Parent’s Finance Guide to a Child’s Education
Tips on Saving, Paying, and Borrowing
As a parent, how much you are expected to contribute toward your child’s college education is determined by the federal government. Their decision is based on information you provide in the Free Application for Federal Student Aid (FAFSA). In the application process, you are asked to provide information regarding both your finances and your child’s, including income and assets. You are also asked how many dependents you have and how many family members will be attending college at the same time. This information is analyzed to determine what you can contribute toward your child’s educational expenses, which is called the Expected Family Contribution, or EFC. The lower your EFC, the more grants and loans your child will be qualified to receive.
Use our EFC calculator to estimate your expected contribution, and get planning! http://www.tuitioncoach.com/collegecost/new_lccc.jsf
Saving on federal taxes through tax credits
In addition to financial aid, there is an indirect way to reduce the college bill through federal tax reductions. There are four tax breaks for college students and recent graduates. Some benefits have income and other restrictions. More information can be found in IRS Publication 970 (http://www.irs.gov/pub/irs-pdf/p970.pdf): Tax Benefits for Higher Education.
- Lifetime Learning Credit: Maximum credit is worth up to $2,000 per return if the adjusted gross income of a family is $120,000 (if parents are married and filing jointly) or $60,000 (for singles). There’s no limit on the number of years you can qualify for this credit.
- American Opportunity Tax Credit: Maximum annual credit here is worth $2,500 and is available to individuals with an adjusted gross income below $80,000 or married couples who file jointly and earn less than $160,000. It’s only available for four years of education.
Strategies in Times of Recession
Tuition is always difficult to afford. During a recession, these bills can feel like an insurmountable barrier between your child and their future. But there are things besides just cutting back on household expenses that can help you survive a bad economy and help you put your child through school.
Here’s just some of them:
- Revise your expectations about jobs during the school year. Have a discussion about the type of job your child needs to find while in school and how much money they need to contribute from that job. Be clear about expectations so everyone is on the same page.
- Talk to your child about finishing school faster. At the very least, they should finish in four years. To help motivate them to do so, remind them that scholarships often don’t renew after four years of schooling. Also, if you don’t want to be saddled with the responsibility of fifth-year tuition, tell them you won’t help pay if they don’t finish on time. If your child is truly motivated, and it’s still early in their education, ask them to take an extra class each semester. This could help them graduate a semester or an entire year early, meaning you save bundles.
- Look for other sources of money. The biggest one is always more scholarships. Your child should be applying throughout the year, every year. Scholarships are always available and they aren’t just for freshman. Ensure your child consistently checks in with the financial aid office and searches online for opportunities. Start with www.fastweb.com, cappex.com, and scholarships.com.
- Move more of the tuition burden to your child. When your child work’s a part-time job during college and still doesn’t earn enough to cover the gap between their tuition and the money you’re able to contribute to their cause, it might be time for your child to take out a student loan to cover the difference. They’ll have the responsibility of paying that debt back later, but the hope is that, with a degree behind them, they’ll be able to find a job. But be sure to compare student loans with SimpleTuition before borrowing, because we can save you thousands. It’s fast, easy, and free.
- Take advantage of your employer’s pre-tax savings. Often employers offer pre-tax plans that let you pay for things like transportation or medical expenses with income prior to taxes, which could save you a bundle of money throughout the year. There’s two benefits to this: the money you would have paid to taxes can now go toward tuition; and it lowers your taxable income, meaning your child might qualify for more federal aid.
Teaching your child financial responsibility
As the parent of a future college student, you have a lot to worry about already: from how you’ll handle the empty nest to paying tuition bills.
One huge and often unspoken subject between parents and their (almost) adult children is financial responsibility. But you have so many years they haven’t lived through yet, and so much knowledge. Use it to help your child understand how to manage money responsibly.
- Involve them in the payment process. Even if you have the money to cover the cost of tuition, your child shouldn’t get a free ride. Remind them of something very important: they need to help pay for their own education.
- Support them getting a job. A mantra of money: it’s easier to spend someone else’s cash. That means you probably shouldn’t just send your kid checks each month. Teaching your child financial responsibility begins with them earning their own money. So push them to get a job.
- Help them navigate the banking system. That means help them pick an account, preferably at a bank that has a presence on their campus. Teach them the differences between credit and debit and the dangers of debt. Remind them that credit cards have interest rates and debit cards are free.
- Don’t bail them out of every financial hardship. Lessons are sometimes difficult to swallow, but your child may need to learn them the hard way. If they decide not to work all semester but want to go on spring break anyway—well, tough luck kiddo. Maybe next year you should save more, plan better, or work. It’s not tough love, just tough money.
- Teach them the power of habitual saving. These days it’s easy. Paychecks can be directly deposited into checking accounts. The trick is keeping it there. The easiest way is asking your child to create a monthly budget.
Saving for College
- College Finances Home
- Alternative ways to pay for college
- Are student loans an inevitable part of the college experience?
- Financial Aid Articles
- Financial Considerations - Where is the Money Going to Come From?
- Financial planning for college
- Financial stresses & College on the Cheap
- If the parents are divorced, who should serve as the custodial parent?
- Making College Affordable | Understanding College Budgeting and Expenses
- OK, My Kid was Accepted - Now, How Do I Pay For It?
- Preparing For Your Tuition Bill
- Reflecting on how we prepared for college costs
- Saving for College
- Saving for College: Calm and Cool for 17 years, then Panic in the Home Stretch
- Savings and Student Loans | Information for Parents
- Teaching Your College-Bound Teenager Financial Responsibility
- Top myths and mistakes in paying for college
- What is a 529 Plan?
- What is a Coverdell ESA?
- When should I start planning for college funding?