Sending a child off to college for the first time can be an overwhelming experience, both for the parent and the student. As a parent, you play an important role in helping your child navigate the process, not only from a financial standpoint but also from a logistical one. Even the most independent and capable students often need some support as they figure things out.
Pre-college-acceptance tips
The following tips can help you and your student navigate the college search and admissions process.
#1 – Save early.
If your plans include helping to pay for your child’s college education, it is important to start saving as early as possible. A 529 college savings plan can be a great way to save, as it offers tax-deferred growth and tax-free withdrawals for qualified educational expenses. There may also be some tax benefit for the donor, depending on the state and the plan.
Another benefit of a 529 plan is that the funds can be used for K-12 education expenses in addition to secondary education expenses. And anyone can contribute to a 529 plan, including grandparents, family friends, etc.
If the named beneficiary of the 529 plan decides not to pursue a college education, you have the flexibility to change the account’s beneficiary to another person of any age. And there are some situations where unused 529 plan funds can be transferred to a Roth IRA for the same beneficiary.
However, keep in mind that a 529 plan is not your only option. You may also want to consider the following college savings vehicles:
- Coverdell education savings account (ESA) – A Coverdell ESA is a tax-advantaged savings account that allows you to contribute up to $2,000 per year per child until the child reaches age 18. Earnings within these accounts grow tax-deferred, and funds can be withdrawn tax-free when used to pay for qualified educational expenses.
A downside to Coverdell ESAs is that they have a relatively low income threshold. You cannot contribute to a Coverdell ESA if your modified adjusted gross income (MAGI) is more than $110,000 as an individual or $220,000 as a married couple filing jointly.
Also, while assets grow tax-deferred within the account, there is no tax deduction for contributing to a Coverdell ESA. - Prepaid tuition plan – A prepaid tuition plan is a type of 529 that allows you to pay for your child’s future college tuition at today’s rates. Doing so can result in significant savings, as the cost of college continues to rise. Some states cap the total allowable amount you are able to maintain in your prepaid tuition account, but these limits are typically high, ranging from $235,000 to more than $500,000.
The downside to these accounts is that the beneficiary typically must attend an in-state university. Also, the money in these accounts can only be used to cover the cost of tuition. Other expenses, such as room and board or university fees, are not covered. - Custodial accounts – Uniform Gift to Minors Act (UGMA) and Uniform Transfer to Minors Act (UTMA) accounts allow parents to set aside assets for their children’s benefit. They do not provide the same level of tax benefits as a 529 plan, but in exchange, they offer more flexibility to decide how the money is invested and eventually used.
The assets in these accounts can be used by children for any expense, not just the cost of college. However, contributions are not eligible for a tax deduction or credit, and the account’s earnings are taxable. It is important to note that funds held within a custodial account are considered your child’s assets when calculating your expected family contribution on the Free Application for Federal Student Aid (FAFSA), which means they may negatively impact your child’s eligibility for need-based financial aid.
It is also important to note that the assets convert to the child’s name once he or she reaches the age of majority, at which point the custodian loses access to the funds. This differs from the treatment of 529 plan assets. - Custodial Roth IRA – A minor child with earned income may be eligible to contribute the lesser of 100% of that income or $7,000 to a Roth IRA. These funds grow on a tax-exempt basis and will transfer to the child’s own Roth IRA when he or she turns 18. The benefit of holding assets in a Roth IRA is that the balance is not reported on the FAFSA; therefore, these assets do not reduce your student’s financial aid eligibility.
#2 – Help your student select appropriate high school course work.
Early in your child’s high school career, identify opportunities for concurrent enrollment and/or AP classes.
- Concurrent enrollment courses – This refers to a high school class that also offers college credits, typically in partnership with a local community college. These credits may transfer to your child’s future four-year university, allowing him/her to bypass some of the university’s general education courses.
- AP courses – AP courses are high-level high school classes that allow your student to earn AP credits, either through successful completion of coursework or by taking an AP exam. Unlike concurrent enrollment credits, AP credits will not appear directly on your student’s college transcript; however, they may allow your student to bypass some of the university’s general education courses. They also demonstrate to college admissions officers that your student is capable of completing college-level coursework.
Another benefit of both concurrent enrollment and AP courses is they can save you money because these credits typically cost significantly less than four-year university credits.
#3 – Support your child in establishing goals and managing the process.
The college selection process typically works best when it is primarily guided by your student, with help and support from you. Work with your child to clearly articulate his or her educational goals as well as what he/she is looking for in a college. Doing so can help narrow and focus the college search process.
You should:
- Let your student take the lead. Allow your child to take the lead in researching colleges, scheduling campus visits and staying on top of deadlines, but also be there to answer questions and help along the way.
- Maintain a tracking sheet. Help your student create a tracking document that includes a list of options, deadlines, tuition costs, scholarship requirements, distances, relevant majors, application status, etc. Encourage your child to track as much as possible on this sheet in order to stay organized throughout the process.
- Encourage your student to establish a separate email. Your student may find it helpful to create a new email address that is used solely for college admissions and application purposes. Doing so can help your child remain organized and keep track of all communications more easily.
