supplies, such as notebooks, pens, paper, etc.
- Mobile phone plan- Keeping your child on your mobile phone plan helps them stay in communication with you and it is likely your family plan is a more economical option than their setting up an individual plan.
Paying for college is difficult. It is easy to think we will just figure it out as we go along, but we owe ourselves and our students more clarity than that.
It is very important to be honest with ourselves in what we can afford so that our students can make the financial decisions they need to. Knowing what they can count on you for and having confidence in your funding is important. In turn, being honest with our students and having clear conversations about what you can afford are important so they know what to expect. Understanding your budget will help them establish their student budget and know that budgeting is important as they transition into responsible adulthood.
Perhaps the most important thing we as parents need to consider when deciding what we can afford, is that it is okay to say we cannot provide full funding or even monthly or lump sum funding. If this is the case, perhaps you can find other ways you can support your student from the sources of alternative funding above. Understanding our budget allows us to make commitments we can meet and be there for our students consistently in ways we can afford.
Have questions or comments on something that has been successful for you? We welcome your comments and questions!