Your clients finally made it to the end of their student’s senior year of high school. Congratulations! As a family, they successfully found a college that was just the right fit–academically, socially, and financially. Your client’s student applied and was accepted. They weighed all the options and decided that they’ll be a Buckeye, Bearcat, RedHawk, Rocket, Falcon, or Bobcat (for all our Ohio friends). In a few short months, your client’s student will begin their college journey and leave home. Now, how does your client pay for it? What are the finer points and the logistics of paying for college?
6 Things You Need to Know:
If your clients haven’t already filed the Free Application for Federal Student Aid, the FAFSA, they need to do so now. The deadline to file is June 30th. As a first time college student, we hope your client’s student has already applied in order to get the best financial aid offer they can. However, if they haven’t, they should take some time to do it today even if they don’t think they qualify for federal financial aid. They’ll need to file in order to get federal student loans and having one on file makes future changes easier should their circumstances change.
Besides the FAFSA deadline, the college your client’s student chose will determine payment deadlines. Your clients probably have already paid the deposit in order to accept their offer of admission. They probably have also already paid the housing deposit in order to secure a spot on campus. Our biggest recommendation here is for your client to impress on their student the importance of reading their emails.
Your client’s student may have (or soon will have) a new email address from their college. The college will communicate solely with the student. The student needs to understand they are the touchpoint now. They are adults now! Mom and Dad will no longer be keeping an eye on communications. The college will be sending everything to the student. This lesson is important for your student to understand because they can’t go to college if the bill isn’t paid.
We frequently talk about “cash flowing” college. Not too many parents can write a check for $10,000 to pay for a semester of college. One payment method to look into is installment payments, sometimes called deferred payments. Many colleges will offer an installment plan option, but your client’s student may have to ask about it. Installment plans are a great way to manage cash flow during the college years.
The tuition, room, and board charges are divided out over the months of the semester, sometimes in equal amounts and sometimes with a larger first payment. They may have a monthly service fee or perhaps a one-time setup fee. Your client may decide to not go with the installment plan if the service fee is too high.
A good example of an installment plan is at the Ohio State University. Their plan is called Tuition Option Payment Plan (TOPP). For a $30 non-refundable enrollment fee, you can divide the payments equally over the semester. 5 monthly installments is a common plan. Your client can decide how much they would like to pay over the semester and avoid taking out a loan to cover the difference.
We recommend using a direct electronic payment via ACH when setting up installments. Debit and credit cards will probably charge a hefty per transaction percentage (like 2.5% at OSU). In addition, watch out for late charges. At OSU, they’ll charge you $300 if your payment is late!
4) Paying with a 529
So, your client’s have some 529 savings to help pay for college. Way to go! They can use those funds to pay for qualified expenses like tuition, room and board, and necessary fees. As the account owner, they can elect to send funds directly to the institution, to the student/beneficiary, or to themselves. The method your client’s choose depends on their preferred way to keep records.
For things like tuition and room and board paid directly to the university, they may choose to have a check sent from the 529 directly to the university. It makes things much simpler. Be sure to save all the receipts of payments and give the 529 enough time to process the check and send it. (Often 529 plans will request 10 business days to process.)
Some qualified expenses, your client’s student will be paying for themselves like textbooks and off campus housing. In these instances, your client can pay for the expense and be reimbursed by the 529. Again, those payment receipts are important so you can show that the 529 reimbursement was for specific qualified expenses. Many parents choose to have a joint checking account with their student that they can deposit funds to for these types of expenses. That way both your client and their student have access to the account and mom and dad can keep an eye on transactions!
One thing to note about off campus housing, to be a qualified expense the student must be at least a half-time enrolled student in a degree program, and the “maximum amount permitted for off-campus living cost is the amount the college cites as the off-campus room-and-board figure for federal financial aid purposes.” Utilities and related costs can be included as well so long as the total is still below that amount.
5) Paying with loans
For most families, student loans are part of the equation when paying for college. Be sure to ALWAYS take advantage of available federal loans before turning to private loans. Federal loans are capped at a certain amount each year. (Read more about the types of loans here.)
Since your client’s student applied for the FAFSA (see #1 above), their school will tell them the amount of federal student loan dollars they are able to borrow each semester and if a portion of the loans will be “subsidized” based on demonstrated financial need. On subsidized loans no interest will accrue while the student is in school. Every student is eligible for the “unsubsidized” federal direct loan regardless of financial need. The financial aid office at your college will be able to provide you with the exact details of the process including how to apply for it.
6) Planning out all four years
With all these payment options (installments, 529s, loans), be sure your clients plan things out for all four years. Some families make the mistake of using up all their 529 money first and then are forced to take out private loans in year three or four. (This blog can show you what we mean. Also, note the tax tip in #5!)
Have your client’s lay out with pencil and paper, or a good old excel spreadsheet and estimate the amount due each semester and exactly where the money will come from to pay the bill. Your clients will be able to make smarter decisions with their plan all laid out for each year.