You've saved for your child's college education through the years, helped your child research schools and supervised the application process. Now, thankfully, your child is in college. But you probably can't disappear just yet — there are still bills to pay. There are many additional expenses in college you may have missed. Maybe you underestimated exactly how much financial aid would cover. Or perhaps you knew all along that you'd have to use some of your own resources or take out more loans. In any case, you'll need more money to pay for it all. So, what expenses are we talking about and where should you look for extra cash?
College Student Expenses Beyond Tuition
The expenses of college don’t stop at the cost of tuition. Your student will have to pay for technology, books for classes, possibly a parking pass and additional expenses throughout the school year as they discover clubs and extracurricular activities. Here are common but unexpected college expenses that financial aid typically will not cover, as well as an estimated cost for each:
- Technology and books for classes: This may include a laptop to work off of, a hard cover copy of a textbook and the online code to access assignments for that course - ~$250
- Greek Organizations: Joining a sorority or fraternity is a great way to get involved but can add up each semester ~$400
- Parking Pass Fees: If your student wants to keep a vehicle at school, they will likely need to purchase a parking pass - ~$50
- Professional Attire: Career fairs and employer-held events are a great way for your student to network and gain professional skills, but they’ll need a good outfit to feel confident - ~$100
Out-of-Pocket Funding Sources for College Expenses
So, your student has identified additional college expenses and you’re wondering how best to pay for it all. Here are the resources you may have to tap into, from most to least recommended.
Your Child’s Earnings and Savings
In finding spare change for college bills, leave no stone unturned. Does your child have any income or assets that could be used? Earnings from a part-time or summer job? What about that vintage lunch box collection collecting dust in your child's closet, or those $100 savings bonds that your child receives from Aunt Agnes every year? Not only is this a great time to discuss your teen’s financial responsibility, but by contributing a portion of the cost, your child is likely to feel more invested in his or her education.
If you can afford it, applying part of your paycheck to your child's college bills is probably the easiest route. You won't have any paperwork to fill out or messy calculations at tax time, and you can leave your retirement accounts and life insurance intact.
Your Savings and Investments
The next logical place to look for spare funds is your savings and investments. This category encompasses everything from savings accounts and money market accounts to stocks, mutual funds, and real estate holdings. Not surprisingly, it can be difficult to figure out which source to use. Generally, withdrawing from your savings accounts is the easier route. Again, no applications or independent approvals are necessary (except perhaps from your spouse!). Also, no tax penalties are associated with such withdrawals. And the fact that savings accounts generally earn the lowest rates of return means that you don't have to worry about missing out on high returns. However, try to keep at least three to six months' worth of savings on hand for emergencies.
If you have worked on building home equity over the years, you can usually tap this for college bills by taking out a home equity loan. The loan can be structured as either a revolving line of credit (you're approved for a certain amount, and you tap the funds periodically as you need them) or a second mortgage (you receive one lump sum). The main advantage of a home equity loan is that interest payments are usually tax deductible. And because your home serves as collateral for the loan, the interest rate is likely to be lower than on an unsecured loan. However, because the loan is now tied to your house, your lender can foreclose on your home if you default.
Your Life Insurance Policy
If you have a cash value life insurance policy, you might decide to use part of the cash value that has built up inside the policy by making a withdrawal or taking out a loan, or using some combination of the two. For withdrawals, the amount that you withdraw is generally limited to a percentage of your cash value and varies by policy and company. The main drawback is that such withdrawals decrease your death benefit (i.e., the sum of cash that the insurance company pays at your death). For policy loans, you are likewise allowed to borrow up to a specified percentage of your cash value. However, if you die with an outstanding loan against your policy, your death benefit is reduced by the amount of the outstanding loan and interest.
Private Loans/ Parent PLUS Loan
If the idea of putting your home at risk with a home equity loan scares you, then you might consider obtaining a personal (unsecured) loan from a private financial institution. To get approved, you'll likely need a good credit history.
If you're looking for a loan that's college-specific, the federal government's Parent PLUS Loan may be a good option. Under this program, parents can borrow up to the full cost of their child's college education, less any financial aid received. The loan is obtained directly from the federal government. Importantly, PLUS Loans aren't based on your child's financial need. However, you'll need to pass a credit check.
Before going forward with either of these loan options, understand student loan debt and the implications it can have.
By the time your child is in college, it's likely that you'll have at least some money saved in one or more retirement accounts, such as an IRA or an employer-sponsored plan like a 401(k). Should you tap these funds? As a general rule, most planners don't recommend using your retirement funds to pay college bills. You'll need the money in retirement, and you'll miss out on the growth that would have occurred had you not withdrawn the money.
Explore Savings Options
Saving for your child’s education is a great thing to invest in long-term — but even day-to-day expenses can add up. Contact a Farm Bureau advisor today talk about your options to save money for college