By: Brian Klintworth, CPA
It’s that time of the year where it seems like everyone you know has a child who is graduating from high school. Or maybe you are the parent of one of the graduating seniors. What an exciting time! There are so many possibilities for these students to pursue beyond high school. However, the financial costs play a big role in someone’s ability to go on and further their education. And those costs can be daunting. By having a plan and with balancing the different funding sources, it can be a very attainable goal for students and their families.
This information on funding for college planning comes from a partnership that HBE LLP has with TeamMates Mentoring Program. Every couple of months, HBE gives presentations in various TeamMates chapters about financial literacy for the TeamMates mentors to take back to their mentees. Our presentation focuses on some of the most critical financial literacy skills for students to be learning, including piece on funding education after high school.
When you are funding a college education, start at the top of the list of financial options and work down. We’ll start with grants and scholarships, which represent money that you will not have to pay back at a later date. These are some of the best financing sources to pursue first. At the end of our list, we will discuss student loans. While these are an important and, often times, a necessary piece of funding for college, they should only be used at the very end to supplement funding from other sources to help ensure that a student can graduate college without an overwhelming amount of debt.
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Scholarships. Scholarships are a great thing for students to apply for. Not only can the money be put towards a good use in college, but the time spent writing the applications can be good practice in writing and thinking for students to take with them in college. There are so many scholarships out there and many people qualify to apply for a good number of scholarships. That doesn’t mean you will automatically get any scholarship you apply for, but it is something worth shooting for. When getting a student to fill out a scholarship is to think about the value in relation to the time that it took. Let’s say you were applying for a $500 scholarship. While that may not seem like a lot of money in comparison to the total cost of college, if it only takes two hours to complete that application, that works out to an hourly rate of $250 an hour. That would definitely be a better payoff than working two hours at a minimum wage job.
- Grants. Grants are also an important part of funding post-secondary education. Grants and scholarships are both the same in that there is no requirement to pay the money back. With grants, however, their distribution is based on need, where scholarships tend to be based on merit. To determine if you qualify for any grants, you should fill out the FAFSA (Free Application for Federal Student Aid). There are a lot of different factors that go into determining whether or not you and your family would qualify for a grant, so it is important to take the time to fill out this form. With advancements in technology, it is actually a relatively simple application to complete now.
- Working. After you have obtained college funding through scholarships and grants, the next place to look to work on raising money for college is through working. Many colleges offer programs where students can work on campus (in the residence halls, dining halls, or other campus areas) and earn money while being flexible with their hours based on their school schedule. As well, many off-campus employers will offer their employees with tuition reimbursements in addition to their regular wage. This can go a long way towards making a dent in college costs. Internships are also great, particularly as you get into your upper level grades, as you can start getting real world experience in your chosen profession and get connected with jobs and contacts for once you graduate. Because many internships are now paid, you are gaining great experience while also earning money that can be covering some of your educational costs.
- Loans. The final main source of college funding is student loans. As mentioned above, we put this piece last for a reason. While there is nothing wrong with student loans, they should supplement all additional funding sources, not come first. Because they are loans that the student will have to pay back, all that a student is doing is deferring the cost of college, not covering it. By the time a student starts making payments on the loans and understanding the cost that it will have over the next five, ten, or longer years, the student is stuck having to pay those off. Even bankruptcy won’t clear away student loan debt, in many cases. There are two kinds of student loans, subsidized and un-subsidized. With subsidized loans, the government will pay interest on the loans while the student is still at least a half-time student. The student does not start incurring interest charges until after they have graduated. Un-subsidized loans start accruing interest as soon as they are taken out, so the payments due on these loans would be higher than the same subsidized loans. Whether or not you qualify for a subsidized loan is determined by your need, so you need to fill out the FAFSA in order to be considered for subsidized loans. But in either case, the loan costs can inflate quickly.
Here are some tips to keep in mind to keep student loans down:
- Don’t borrow more than you need.
- Keep any student loan payments to cover educational expenses, not to buy that new TV or take a spring break trip you had your eye on.
- Supplement your college classes with community college classes.
- The education that these community colleges have is on part with four-year universities. But, the costs are far less expensive. This can be a great way to get electives out of the way. You can also take classes in high school for college credit to accomplish the same effect.
- Have a plan.
- Think about what your interests are so that you can pick a major either before you get into college or shortly after starting. While going in undecided isn’t the worst thing in the world, it helps to have at least a bit of a focus.
- Graduate on time.
- Adding even an extra semester or year to your college career can add significant costs. When you eventually do graduate, the additional memories from staying in college longer likely won’t be worth it.
While this may all sound daunting, the good news is that you have a vast array of options with which to fund your college career or the college career for a relative of yours. By having a plan, you can balance the different funding alternatives to create a package that makes college approachable and worthwhile. For more tips on Financial Literacy, please visit HBE’s website at http://www.hbecpa.com/financial-literacy/ to see some of our resources that we have available and see what HBE is doing in our community to help our students learn about basic financial knowledge.