Preparing to pay for college

Your child just graduated high school and is preparing for college — what an exciting (and expensive!) time in both your lives! In an effort to take some of the stress off you, the proud parent, we’ve put together some tips on getting everyone’s finances ready for college. This includes utilizing any funds your grad has been awarded, maximizing the funds you’ve saved, and getting creative along the way to minimize your (and their!) debt and spending. Our goal is for your child to obtain a solid education without either of you facing a mountain of debt — and we know that’s your goal, too.

Part 1: Planning

A few simple steps can help you and your student get a clearer picture of what’s needed, setting you both up for financial success.

Determine college choice and cost of attendance. This is the most important step in the college planning process, as it will determine your funding strategy. Cost of attendance varies widely among institution type (public vs. private) and location, and this information is usually available through a college’s financial aid office. It’s important to remember that the total cost of attendance will not only include tuition and fees but also room and board, books and supplies, and transportation. The costs of obtaining a license or certification for certain programs of study like teaching or engineering should be factored into the overall costs, as well.

A word on the FAFSA. The Free Application for Federal Student Aid, or FAFSA, is a free form you can submit to the federal government to be considered for financial aid in the form of grants and loans, and it’s going to prove invaluable in determining available help for your grad. If you’ve not already completed this form, you’ll want to check out Pro Tips for the 2024–25 FAFSA® Form | Federal Student Aid. There are several deadlines attached to the process, depending on when your student is attending college. The federal deadline for filing the FAFSA is always June 30, but state and school deadlines can differ. Some institutions may also require students to complete the FAFSA if they wish to be considered for institutional scholarships and aid.

Take stock of scholarships. The best  way to pay for college is not to have to pay for it at all! Encourage your grad to seek free sources of funding by applying for scholarships and grants to try to fill the financial gap between their cost of attendance and available savings. This will give them a jumping-off place in applying for future awards and assistance while giving you both a leg up on the rest of your financial planning. Our college savings calculator should help with this step.

Set up a budget. Teaching your grad to budget is essential for their financial independence and stability. Start by outlining the importance of tracking expenses, setting financial goals, and distinguishing between wants and needs. Encouraging your student to create a detailed budget that includes essentials like rent, groceries, utilities, and transportation makes it easier to identify pockets of money for savings and discretionary spending. Emphasize the significance of sticking to the budget and adjusting it as needed. There are so many great budgeting tools and apps that simplify the process that budgeting can become almost fun. And if you’ve been imparting financial wisdom all along, before their finances need to be separated from yours, you get extra points!

Part 2: Funding

With a firm focus on your grad’s financial needs, you’re ready to fill in the gaps. Remember: It helps to seek free forms of aid before turning to savings, investments, and loans.

Empower your grad’s employment. If they’re not already doing so, encourage your child to earn as they learn by exploring job opportunities to supplement any grants and scholarships. Work-study programs may be another viable — and valuable — option, as would a paid internship (even first-year students are often getting paid internships now!). Every dollar counts toward achieving educational goals, and your grad is gaining work experience and financial responsibility in the process.

Tap into your 529 plan. If you’ve been putting money into a 529 plan, also known as a college savings plan, now is probably the time to begin putting it to good use. This tax-advantaged savings plan managed by states (or educational institutions) are often the first choice for education funding because contributions grow tax-deferred, and withdrawals for qualified education expenses, including tuition, books, and room and board, are tax-free at the federal level. Some states also offer deductions or credits for contributions.

The donor (whether it’s you or another adult who has been contributing to this powerhouse tool) retains control over the account, deciding when withdrawals are made and for what purpose. It’s best to consult with a financial advisor to maximize the benefits and navigate any withdrawal rules. And best case scenario, if the child for whom the 529 is set up ends up not needing the funds (hello, full ride scholarship or financial windfall), you can change the beneficiary to another family member without penalty.

Consider other investments. In some scenarios, tapping into other investments in your portfolio might make sense, especially if your student has long-term education plans or higher-than-norm expenses. Just be sure to work with your financial advisor to evaluate the performance of your investments, potential tax implications, and your long-term financial objectives before making any moves.

Bonus tip: When used for eligible education expenses, interest earned on Series I and Series EE U.S. Savings Bonds is free of federal, state, and local taxes.

Federal student loans. In addition to any free aid that may be awarded, your student can choose to accept any federal loans offered to them by the U.S. Department of Education through completing the FAFSA. Since most Federal Direct Loans are assigned to students, it’s important for students to borrow only what they need and can afford to repay. Federal student loans are awarded by academic year, and students will need to complete the FAFSA each year they are enrolled in school if they wish to be considered for financial aid. Federal student loans have special repayment protections and plans available, including income-based repayment options, making them an ideal choice before taking out private student loans.

Don’t discount CDs. If you are needing a shorter-term savings vehicle for funds that are on standby, such as a lump-sum payout that your student doesn’t need to use yet or earnings from their summer job, certificates of deposit (CDs) offer a dependable place to park some cash while still earning a tidy bit of interest — just choose the term that aligns with your budget goals to avoid any withdrawal penalties.

HELOCs and other quick cash solutions. Options like a home equity loan or home equity line of credit (HELOC), which use the equity in your home as collateral, could help you navigate a major financial snag such as tuition expenses before grant money is received, living expenses that weren’t accounted for, or other unexpected emergencies. You’ll just want to make certain that you have budgeted for repayment and don’t have another use for the collateral (for example, plans to sell your home in the case of a HELOC).

Moving forward

Financial planning for college is as unique as your college student. By tailoring strategies to fit your unique circumstances, utilizing your resources, and seeking guidance when needed, you’re setting yourselves up for a smoother path to their education. Plus, by involving them in the process, you’re empowering your child to make informed financial decisions, building a strong foundation for their future. Here’s to financial freedom and endless possibilities!

Need more information? We’re here to help! Contact UBT’s Financial Literacy Program today.