#4 – Consider hiring a professional college coach.
You may find it helpful to work with a professional who has experience navigating the college search and application process. The process typically begins with a questionnaire or checklist to help your student narrow his or her scope of colleges based on specific criteria such as size, location, distance from home, cost, culture, available majors, likelihood of acceptance, etc.
It is wise to begin this process as early as possible, ideally during your child’s sophomore year of high school. Doing so allows the college coach to help your student build a resume that will be attractive to the colleges your student is interested in attending. Throughout high school, your college coach can help your child choose courses and college entrance exams that meet potential colleges’ criteria. As graduation approaches, your coach can help your student develop strong essays, stay on top of deadlines, identify scholarship opportunities and manage the application process.
The cost of hiring a college coach can vary greatly. However, working with a coach offers potential cost savings related to test preparation, managing application fees, identifying scholarships and negotiating tuition.
#5 – Encourage your child to take entrance exams.
In recent years, some schools have stopped requiring SAT or ACT scores for admission. However, it is still beneficial to take these exams, as they may open up additional scholarship opportunities. Understand the requirements of the schools your child is interested in attending, and make a plan for taking the necessary exams.
#6 – Research scholarships.
Students often struggle to know where to go for scholarships, so some parent support is often needed. Take time to sit down with your student and help research scholarships offered by legitimate sources. However, resist the urge to submit applications on your child’s behalf. It is important to allow future college students to take the lead in writing essays and managing deadlines, as this helps them prepare for the rigors of college.
If you are working with a college coach, this professional can help your student identify legitimate scholarship opportunities. Your coach can also help your student develop criteria for a strong essay based on what admissions officers may be looking for.
#7 – Visit several schools.
Make a plan with your child to visit several colleges to learn more about the schools and help your student envision what life would be like on different campuses. Come prepared with questions for admissions staff, academic advisors and current students, as they often provide helpful insight to guide your child’s decision.
#8 – Encourage your student to apply early.
Some schools offer benefits to students who apply early in the year. For example, students who apply early may have a better chance of admission and/or receive an earlier notification of their acceptance, which can greatly reduce the stress of the college application process. Other schools provide housing preferences to students who apply early, and some even offer better financial aid packages to early applicants.
Also, many schools offer a day of free applications, while some waive the application fee for students who attend an in-person campus tour. By taking advantage of these opportunities, your student may be able to save $50 to $100 on each application fee.
#9 – Complete the FAFSA.
The Free Application for Federal Student Aid (FAFSA) is an important document that all students seeking federal student aid are required to complete each year. Early in your child’s high school career, research the FAFSA and what it may mean to your family. You may be able to take steps to improve your child’s eligibility for aid.
Even if your student does not qualify for need-based aid, the form is used to establish eligibility for state and school-specific financial aid programs, including grants, scholarships, work-study opportunities and loans.
The FAFSA requires multiple sections be completed based on the student’s dependency status. Most students must submit a student section and a parent section, but there are also sections that must be completed by a student’s spouse and a parent’s spouse, if those relationships are present.
As a parent, you will be required to provide information about your financial situation, including your income, assets and tax information. It is also important to be aware of FAFSA deadlines. The federal FAFSA deadline is typically June 30 for the upcoming school year; however, most states and universities have earlier deadlines that you will not want to miss.
Post-acceptance tips
Once your child has been accepted to college, take the following steps to manage the transition.
#1 – Have your student carefully monitor emails and portal notifications.
Most schools communicate ONLY with incoming students, which makes it vital that your child frequently check emails and student portal notifications. Failing to do so may result in missed deadlines surrounding housing, testing, course enrollment and more.
#2 – Join a parent social media group.
Many universities have Facebook or other social media groups for parents. Joining such a group can be a great way to learn more about the university, access support from other parents and receive answers to questions you cannot ask through other sources.
#3 – Help your child review housing and dining plan options.
Universities offer a wide range of housing and dining plan options. Take time to consider what type of living and dining arrangements meet your student’s needs and align with your budget.
#4 – Ensure your child is insured.
It is important to make a plan for your student’s health insurance coverage. Some schools automatically include health insurance coverage as a fee on your student’s tuition. If your child remains covered on your existing policy, be sure to notify the university’s bursar’s office that school-sponsored insurance is not necessary.
Also, if your student does not plan to bring a car to college, you may be eligible for a distant driver discount on your auto insurance. Be sure to notify your insurance agent of your child’s upcoming departure.
#5 – Execute financial and medical powers of attorney for your student.
Once your child turns 18, you will no longer have authority to make medical or financial decisions on his or her behalf. This can be especially stressful if your child experiences a medical emergency, as hospital staff may not be able to provide an update on your child’s medical status.
Fortunately, it is relatively simple to execute power of attorney documents that grant you legal authority to act on your child’s behalf should he or she become incapacitated. As soon as your child turns 18, work with your financial advisor and estate planning attorney to implement these important documents.
#6 – Consider on-campus employment.
If your student plans to work on campus, encourage him/her to apply as soon as possible, as campus jobs can fill up quickly.
If you could use some help navigating the college savings and application process, we would love to have a conversation. To learn more, please contact us.
