College expenses are creeping up every year. In fact, “creeping” might just be a huge understatement. The truth is that the cost of college is wildly out of control and paying for your child’s educational expenses out of pocket is becoming more and more unlikely. To pay for college today, you need to plan as far in advance as possible and play smart with your funds. There are a few pitfalls, however, that many parents fall into without realizing that cost big in the long run.
Understanding Your Expected Family Contribution
Your expected family contribution, or EFC, is how much colleges anticipate you can pay each year for your child’s college expenses. Even if you already know what your EFC is, you may not realize what factors into it and how you can work with it. Obviously, you can’t start making less money, but you can label your accounts and finances appropriately to improve your financial aid package. Grandparents, for example, don’t have a section on the FAFSA to designate their aid contributions, so if your own parents will contribute to your child’s education, you don’t have a place to label this and can effectively leave it off.
Not Digging Deep for Scholarships
No matter how much merit-based aid your child receives, it’s always valuable to apply for external scholarships. There’s more to college expenses than tuition – room and board, spending money, and food can take up just as much money as tuition. Search every possible avenue, including sites like Cappex, for scholarship opportunities. Don’t hesitate to enter every minor detail on scholarship matching services either – there’s an opportunity for just about everyone online.
529 Mishaps
A 529 account is incredibly helpful for college savings, but it’s not an automated process. Withdrawal is manual, and you need to direct funds where they need to go early – two weeks minimum. Keep in mind that only educational expenses are permitted for 529 funds, so if you’re paying your student’s bills, you’re going to need to keep the records to prove your cash flow.
Make sure to adjust your 529 withdrawals depending on whether you or your child will file an educational tax credit. With taxes, make sure not to withdraw funds in December for bills you pay in January – those won’t count as credited payments.
Overestimating Financial Aid
Unfortunately, the financial aid process is tricky – and oftentimes feels deeply unfair. No matter how your real financial situation may be, your EFC is your EFC, and colleges aren’t willing to negotiate on that front. Start your planning early, and don’t assume much in the way of need-based aid – except for student loans, which are readily available, though they are less than ideal for many students.
A related issue is underestimating expenses. As mentioned earlier, college costs more than the tuition fees. Tuition, room and board, food, books, equipment, and more rack up costs faster than you can believe. While there are ways to skimp on a few fees – finding cheaper textbooks is one common way – the truth is that college costs money, and your financial planning needs to account for spending outside of just tuition.
Additional Resources:
http://theweek.com/articles/702585/5-common-mistakes-parents-make-when-paying-kids-college-degree
https://bottomlineinc.com/money/college-finance/10-common-mistakes-when-paying-for-college
https://www.thebalance.com/top-college-planning-mistakes-made-by-parents-795260
