financial tips for preparing for college
College is a big deal for students and parents alike – don't let financial stress overshadow the excitement
Heading off to college is a big deal, and both students and parents have to make a lot of decisions in a short amount of time. When do you start planning? How are you going to pay for everything? Do you need a budget? The questions can seem endless, but there are plenty of resources out there to help you prepare for your first day. Here are some tips to help ease the stress of planning for a two- to four-year degree.
5 tips for students
Are you feeling a little stressed about starting your first year of college? While there's a lot of different financial responsibilities to juggle, planning in advance can help make the process easier. The summer before you leave for college is a critical time to start arranging your finances, and here are 6 tips that will help set you up for success.
Start budgeting
While paying college tuition, there will be additional living expenses, whether it's room and board or household bills. Aside from fixed bills, there are also costs that will likely change monthly, such as food or entertainment costs. It's important to plan and budget to avoid going into debt. When you budget, it's important to identify essential vs. discretionary expenses.
You should be able to afford all your essential expenses and, ideally, have enough saved up to cover several months' worth of essential expenses in case of emergency. After determining your essential expenses, as well as how much you would like to save each month, you can determine how much of your budget is left to use on discretionary expenses – those things you can live without or easily remove from your budget…sorry Netflix.
Having a budgeting tool where you can get an overall view of your budget and spending all in one place is a great place to start. First Financial Bank’s money management tool is an easy-to-use online banking feature that can help you create a budget, track spending, and identify trends to help make your budget go further.
Plan for college expenses
Before leaving for college, you should figure out how you are going to pay for tuition and other expenses with a financial plan. Fill out the Free Application for Federal Student Aid (FAFSA) before school begins. Your FAFSA is a starting point for planning your expenses. You may be offered financial aid which can help cover some of your college costs. You may also be offered federal student loans, but think about your long-term plan to pay them off.
Get a summer job
It's important to take time for yourself before you leave for college, but it's also important to build an emergency fund. Use the summer before college to get a job and make money. Once you begin school, you may have unexpected expenses that come up and no extra time for a job, but you'll be able to take advantage of the extra cash you saved up over the summer.
Work on establishing your credit
Most students who graduate from high school have not established any credit history. Before you embark on your college journey you should think about building up your credit score. The first step is to see what your credit score is, which you can do once you're eighteen. You can request a free credit report from major credit bureaus such as Equifax.
Credit scores can range from 300 – 850 and is used to show how credit worthy you are. The higher the score, the more likely you are to get a credit card or loan.
Another important factor to building your credit history and improving your credit score is making sure you pay bills and credit cards on time. You can start by opening a credit card with a low credit limit and paying off the balance each month. Just be sure you can pay it off monthly, as interest rates on credit cards can be high and leaving a balance can add up quickly.
Apply for scholarships
Prior to and all throughout college you'll want to search for scholarships to apply for. Put together a list of scholarship resources. The best place to start looking for scholarships is through your high school. Talk with your counselor about scholarships you might be eligible for. In addition, there are a few great sites to look for scholarships:
- The Cincinnati Scholarship Foundation.
- The US Department of Labor free scholarship tool.
- The College Board’s Scholarship. This site will help you stay organized when it comes to finding and applying for scholarships.
College is a big investment in your future, so putting forth some time and effort to prepare for it will help ease the transition and allow you to get the most from the experience.
5 tips for parents
College is expensive – there’s no doubt about that. But whatever your financial situation, there are things you can do to make it more affordable. No matter where your budding college student has set his or her sights, these 5 tips may help make college a little easier on the wallet.
