In the fall of 2017 more than 20 million students walked onto a college campus for the first, or last, time.
That milestone can be emotional for students and parents alike, especially for those new to college. There’s much advice given for new college students, but that ignores what parents of first-timers need to do – specifically when it comes to finances. If you’re a parent of a new college student, here are some things you may want to keep in mind.
Determine how much you’re going to help out
Financing a college education isn’t cheap. Members of the class of 2016 graduated with more than $37,000 in average student loan debt, so this is a known concern. If you haven’t discussed or decided if or how you’ll help out, this is the time for that discussion. Ask yourself some of the following:
- Will we send our child money on a regular basis?
- What bills do I expect them to cover?
- Will we supplement their student loan money to help pay for tuition?
There may be other questions unique to your situation, but this provides a good start. Keep in mind that retirement should be a key concern of yours, so that needs to play a role in your decision-making process.
Help your student establish a budget
Whether or not this is your child’s first time on his or her own, you want to help your child develop the habit of living by a budget. It doesn’t have to be anything advanced or difficult, but while they’re busy learning about the arts and sciences, you want to help them learn how to stay on top of their finances too. If your child is taking out student loans, this is especially important to help curb the desire to use student loan money to finance lifestyle inflation.
Don’t know where to start when it comes to teaching them how to budget? You may find one of the best ways to help them is to give them a glimpse into your budgeting process. Providing them with a real-life example of a budget will help them see what’s needed to start.
In most cases, a child leaving for college offers an opportunity to make changes in your life. One example is downsizing. You may want to downsize your home or downsize your bills to free up more money for retirement planning. “Use campers, motorhomes or yurts for alternative housing,” says Melissa Schreur, certified insurance counselor of Insure the Heroes. “Use public transportation or ride share programs to cut down on vehicles expenses.”
That may sound extreme, but lowering your expenses now can directly impact the amount you’re able put away for retirement. With 30% of those aged 55-64 having more than $100,000 in mortgage debt and 21% of those over 75 having mortgage debt, it makes sense to free yourself from those payments now rather than being burdened with them during your retirement years.
Increase retirement savings
Having your child leave for college represents a prime saving time for retirement, thanks to decreased living expenses. It’s wise to take those savings and implement them in your retirement planning agenda. The IRS allows those over age 50 to put aside up to an extra $6,000 per year in 401(k) plans and an additional $1,000 in IRA plans. Speak with your tax professional to determine what’s best for your situation and set yourself up for success. You want to do as much as you can in to boost your retirement savings.
Analyze insurance needs
You may not think it, but life insurance is another key item to consider as your child leaves for college. In fact, it should be done in concert with your retirement planning to maximize the benefits of both. Schreur adds that life insurance is needed during this stage of life for debt, income or asset protection. As such, consider some of the following areas when thinking through your life insurance needs:
- College expenses for your child(ren)
- Outstanding mortgage obligations
- Replacement of income
- Paying off other debts
This may also be a time to look closer at long-term care insurance if you haven’t considered it before to get the lowest rates possible.
Sending a child to college is an emotional and exciting time. Use your time of reflection to amply prepare for the next stage of life ahead of you.