You’re trying to figure out how to get your kids ready for college now that they’re back in school. You already worry about them doing well in school and making friends, but what about the new, more financially independent world they are entering?
Starting your kids off on the right path can help them make good decisions about how much to spend, how much to save, and how much to borrow. If you teach your kids now how to make smart choices, they won’t have to worry about money as much in the future. That will give you both peace of mind.
Here are some tips about how to pay for college that you can share with your child when you talk to them about getting ready for school:
How to get your kids ready for college
1. Show them how to manage their money as college students.
Even if your child has been earning their own money, this is probably the first time they’ve had to make a budget on their own. So, this talk will help them be ready to make better decisions about how to spend and save money. The sooner they learn the difference between what they want and what they need, as well as how much things cost, the better.
Getting ready for college costs can be broken down into four steps when it comes to saving and spending:
Make a simple budget. Start with your income, which includes money from things like part-time jobs and allowances, and then take out your expenses. When adding up expenses, you should count both variable and fixed costs, like the utility bill, gas, and groceries (rent, student loan payments).
Make a plan to save money. Set a goal for how much you want to save each month based on what you have left over after paying your bills. It can be a certain amount of money, like $100, or a percentage, like 30%. Even if it’s just a small amount, teach them to save any extra money. This list of ways to save money in college can help.
Set a spending limit. Once bills and savings are paid for, the rest of the money can be used for “fun” things like going out to eat, going to the movies, going to concerts, etc. But do tell them to be smart and take advantage of things like matinees and student discounts.
Make changes often to get ready for surprises in college. Know that a budget is not something that is set in stone. Expenses and spending will change over time, of course. There could be an unplanned car repair or a networking event that costs money one month. In either case, going over the budget often holds students accountable for reaching their financial goals. It’s important to make these changes to the budget so you can keep track of how much you spend and how much you save.
Want more? Check out our guide on How to Budget Wisely and Keep College Costs in Check.
2. Talk with your family about how you’ll pay for school.
Talk about how your family is paying for school and who will be paying back any student loans.
It can be hard to talk about, but students need to know how their school costs are paid for, especially if they have to pay back student loans.
Families sometimes agree informally on who will pay back the loans, but everyone must know who is legally responsible for each loan. If payments are missed or made late, it could hurt the credit of the person or people responsible.
The most common types of federal loans for undergraduate and graduate students are Federal Direct Unsubsidized Loans and Direct Subsidized Loans, which are also called Stafford loans. These loans are made out to the student, and the student is the only one who has to pay back the money. Federal Direct PLUS loans for parents, which are also called Parent PLUS loans, are given to parents and not to students. For these kinds of loans, the parent is the only one who has to pay back the money.
Private student loans look at a person’s credit score and income to see if they are likely to be able to pay back the loan. Private student loans usually need a cosigner because most students don’t have a long credit history or a lot of money. Most of the time, a cosigner is a parent or another family member with good credit and income. The cosigner agrees to repay the loan along with the student borrower if the student borrower can’t. Some private lenders also offer loans to parents or guardians who are helping a student pay for school. Usually, the student does not have to pay back a parent loan.
3. Talk to your kids about managing money
Prepare your children to spend less so that they can pay off their student loans on time.
Make sure you know when the bill is due and how you can cut some of the costs. Start making payments on your student loan while you are still in school, even if it’s just a small amount.
Even though it’s not usually required, paying $25 or more toward student loans each month while in school can help reduce the amount of interest that builds up, which in turn lowers the total amount owed.
This doesn’t seem too much, and it seems like it would be easy to fit into a simple budget, right? But many students aren’t doing it, probably because no one ever told them why they should.
Check out College Ave’s student loan calculator to see how different ways to pay back a loan affect the total cost.
When you send your child to college, it’s an exciting time for you both. It’s also the first time for a lot of students to be away from home. By giving them good advice about money, you can help them get on the path to being financially independent.