Senior Year: A Parent’s Perspective | Part 7

Putting Together a Payment Strategy for College

After your child has deposited at the college of their choice, the pressure of meeting college costs all of a sudden becomes very real. That first college bill is usually sent out in July with a due date in August. What takes many parents by surprise is that the bills are sent directly to the student, either via snail mail or, much more commonly, via an electronic notification, either to the student’s new college email address, or to their student account portal, which typically requires the student to log in and retrieve their billing statement. Colleges will require that families have a plan in place to cover their child’s bill prior to letting them move in on campus—this can present the family with the overwhelming task of sorting out how exactly to cover the bill. As soon as the bill is received, check it carefully to ensure that it is accurate. Review the charges for tuition, fees, and the student’s selected housing and meal plans. In addition, be sure to account for all the funding sources that have been awarded to the student, such as grants, scholarships, student loans, tuition waivers, and any payments or deposits previously made, and confirm that they are reflected on the bill. Colleges are required to ensure that students have health care coverage; thus you will see a health insurance fee on the bill. However, if your child is already covered under a family’s insurance plan, you can consider waiving the college’s insurance. Colleges will have their own process for doing this, and you should check with the college to determine the required waiver forms and their deadline. After checking the bill for accuracy and deducting any and all credits, most will have an outstanding balance due. Some families can pay from savings, some may use money from current income sources, and some may need to borrow loans.  Many will use a combination of all three strategies to ultimately meet college costs. In doing my own number crunching in preparation for paying my son’s upcoming college bill, I reviewed many available options and wanted to share them here. Colleges will have their own set of policies and guidelines for paying the college bill. If you are paying for college from your savings, most will accept auto debit from bank accounts, personal and bank checks, and electronic funds transfer (EFT) from formal savings vehicles, such as 529 College Investment Plans, or credits from the college’s tuition payment plan provider. Be sure to check with the college to determine their protocols for sending money. Tuition payment plans are a popular and low cost way of covering the balance due, and the majority of colleges offer some type of payment plan. These plans can provide a nice option for many families, as you don’t need to have a lump sum of money ready to cover the semester’s costs up front, but instead you can spread out your payments over 6, 8, 10, or even 12 months. Typically, interest is not charged, but participants pay a reasonable enrollment fee. Families may want to consider doing a budget to determine what they can reasonably afford and allocate towards this low cost payment option. Contact the college for details on their payment plan. In addition to paying for college using savings or income, there are a number of loan options available. Be sure to maximize what the student can borrow through the Federal Direct Loan Program ($5,500 total for freshman year) before looking at other loan options. During the upcoming 2017 – 2018 academic year, the Federal Direct Loan will have a fixed interest rate of 4.45%. The student loan should be reflected on the student’s bill as an anticipated credit providing the student filed the Free Application for Federal Student Aid (FAFSA) and has completed any borrower requirements. Beyond the student loan, there are other loan options available. It is good to remind ourselves that not all loans are created equal, so please be sure to do your due diligence prior to borrowing. Compare a number of loans, noting the interest rate and fees, repayment terms, credit requirements, loan limits, pre-payment penalties, and monthly repayment amounts.

• The Federal Direct PLUS Loan allows a parent to borrow to cover educational costs for their dependent child. During the upcoming 2017 – 2018 academic year, the PLUS Loan will have a fixed interest rate of 7.0%. Parents do need satisfactory credit to borrow through the Federal Direct PLUS Loan Program and will need to apply for the loan. Contact the Financial Aid Office at the college for guidance on the application process for the PLUS Loan.
• Many state higher education authorities offer education loans. I encourage families to contact the higher education authority in their state of residence and the state in which their child is attending college (if different) to explore loan options.
• Banks, credit unions, and other college financing entities offer private education loans to both parents and students. Private loans are credit-based and the terms of the loan may differ greatly between programs—thus, it is important to carefully compare loan terms. Many colleges will provide a list of recommended education loan companies which provides a good starting point for families needing to borrow loans.
• Lastly, some families may consider a home equity line of credit (providing you don’t mind your home serving as collateral), which may allow you to draw down money as you need it to make tuition payments.

In addition to payment plans and loan options, I have a few other thoughts related to meeting college costs.

• First, when your college student moves out of your house, you may realize a decrease in utility and/or grocery bills that you can redirect toward college expenses. When my football player son heads off to school, I expect my grocery bill to go way down!
• In addition, I always encourage students to continue to search for private scholarships from civic and community organizations, employers, banks, religious organizations, and from businesses and non-profit entities. Apply for any that seem like realistic options. Don’t give up when your child graduates from high school. Continue the scholarship search process through the summer and throughout college.
• Students can also help out with college costs. It is often realistic for the student to work during the summers or part-time while in college. Establish expectations with your child so they understand how much of their earnings need to be earmarked for college costs. Student participation is positive for a few reasons—it allows them to contribute, take some responsibility, and help to minimize overall borrowing.

No matter what college payment avenues you choose to pursue, be sure to take the time to make a solid financing plan, keeping in mind that college is a multi-year expense. Having a detailed and well thought-out plan from the beginning is vital for a smooth financial transition to the college years.