College Financial Planning Tips for Students (2024)

Along with tuition and fees, other costs students need to plan for include:

• Room and board
• Books
• School supplies
• A computer and other technology
• Living essentials like towels and bedding if living away from home

To prepare for these costs, it helps to research all the schools you want to apply to and compare their tuition and fees. Try to find out how much financial aid each school typically gives.

Many schools also have a net price calculator available, which makes it possible for prospective students to enter information that can help reveal what it would likely cost (based on the prior year’s costs) to attend after taking gift aid into account.

How Much Do Parents Typically Contribute?

Each family will prepare for the costs of higher education differently. In some households, parents foot the entire bill and in others, the student is fully responsible for the costs of their college education. Other families split the costs.

Although every family handles college costs differently, assistance from parents is how most students pay for their college education. As of 2022, parents spent an average of $11,862 per year on their child’s tuition.

The Best Tax-Advantaged Accounts and Deductions for College Savings

One way to make it easier to save money for college is to take advantage of savings plans that come with tax advantages.

Savings Plans

• 529 plans: Some states make it possible to use a 529 plan to prepay college tuition. This is known as a qualified tuition plan. You can also use a 529 plan to grow your savings. If you use the withdrawals for qualified education expenses, you won’t need to pay taxes on the earnings. This is also called an education savings plan.
• Coverdell Education Savings Account (ESA): Money in this account grows tax-free, and the beneficiary doesn’t owe any taxes on distributions unless the amount ends up being more than their qualified education expenses. However, the contributions made are not tax-deductible.
• IRA: While an IRA is designed to make it easier to save for retirement, not college, it is possible to withdraw savings from an IRA to pay for higher education expenses for yourself, a spouse, a child, or a grandchild. You won’t face the early withdrawal penalty if it’s too early for you to make distributions, but you will still owe federal income tax on the withdrawn amount.

Deductions

• Tuition and fees deduction: You can deduct the cost of tuition and school fees from your annual taxes.
• Student loan interest deduction: If you’re currently repaying student loans, you can deduct the interest from your taxes if you have a modified adjusted gross income (MAGI) of less than $80,000 (or $160,000 if filing a joint return).

Taking Advantage of Financial Aid

Financial aid can seem a bit mysterious. However, it’s important not to skip applying for financial aid. You may be able to receive gift aid, which can help lower the costs of college, or federal student loans, which can make it easier to finance higher education.

How To Apply for Financial Aid

Students need to complete the Free Application for Federal Student Aid (FAFSA) form each year they attend college if they want to qualify for financial aid. Students can use financial aid to help pay for tuition and fees as well as other education expenses such as room and board, textbooks, or a laptop.

Essentially, the FAFSA is used to calculate your Expected Family Contribution (EFC). Your family’s financial situation, including income, benefits, and assets are taken into account when calculating the EFC. Your school’s financial aid department then uses the EFC to determine how much financial and federal aid you qualify for.

Grants and Scholarships

Grants and scholarships are forms of financial aid that students generally don’t need to pay back. In some cases, you may have to pay back a grant if you don’t meet the terms of the grant.

There are many different federal grants students may be eligible for, including:

• Pell Grants
• Federal Supplemental Educational Opportunity Grants (FSEOG)
• Teacher Education Assistance for College and Higher Education (TEACH) Grants
• Iraq and Afghanistan Service Grants

Work-Study Jobs

Having a part-time job while enrolled in college is a lot of work, but can help students avoid taking on more student loan debt. When you complete the FAFSA, you learn if you’re eligible for the Federal Work-Study program, which makes it possible to earn money to put toward education expenses.

How much students earn can vary based on their skillset and job requirements, but at a minimum, they earn the current federal minimum wage.

Federal Student Loans

If a student needs to borrow money to pay for school, they can learn how much they can take out in subsidized or unsubsidized federal loans by filling out the FAFSA. Even if you don’t qualify for grants or scholarships, you’ll need to fill out the FAFSA to qualify for federal student loans.

Learning How To Budget

Many college students learn how to budget on the fly out of necessity. However, it can help students if they understand financial planning before they start college.

Explain What a Budget Is and Why It Matters

Walk them through your budget to give them an idea of what it’s like to plan for recurring expenses such as a mortgage and how they can plan for expenses that fluctuate, such as food or entertainment.

You can also explain how having a budget helps you reach your financial goals and how it keeps you on track so you don’t overspend.

Provide an Allowance

It can be hard for young children and teens to grasp the value of budgeting and the discipline it requires if they don’t have any money to spend. If you can afford to, give your children an allowance so they can learn the value of saving and how to manage an income.

It’s helpful to give them a consistent amount of money on a consistent schedule. That way, they can learn how to navigate how cash flow works.

Teach Them To Prioritize Needs Over Wants

Discussing the difference between necessary expenses, like transportation or food, and fun expenses, like toys and high-end clothes, can help. When they want something, but don’t need it, you can encourage restraint and show them how that purchase will impact their budget.

Get a Part-Time Job

Budgeting money you’re given is one thing, but budgeting money you earn from hard work can really help drive important lessons home. If a student has the time during the school year, getting a part-time job can help them learn what it’s like to have a consistent income coming in (which gives them numbers to base their budget off of), and what it’s like to spend money they worked for.

They just have to be careful that they aren’t taking on too much work and can still keep up with school.

Set Goals

One way to make sticking to a budget more motivating is to set goals. Students can think about a financial goal they want to hit, and when they want to hit it by.

For example, a teenager may want to buy a car. They can divide their savings goal by how many months they have to meet that goal, then can incorporate that amount into their monthly budget.

Preparing for Financial Success After College

After graduating from college, there are some steps new graduates will want to keep in mind to start their financial life off on the right foot.

Build an Emergency Fund

When you first enter the working world, chances are you won’t have too much savings built up. It’s a good idea to have at least three months’ worth of your living expenses saved. That way, if you lose your job, you’ll have time to find a new one.

It will take time to build up this fund and if possible, it’s helpful to put 10% of your money each month into savings. Once you have an emergency fund built up, you can start to work toward other savings goals.

Open a Checking and Savings Account

You’ll need a checking account and a savings account at a bank or credit union that has federal insurance.

Start Saving for Retirement

If your employer offers a 401(k) plan, sign up as soon as possible and contribute as much as you can afford to. If your employer is willing to match any of your contributions, try to contribute the maximum amount they match as this is free money to help you save for retirement. If your employer doesn’t offer a 401(k) plan, you can open a retirement account on your own.

Build Credit

Having a good credit score can be very advantageous. One way to build credit is by using a credit card responsibly. If you can, make all of your payments on time to help improve your credit score. Late payments can lead to interest charges, fees, and a damaged credit score.

Frequently Asked Questions (FAQs)