By Brad Pagano
Sending your child off to college is a journey filled with anticipation and anxiety, celebrations and somber realizations.
There are highs — like seeing that thick envelope left in your mailbox and the look on your child’s face when it hits them that something they worked hard so for is going to happen.
And there can be lows — like after the high-fives are over and you finish reading the packet, and understanding what you prepared for financially doesn’t sync with actuality.
Sometimes what you see isn’t what you get. Figuring out the hidden cost of sending your child to college takes a little digging, but unearthing it will help you set up realistic expectations.
At the San Diego Financial Literacy Center, we strive to educate and empower individuals and families to make sound financial decisions and develop positive personal finance habits for life. Here are three things we recommend every parent should do to avoid getting blindsided:
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Brad Pagano Don’t mistake tuition for the cost of attendance, which is the real sticker price of a college. This number includes tuition, room and board, transportation, school fees and books, as well as miscellaneous expenses.
- Don’t assume your child will graduate in four years. It currently takes on average 5.6 years to graduate from a state school and 4.2 years to graduate from a private school. That additional time in school can not only cost you more, but delays their career earnings. With an average salary of $48,127 for college graduates and an average total cost of attendance at around $30,000 at California public colleges, a one-year delay in graduation can equal more than $75,000 lost from your family’s wealth potential.
- Don’t forget to factor in the long-term cost of student loans. If it’s hard to think about saving for college now, it only gets harder if you have to take out loans because it will cost you more over time.
The good news is that you should never assume the cost you see on a college website is what you are actually going to pay. Parents are able to influence this total to their advantage through the Federal Student Aid process as well as their child’s academic performance and social involvement. The Financial Literacy Center is a great resource for learning about the financial aid process and how to maximize your child’s eligibility.
When it comes to planning for college, we all know earlier is better. Here are five tips to give your action plan some traction:
- Save now — you’ll feel better later. Anything earned beyond base expenses — groceries, utilities, rent/mortgage and insurance — is part your potential savings pool.
- Save smarter. If you already have saving plans for retirement and college, be savvy about how you divide the percentages now and later. Push more savings into your college fund earlier in the process and you’ll reap the benefit of compounding interest working in your favor. As college nears for your student, shift savings back to your retirement plans.
- Know your saving options. The accounts that have the best results for college savings include: 529 plans, Coverdell plans and Fixed Indexed Universal Life Insurance policies. Earnings are tax-free in the 529 and Coverdell plans if the funds are used for qualified expenses.
Planning for college goes beyond dollars and cents — and it’s not just on your shoulders. Involve your child!
- Create a road map for the year. Ask your child what activities, volunteer efforts and classes would they like to participate in over the coming year. What resources can they go to for extra help for improving academics?
- Build their college resume. Starting with your child’s sophomore year, have them track their entire academic, social, volunteer and hobby-related activities. These provide a unique profile for admissions and financial aid officers that they use to differentiate your child from others during the application and financial aid process.
Set realistic expectations, but don’t forget to dare to dream. Hockey legend Wayne Gretzky is quoted as saying “You miss 100 percent of the shots you never take.” If you want to go for it, we’re here to help you.
Brad Pagano is the co-founder and managing director of the San Diego Financial Literacy Center, a nonprofit organization dedicated to providing education and resources that will empower San Diegans to enhance their financial IQ and help them make smarter decisions with their money. Learn more at www.sdflc.org.
