5 tips for having the college money talk with your kids

College is a wonderful milestone and an enormous achievement in your child’s life. It is also a time when family values surrounding money might come up during the discussion. As your child transitions from high school into young adulthood, it’s worth taking the time to explore a currency conversation. They have big dreams, and you have big dreams for them.

Here are five tips to make that college funding talk less painful and more productive.

Sharing how much you’ve saved thus far ultimately impacts your prospective student’s college search and final college decision, so it’s important that they know where things stand and how much they will be responsible for (if any) when it comes to their tuition. Taking an inventory of all college savings plans that have already been set up might be helpful. How much have you saved, and how much are you willing to borrow? How many college savings accounts are there in total? You may have opened a 529 soon after your dependent was born, or you may have been working three jobs just to put food on the table and did not have any extra money to put toward college. Not everyone’s journey looks exactly the same — life happens. Also, don’t forget grandparents! They may have opened accounts for a grandchild, so be sure to add those accounts to your inventory list.

This may be one of the most important talks you’ve had with your college-bound student since, er, “The Talk,” but it’s important to set expectations. Everyone knows college tuition and living expenses can be high, especially with a private school, but let’s not forget other costs such as entertainment, transportation, and even smaller items, such as a cell phone, that add to the monthly total.

If you attended college, these numbers might seem exponentially higher than when you were at 18. That’s because over the last 20 years, tuition at national universities increased by 144% at private colleges, and 171% at public colleges (out-of-state) and 211% (in-state). According to the National Association of College and University Business Officers, the average cost of college tuition and fees in the 2021-2022 school year for a private college was $38,185. And at a public university? You’re looking at a price range of $10,338 for in-state students and $22,698 for those who live out-of-state.

Those figures might seem a little high, even taking inflation into account. But by learning more about scholarships, income-based aid, and private student loans, you can help offset the rising cost of education.

And remember, tuition isn’t everything you and your student will be paying for. There are transportation costs, going out to eat, room and board, books, and entertainment. It’s important to factor in all costs when coming up with a holistic picture of what your child can expect you to cover, and what they’ll chip in for with a work study, part-time job, or loans.

Start the conversation at the beginning of junior year in high school, if not before. You may have taken your prospective college student to tour a few colleges by then, or be preparing to. They may have a sense of where they want to apply and what degree they want to pursue — all of which helps the discussion. Junior year is also a good time to start looking into assistance or scholarships. They might also qualify for the Free Application for Federal Student Aid (FAFSA®) financial aid or work study. The rest will likely come in the form of federal and private student loans.

The truth is, most college students will have to take out some student loans, so yours won’t likely be alone. About 42.9 million Americans have federal student loans, according to the most recent data from the U.S. Department of Education, which translates to approximately 54% of college-bound young adults taking on some debt. For most, college is too expensive to realistically expect your savings, need-based financial aid, in-school payments, grants, and scholarships to cover the full cost each year. With that in mind, make sure your child knows how much is too much when it comes to student loans. That way, repayment isn’t too burdensome after graduation.

As a parent, you’ll want to help your child make an informed decision. Through resources like College Scorecard, you can have this discussion using real numbers, not hypotheticals. That way you can compare their expected post-grad salary against the amount of debt they’ll likely have after graduation. They’ll also learn how manageable or unmanageable the loan payments will be, and how that will impact future financial planning for goals like moving into an apartment, buying a new car, or traveling.

If your student decides they still want to go to the more expensive school after looking at the numbers, at least they’ll know what to expect after they graduate and enter the “real world.”

It can feel overwhelming to come up with a way to pay for college. Sometimes it helps to pause and think of alternate ways you may not have considered yet. These are just a few:

Parent Plus Loans:
After filling out the FAFSA® form, consider whether a Direct Plus Loan, aka a Parent Plus loan, could be right for you. A Parent Plus loan is essentially an extra loan your parent would take on your behalf when your other loans don’t cover all the essentials. Keep in mind there are origination fees and the current rate for the 2022-2023 academic year is 7.54%.¹ To receive one of these loans, you must be the biological or adoptive parent (or in some cases, the stepparent) of a dependent undergraduate student enrolled at least part-time, have a good credit history, and meet general eligibility requirements for federal student financial aid.

Taking a second job:
If your job has some flexibility, or you have the extra time, you may be interested in working a second job to bring in more income. Perhaps there’s a hobby such as flower arranging, knitting, or building bookshelves, and your friends and family have urged you to charge for your talents. It may be time to start capitalizing on your skills in order to help toward tuition. And if your child has the time along with their studies, they could take on either a work-study arrangement, or a part-time job themselves. Hey, there’s an approach.

Home is an option if you live close by:
Not every college freshman longs to live in a dorm. It could be that by talking with your child, you learn they’d happily live at home to save on room and board. Pointing out the cost of a meal plan and even smaller items, such as paying for laundry, could be incentives for your child to live at home during college. It could also be possible that an apartment is cheaper than student housing, so be sure to run the numbers during your college money conversation.

At the end of the day, you want what’s best for your kids. Have “The Talk” so you can work together to make their dream school a reality. We are committed to helping you reach your potential. Learn more about our private student loans and how we can help you afford college.