April 13, 2020 By College Ave Student Loans
Preparing Your Kids for College: Financial Tips
It’s back to school time and you’re trying to figure out how to prepare your kids for college. You’re already worried about them succeeding in class and making good friends, but what about the new, more financially independent world they are entering?
Starting your kids on the right track can help them make good choices about spending, saving, and borrowing. Preparing your kids to make smart choices right now can help them avoid unnecessary financial stress in the future. That means peace of mind for both of you.
Here are some college financial tips to consider when talking to your child about how to prepare for school.
Tips for Preparing Your Kids for College
1. Teach them how to budget as a college student
Even if your child has been earning their own money, this is likely the first time they’ll have to budget on their own. So, having this discussion will help prepare your college student to make better choices about spending and saving money. The sooner they understand the difference between wants and needs – and how much things cost – the better.
When it comes to saving and spending, preparing for college finances can be broken down into four steps
- Build a basic budget. The first step in preparing your child for college is to build a basic budget plan for college students. Start with income – or money coming in from things like part-time jobs and allowances – and then subtract expenses. When adding up expenses, consider both variable (utility bill, gas, groceries) and fixed expenses (rent, student loan payments).
- Create a savings plan. The second step is to create a savings plan. Once you know what’s left after expenses are deducted, set a monthly savings goal. It can be a specific dollar amount, say $100, or a percentage, like 30 percent. Even if it’s a small amount, get them into the habit of saving leftover money. To help, check out this list of ways to save money in college.
- Leave room for discretionary spending. The third step is to set spending money. Once mandatory expenses and savings contributions are blocked out, the rest can be allocated to the “fun stuff” – like eating out, going to the movies, attending concerts, etc. Do encourage them to be mindful though, like taking advantage of, matinees and any student discounts.
- Make regular adjustments to prepare for college surprises. Realize a budget is a living thing, not something set in stone. The last step is to make regular adjustments. Naturally, expenses and spending will fluctuate over time. There may be a networking event that costs money one month or an unexpected car repair. Either way, revisiting your budget frequently holds students accountable for meeting financial goals. It is important to make these budget adjustments to stay actively aware of spending and saving behavior.
For more info, check out our guide on How to Control College Costs and Budget Wisely
2. Discuss how your family plans to pay for school
Discuss how your family is paying for school, including who is responsible for paying back any student loans.
It can be an emotional conversation, but students need to understand how the bills for school are being paid, particularly if they’ll need to pay back student loans.
While families sometimes make informal agreements about who will make the loan payments, everyone involved must understand who is legally responsible for each loan. Any missed or late payments could impact the credit of the person (or persons) who carry that responsibility.
Federal Direct Unsubsidized and Direct Subsidized Loans (also known as Stafford loans) are the most common types of federal loans made to undergraduate and graduate students. These loans are made in the student’s name, and the student is solely responsible for the debt. Federal Direct PLUS loans for parents (also known as Parent PLUS) are made to parents, not students. The parent takes sole responsibility for these types of loans.
Private student loans require a credit and income review to determine an individual’s anticipated ability to repay the loan. Since many students have limited credit history and income, private student loans made to students typically require a cosigner. A cosigner is often a parent or other family member who has established credit and income. The cosigner agrees to take equal responsibility to repay the loan if the student borrower is unable. Some private lenders also offer parent loans, which are made to a parent or guardian who is helping a student pay for school; the student is not typically responsible to repay a parent loan.
3. Talk to your kids about controlling the costs
Prepare your kids to keep costs down so it’s easier to finish making student loan payments on time.
Make sure you understand when the bill is due, but also how to reduce some of the costs. One good tip to reduce the cost of your student loan is to start making payments during school, even if it’s only a small amount.
While it’s usually not required, paying $25 or more each month toward student loans during school helps to reduce the amount of accrued interest, which also reduces the total amount owed in the long run.
This doesn’t seem overwhelming and can easily be worked into a simple budget, right? Many students aren’t doing it though – probably because no one ever told them why they should.
To see the impact various repayment options have on the total cost of a loan, check out the College Ave student loan calculator.
Sending your child to college is an exciting step in their life. It’s also a time where they will experience some being away from home for the first time. Preparing your child with some sound financial tips can help them gain financial independence.
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