Start saving now
The earlier you start saving, the easier it will be to set aside the money you’ll need to put your child (or children) through college. Thankfully, there’s an account specifically designed to make the most of your college savings: the 529 account. When contributing to a state-sponsored account like Ohio’s CollegeAdvantage, contributions may be deductible from taxable state income up to an allowable amount. Currently, if you live and are investing in an Ohio-sponsored plan, Ohio allows up to $4,000 deducted per beneficiary annually, with unlimited carry forward, and if you live and are investing in an Indiana-sponsored plan, Indiana awards a tax credit for 20% of yearly contributions up to a value of $1,000. On the other hand, Kentucky offers no deduction or credit for residents to invest in the Kentucky-sponsored plan.1
Keep in mind that federal income tax still applies to 529 account contributions. Much like a Roth IRA, contributions to these accounts and any earnings, including interest and investment growth, are tax-free as long as withdrawals are for qualified higher-education expenses. Ohio’s main 529 plan, CollegeAdvantage, offers diversified investment options that present a great opportunity to grow the balance of the account tax-free. You don’t even have to live in Ohio to take advantage of the plan – it’s accessible to in-state or out-of-state savers and can be used for in-state or out-of-state colleges.
As a reminder to keep this account growing over time, take the money you may have spent on one of your child’s birthday gifts each year and add it to their college savings account. Or, when the grandparents or long-lost great-aunt asks what they want for their birthday, ask for a contribution. Adding even a little bit every year can add up to a lot, and your little one most likely won’t notice one less gift from Great Aunt Sue.
Plan beyond tuition
Paying for college is about more than just tuition, which covers the cost of attending classes. Your student will also need to pay for books and other supplies, room and board, and non-tuition fees. Schools often present this information as an estimated total cost of attendance, which can help you add detail to your plan.
The variation is particularly evident when comparing public schools like Ohio State, University of Kentucky, or University of Cincinnati to private schools like Xavier, Kenyon, or University of Notre Dame. Public schools typically offer steep discounts on in-state tuition compared to the cost of attending a private school, but even out-of-state students can expect to pay more at a private institution.
For instance, a year at Xavier is nearly three times as expensive as a year at UC for an in-state student, after accounting for tuition and other costs. That gap narrows somewhat when you consider financial aid, according to Xavier’s financial aid calculator. Whether you choose public or private schools, pay attention to the out-of-pocket cost for your family, rather than the advertised cost.
Apply for financial aid
The first step in getting financial aid is filling out the FAFSA (Free Application for Federal Student Aid), which helps your student apply for need-based federal aid. It’s a good idea to fill out the FAFSA even if you don’t think you will qualify – it’s better to know for sure than to miss out on aid. Pay close attention to deadlines and submit your FAFSA as early as possible, since some schools award aid on a first-come, first-serve basis.
For participating private colleges, your child should also fill out the College Board’s fee-based CSS Profile to be considered for the school’s need-based aid. You can see if your child’s prospective college uses the CSS profile by checking the College Board website or contacting the school.
Next, have your child search for relevant private scholarships with qualifications that match their situation or needs. In many cases, scholarships are awarded based on your student’s area of study, heritage, identity, or niche hobby. So, get creative with those internet searches. And if you want to prioritize awards with simple application processes, you can find updated lists of “no-essay” scholarships online.
Account for tuition increases
Unless a school specifically guarantees full tuition for four years – as Ohio State and Miami do for certain students – assume that tuition will increase every year. Your financial advisor will typically assume that tuition will increase by 3% to 5% annually. If you want to be more conservative, you could plan for a tuition increase as high as 8%. When the school informs you of its next tuition hike, your child can also contact the school’s financial aid office to see about additional assistance. And remember, your student will reapply for financial aid every year regardless, so the aid package will continue to evolve.
Have your student work on campus
If a student receives a work-study award as part of a financial aid package, they’ll be eligible for part-time work in a variety of on-campus jobs. Without work-study status, a student will have to seek jobs that don’t require it. The work-study office may have that information. Your student can also investigate the school’s resident assistant (RA) program. Typically, an RA receives reduced room and board in exchange for taking on a peer-leadership role at a residence hall.
The best plan is to start saving for your child’s college education as soon as you can. As the college years approach, financial aid and federal loans can help supplement your savings so your student can pursue the education they want and need.
