Back to School

Planning Reflection | August 13, 2021

We’re nearly halfway through August. It’s hot, summer is coming to an end, and kids are gearing up to go back to school. For younger children, parents expect to buy pencils and pens, notebooks and binders, and new school clothes. It evokes excitement, anticipation, nostalgia, and dread. For parents of college age children, back-to-school also involves tuition bills. Big ones.

These large bills can present an opportunity to engage your child in a conversation about financial literacy and the financial implications of college. Even if you’ve begun these discussions at an earlier age, college is usually the first big ticket item in which your child actually has some agency. The conversation will look different depending on your family’s circumstances, but it provides a great way to help children begin learning how to navigate major financial decisions

There are four primary avenues to paying for college: scholarships, student loans, work-study, and savings. Many families’ college cash flow plans include several of these options, and each has different lessons for parents and children.

Scholarships are a high priority way to create core funding for college and should be pursued whenever available. They provide money for your student that comes from someone else (the school, other institutions, generous alumni) and directly defrays the cost of attendance. Scholarships can be based on student demographics, prior accomplishments, or financial need, and it’s worthwhile to actively seek out opportunities. High school counselors or college consultants work directly with students to identify relevant choices. There may be a time investment for your child to acquire scholarships, but it’s time very well spent. Even five hours to get a $2,000 scholarship is $400 per hour! Like saving to a 401k to get the guaranteed company match, seeking out a scholarship can bring disproportionate reward for the effort.

Student loans are another way to partially pay college costs. Although they generally get a bad rap in the media, loans can in fact serve several valuable functions. They are a reasonable and accessible source of funding for higher education, particularly if you don’t take on too much. They can introduce your child to the concept of long-term debt and paying back their obligations. And, they are a way to begin building a credit history, which will be helpful later when looking for other kinds of debt. Even if you intend to fully fund college, it’s worth considering whether your child should take some small amount of loans as a learning experience.

Work-study is often a small piece of financial aid packages, giving your child access to part-time jobs while enrolled in school. Students can also find their own job off campus if they need to or want to earn more than the work-study award, or if they’d simply prefer a different kind of work. As with student loans, having a job while attending school teaches your child about working and juggling various priorities, as well as the value of paying for their own lifestyle.

Savings are the final piece of the puzzle, and for many of our clients they account for the lion’s share of college funding. Funding may come from various sources, including tax-advantaged 529 plans, a brokerage or savings account, current cash flow, or a child’s UTMA account. UTMAs in particular can present further learning opportunities for children if the balance is no longer needed for college, whether the cost is covered through other means or your child’s path has simply changed. Since these accounts are technically your child’s money, they will eventually gain control over and access to them. Many of our clients use UTMAs as a way to introduce their children to us, providing initial exposure to the world of personal finance, as well as what it’s like to work with a trusted professional.

The exploration of these various funding sources provides an avenue for you to share the basics of your financial situation with your children as they begin building their own financial lives.

How each family puts together the puzzle pieces can vary significantly. If you have high income or asset levels, your child may not qualify for student loans or work-study. Students may get substantial funding – or even a full ride – based on their athletic participation or other achievements, regardless of whether their family could otherwise afford the cost. Many private liberal arts colleges provide scholarships for students they want to attract, also without regard to financial capacity. Once you have acceptance letters in hand, you’ll usually have a good idea of what the net cost will be after any financial support that’s been offered by the school.

We recognize that many parents find it uncomfortable to share specifics of their financial lives with their children. Even if you stick to high level concepts and considerations, you can still effectively discuss the value of an education and the costs of your child’s various choices. Going through college with some visibility to the financial implications will set them up to make better decisions beyond college. Throughout this process, you get to share your values with your children as they start to solidify their own.