How to Discuss Paying for College With Your Teen

College expenses are currently rising faster than inflation. This means it may be practical for you to make a decision today about how much of your child’s projected college education you may reasonably be able to afford.

Use the below worksheet to estimate how much it will cost, where funding may come from and what student loan payments your scholar may be responsible for after graduation. Talk with your teen now about what they may be responsible for paying to ensure that everyone has the same expectations about paying for college.

Cost Estimate Worksheet

Where Will Funding Come From?

College Funding Beaker

If you claim your child as a dependent on your taxes, the federal government’s financial aid formula mandates that you will be responsible for an Expected Family Contribution (EFC) that will come out of your own pocket. The EFC is based on your current income, savings and investments, and is the same, regardless of the college your child chooses. The difference between your EFC and the cost of a particular college equals your child’s financial need that may be covered by financial aid from the government, the educational institution itself, and/or independent organizations.

What Strategies Make the Most Sense for Your Family?

Every family’s situation is different, so the choices you make and the conversations you have may depend on how you respond to three key questions:

Question # 1

Do you intend to fund 100% of college costs? If you do, it may be practical to set expectations now, so both you and your child are clear about what you will each be held accountable for. You may want to talk about how many semesters you will pay for, whether he or she will live off campus or on, what extracurricular activities will be acceptable, what grade point average he or she will need to maintain and what consequences (if any) there will be if these expectations are not met.

Question # 2

Do you intend for your child to contribute to his or her college expenses? It may help motivate your child to study harder and graduate more quickly if they have a financial interest in doing so. If you expect your child to contribute, you’ll need to define how. For example, you may want to establish a rule that a percentage of every cash gift or earnings your child receives be contributed to a college savings account. Or, set the expectation that your child needs to participate in a work-study program or obtain outside work during college years to help with expenses.

Question # 3

Will any money need to be borrowed? If so, how much and in whose name will the loan(s) be obtained? The amount to be borrowed may affect the type of college your child applies to (e.g., public or private, top tier or middle tier, etc.).

Key Take Away

Communicating these expectations up front can help you and your teen avoid unpleasant surprises and help you both better prepare for the college experience that lies ahead. It may also increase your student’s awareness of the financial burden you are undertaking on their behalf – as well as the financial burden of loans – and contribute greater scholastic and economic effort.

If you’re looking for ways you or the teenager in your life can save for college, connect with a Farm Bureau agent or financial advisor. There are a variety of saving and funding strategies; they can help you explore possible situations to find the solution that works best for your family.

 

Source: RBC Clearing & Custody and/or RBC Advisor Services, divisions of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC