Financially preparing to send your kids to college
Key topic
This lesson is purely dedicated to the financial aspect and realities of sending your kids to college. College tuition and accommodation are not cheap, which is why it is important to be aware of all the associated costs and requirements. Moreover, you need to know what your options are and how you can financially prepare to send your young ones to college. Student loans are only an option and there are different alternatives which you need to be aware of them long before the college application deadlines.
Learning objectives
- Be aware of key financial facts and realities of college education
- Learn about tuition fees across the country
- Understand that fees are not the only financial requirements of college
- Learn about the different options of paying for college
- Be sure to remind your children of the financial tools that will help them during their time in college in order to handle their finances efficiently
Financial realities of higher education
Your children are now at the age where the prospects of a collegiate sport career are getting closer. If your kids appear to have the talent, but also the personal will to pursue sports further, now is the time for you to engage in the process too and facilitate it in a very specific way.
Educating yourself on the NCAA recruitment criteria, which is something we will discuss at length in a later lesson, should be your number one priority. You should note that only some sports offer full-ride scholarships. These are called “head count” sports. In the NCAA, these include only football for the Football Bowl Subdivision, formerly known as Division I-A, and basketball for Division I. For women, basketball, volleyball, tennis and gymnastics offer full scholarships. All other sports are called “equivalency” sports, which means that the available scholarship money for each team can be divided among players. There are no restrictions on how many athletes can be on scholarship, and the allotted number of awards can be divided in whichever way the coach chooses. This includes all other Division-I sports and all NCAA Division-II sports, NAIA sports and junior colleges.
Additionally, students and parents should keep in mind that while Division-I schools may provide multiyear scholarships, some awards must be renewed each year. Additionally, according to the NCAA, scholarships can be canceled at the end of the award period, or during the period if the student-athlete becomes ineligible, commits fraud, engages in misconduct or quits the team for personal reasons.
So, even if your kids are talented and destined for a career in the NCAA, it’s not guaranteed that they will have a free ride to college and it’s up to you to lead the way in preparing for the financial input of the family towards the kids’ college education. According to the National Collegiate Athletic Association (NCAA), more than 150,000 student-athletes receive around $2.7 billion in athletic scholarships each year. The average athletic scholarship is about $18,000 per student-athlete, based on numbers provided by the NCAA – an amount that typically won’t cover annual college costs. Per U.S. News data for 2018-2019, the average tuition and fees at ranked public schools for out-of-state students was $21,629, and the average cost amounted to $35,676 at ranked private schools.
Having previously established the harsh reality that getting a college sports scholarship is not the easiest thing in the world, the family should start planning early about the possibility of covering costs itself for a college education. It is ever more observed that college students undertake to support their education themselves, even though help from the family is not uncommon. Again, this is a topic for discussion with your children, one that cannot wait till the last minute and hopefully it has already been discussed at home; the sooner a plan is laid down and agreed within the household, the more the benefits arising from good preparation, since your kids are now at the age where a plan for college should already be in place. It is very important, as we’ve already stressed, to also recognize that student loans are not the only solution and sometimes it’s not even a viable one, given that repaying the student loan could take more than a decade and take away a good part of the quality of your kids’ adult life. The current US crisis regarding student loans is very indicative of the above.
Currently, student debt is one of the biggest problems of the American economy. At some point it was even compared to the housing crisis which ignited the Great Recession of the late 2000s. As highlighted in a previous lesson, as at December 2021, about 45 million Americans have outstanding student loan debt, totaling over $1.86 trillion, with approximately 42 million Americans holding federal student loan debt. Americans owe more in student loan debt than credit card debt. In 2012, 71% of four-year college students had student loan debt. Moreover, there is a considerable majority of borrowers who are still paying back their loans are in their 30s (or older).
Lowering costs for college can include options such as choosing to go to an in-state school, a public rather than private college, choosing accommodation wisely, perhaps even delaying going to college especially if your kid will opt to qualify as an independent student, under the Higher Education Act. It is obvious that part-time work could help, especially if the work is related to the field of study and adds value to the overall experience. But let’s face it; these are just supplementary steps to the grand scheme of things, which is being able to fund a college degree without going into debt or bankruptcy and without putting the quality of life for the entire family under scrutiny and potential jeopardy. The main costs associated with university can be divided into three categories: tuition fees, accommodation expenses and living expenses.
College tuition & fees
American universities are the most expensive universities in the world. There are places in Europe with prestigious universities that are entirely free or cost a few hundred euros a year in places such as Germany or Scotland. Even in England, which is one of the most expensive places to study in Europe, university fees do not even come close to American fees.
Indicatively, fees for undergraduate studies at the University of Cambridge, which is considered one of the best in the world, range from $32,000-49,000 per year. However, for home students (locals) the fees are $12,000 a year. The equivalent quality in the US would be something like Harvard, Yale, NYU, etc. Nonetheless, the US remains the top destination for international students.
At the very top-tier US universities – which are mostly private— fees are much higher than the rest of the options. Those who are after more affordable options will find lower fees at US universities in the public sector. This is because some funding for public universities comes from state governments instead of solely from student fees. Public universities also tend to offer a wide choice of majors and are less likely to be specialist institutions. This is good for people who are not sure exactly what they want to major in. These are usually run as state university systems; which are basically collections of colleges within a state and which share administrative aspects while operating as distinct institutions. Public universities in the US have two tuition fee rates: one for state residents and one for everyone else. The second is obviously more expensive and applies equally to applicants from other US states and other countries.
Private universities of which a great many are part of the prestigious Ivy League group, tend to be much smaller than public universities. Since fees are the same for everyone, you will find more diverse student body groups (from different states and countries). Private universities out-perform public universities in the rankings and enjoy a much stronger reputation academically, locally and abroad. Class sizes are also typically smaller, ensuring you’ll have more time to interact with your tutors and get more attention from them. So it could be argued that these are the differences you’re paying more money for.
According to College Board, published tuition fees for 2018-19 at state universities are an average of approximately US$10,200 for state residents, and $26,300 for the rest (other states’ residents and internationals). This compares to an average of $36,000 at private non- profit colleges. The cheapest options of all, however, are two-year colleges of the public sector, known as community, city or technical colleges. Average fees are just $3,660 (as at 2018-19).
Below you fill find a list of some of the top public and private universities. Please note the rankings are very dynamic and change literally every year. The table is not meant to be a rankings table but a list.
| Top Public Universities | Top Private Universities |
| University of California, Berkeley | Harvard University |
| University of Michigan | Stanford University |
| University of California, San Diego | Princeton University |
| University of Florida | Massachusetts Institute of Technology (MIT) |
| University of North Carolina, Chapel Hill | Yale University | |
| Georgia Institute of Technology | Duke University | |
| University of California Irvine | Rice University | |
| The University of Texas | Brow University | |
| University of Virginia | University of Pennsylvania |
However, university fees are just one category of the expenses that you have to consider as we mentioned before. Apart from the fees you also have to take into account living expenses and accommodation fees. This is where things get trickier and we turn to now.
Living expenses
Your living expenses are the items you cannot afford to cut out of your life. These expenses keep you safe and healthy and allow your home to run smoothly. This list includes things like food, water and electricity. For the purposes of this lesson however, we will include accommodation fees as well as basic living expenses.
In addition to your tuition fee at US universities, it is important to choose the right housing option that meets your budget and needs. While housing costs are hard to pin down with average, universities and colleges charge between $5,000-$8,000 per year for on-campus accommodation. If you are under 25, expect to pay between $30-$140 per month for US health insurance, with rates varying by your university’s specific health plans and their related coverage. If you want to live outside of campus after your first year, the average rent for a single-bedroom apartment is usually between $6,000-$15,000 per year. As you’ve noticed the variation in off-campus accommodation fees but also health insurance is huge because this is where things get tricky.
Transportation and living expenses are another important cost to plan out. Transport costs in the US can be affordable, with bus and train passes costing at worst $150 per month. For living expenses (entertainment, travel, etc.), you might pay approximately $10,000 per year. Of course, this is highly dependent upon your lifestyle and most importantly the city you’re in. In short, the estimated living cost for the US is at least $10000-$18000 per year, or $1000 to $1500 per month. This includes your accommodation costs, room, and board, food, travel, textbooks, clothing, and entertainment expenses. Again, this is meant to be an estimation.
As a general rule, the Midwest region has lower living costs compared to the East and North- East, which tend to be the most expensive. The main factors that affect living costs are the following:
- Accommodation on-campus or renting apartments outside the campus
- Meal plans, personal grocery shopping or eating out
- Travelling by public transport or by car
- Spending habits
- Amounts spent on entertainment
Let’s compare the living expenses for students in a few different cities and states:
New York
It is no secret that the Big Apple is not cheap. Featuring such universities as Columbia, NYU and Baruch, New York is a popular destination for international and home students alike. Here is a list of living expenses in New York according to roomiapp (please note that it does not include entertainment and of course tuition fees and other university-related expenses such as books):
| Category | Average Cost (monthly) |
| Rent | $3,089 |
| Travelling | $127 |
| Food | $1,477 |
| Utilities | $64 |
| Health insurance | $100 |
| Total | $4,857 |
Michigan
The University of Michigan is one of the best public universities of the country. It is part of the Mid-West which includes some of the cheapest places to study. Here is an average of living expenses according to the University of Michigan itself (please note that utilities, health insurance travel are not included) :
| Category | Average Cost (monthly) |
| Rent and Meal | $1,050 |
| Book and Supplies | $88 |
| Other Expenses | $205 |
| Total | $1,343 |
See how huge the difference is? Of course, it should be noted that utilities, health insurance and travelling are not explicitly listed but they might be part of the other expenses category. Moreover, universities tend to provide the bare minimum. Nonetheless, even if utilities, health insurance and travelling are not included, they would not be more than an additional
$300 per month. All in all, Michigan would be more than four times cheaper than New York.
Texas
Let’s look at Texas as our example from the South. Texas features a few great universities such as Rice, the University of Texas and the University of Houston. Let’s take Dallas as our example (found in the studyportals website):
| Category | Average Cost (monthly) |
| Rent (average university and off campus accommodation) | $750 |
| Food and Groceries | $200 |
| Travel | $25 (300 for a year) |
| Other activities | $150 |
| Total | $1,125 |
We should mention again that the information here is meant to be taken as rough approximations. Living expenses depend greatly upon location (state, then city then neighbourhood). You will need to do your own research once you’ve decided the options for your child. StudyPortals is a helpful resource for finding rough estimates of living expenses for students.
Alternative ways of funding college
As we saw in the first section of this lesson, going to college is a form investment. You forgo a few years of work, a considerable amount of money and time for the promise that you’ll be making substantially more in the future. Investing towards a college education is perhaps a primary goal, a joint decision between your kids and yourselves, which should be taken as early as possible.
Start off by the simple measure of learning and also teaching to save some money on a monthly basis. Compounding interest, the process by which the value of an investment increases exponentially because it earns interest both on the principal and on the prior interest payments, can work very well for your family. We already discussed the need for savings and creating a savings fund that is concentrated to college education.
If you choose to invest on products, services or commodities make sure that you utilize any expert help that can guide you in the right direction. You should understand the risks associated with such exercise and be prepared for any possible outcome. There is a variety of saving/ investing options and they include:
- A Life insurance policy can be used to fund college education and as a guarantee that, in the event of a premature death of either you or your spouse, your child will have access to sufficient funds to finance a college education. Cash value life insurance, especially, is ideal for this purpose. It’s designed as a permanent form of life insurance that includes a death benefit component and a savings (cash value) component, which earns a rate of interest and normally accumulates tax free. The child can utilize the insurance proceeds upon the commencement of the studies or if you choose, you can take out a loan up to the amount of accumulated savings from the insurance at a low rate of interest.
- A Custodial account is a savings account in your child’s name that you (or any other person set as the custodian) control until your child becomes an adult. You can set up an account easily at any bank and you can deposit or withdraw money without any restriction for your child’s benefit. The downside is that you can’t switch beneficiaries on the account: once they are set, your child will have complete control over the money as an adult, even if they decide not to study. Another drawback of custodial accounts is that they are taxed at normal rates.
- Offered by every state in the US, 529 plans (College plans) are portfolios of mutual funds with tax advantages when saving and paying for higher education. There are two major types, prepaid tuition plans and savings plans. Prepaid tuition plans allow the plan holder to pay for the beneficiary’s tuition and fees at designated institutions in advance. Savings plans are tax-advantaged investment vehicles, similar to IRAs. The 529 plan can cover tuition to overseas universities as long as they are included in the Education Department’s list of eligible schools.
- Coverdell accounts were created by the US government to help families save money to pay for qualified education expenses. They can be opened for anyone under the age of 18 but assets must be withdrawn before the recipient reaches the age of 30. Contributions to these accounts are limited to $2,000 a year and are not tax deductible, but grow tax free until withdrawn. When the contributions are withdrawn, they are tax-free assuming that they are less than the account holder’s annual adjusted qualified education expenses; if they are higher, the gains are taxed. There are also restrictions to Coverdell accounts that make them a not so attractive option for athletes. Contributions are limited to $2,000 a year and parents who earn more than $110,000 a year ($220,000 if filing a joint return) are not eligible.
- Student Loans are of course another option; perhaps not the best, but sometimes necessary. In other words, student loans offer financial support for students who would otherwise be unable to go to college. Student loans often have lower interest rates than private loans. Many such loans do not require repayment until after graduation, and they usually have options for deferment or even loan forgiveness in some cases. There are of course many issues with student loans. Student loans can be expensive, depending on how much money you borrow and what your interest rate is. Also, interest rates on private student loans may fluctuate. Defaulting on student loans can result in a decreased credit score, which can hurt your long-term financial well-being. It can lead to higher rates for borrowing when trying to purchase an apartment or a car. You should read the terms and conditions very carefully.
Let’s watch a 7-minute video which explains the 529 plans and have a 3-minute discussion as to whether you think they are a viable solution for financing your kids’ education:
529 College Savings Plan Explained
Prepare your children to handle their finances
We’re here to help with the financial education of your children. This entire program is all about teaching your children concepts such as savings, budgeting, credit, debt, good spending habits and generally how to approach financial issues and choices. There are certain tools, however, that are vital for you and your children, in the context of higher education. First, it would be a good idea to let them know early on that they will have to go for part-time jobs while studying in order to supplement their allowance, provided you’ll be giving them one. Such jobs will also help them in the job hunt post-graduation, if they do not end up turning pro. Even if it’s not a skilled job and it’s something like bartending or filling up supermarket shelves, it will look good on a CV. Of course, skilled jobs might be a better choice. Nonetheless, even if you are financially secure and you can finance their studies in their entirety, part-time jobs are not a bad idea.
You should also do your research about living expenses (like we did before with the different cities/universities) in order get a rough idea of how much money they’ll need per month.
This will help you decide things regarding part-time jobs and allowances. You may want to reach out to friends and acquaintances who studied in your selected area/city or have a child who did so, for tips and guidance. Nonetheless, set along with your child a provisional allowance that you will test the first 2-3 months of them attending.
You should tell your child to start doing their own research about accommodation, groceries, and other student deals of any kind that will help them minimize costs and maximize student offers. Where is it cheaper to shop groceries? What about books? Which area is considered a student favorite which is at the same time affordable? What kind of jobs are available for students? These are the questions that they will need to start researching about before going there in an effort to minimize the financial burden.
Most importantly, once all of these questions have been answered, you need to stress that they have to create a budget. There are several ways to approach this. The most typical type of budget is a monthly one. But there are some who prefer daily budgets, while others weekly. Let’s see a very simple example of a student’s budget:
Expense budget
| Description | Amount ($) |
| Accommodation & utilities | 350 |
| Groceries | 200 |
| Cell phone bill | 25 |
| Ordering/Eating out | 250 |
| Entertainment | 100 |
| Clothes/personal items | 50 |
| Other | 25 |
| Total | $1000 |
Income Budget
| Description | Amount ($) |
| Monthly allowance from parents | 500 |
| Wage (part-time job school cafeteria) | 300 |
| Online tutoring (part-time job) | 200 |
| Total | $1000 |
As you can see, we’ve also included an ‘Other’ category in the Expense budget as it is always wise to set some money on the side for a mini “emergency” such as a broken screen on the laptop or smartphone or because they missed their flight or train ride and so on. Do make sure that they understand that what they don’t need it this month, could result in a saving or a contribution towards next month’s budget. If for example your laptop screen is broken then $25 will not be enough to fix it.
Once a provisional budget has been agreed, test it for 2-3 months since some things are not the same on paper as they are in reality. Moreover, remind them that if things get tight, then there is a specific method on what goes first from the budget. They should satisfy needs first and then wants, which means that if let’s say the supermarket cost is $200 this month, then the prime candidates for budget cuts are entertainment and shopping for clothes. They can also look into the possibility of using the ‘Other’ money, but it might be better to save it for other occurrences. They should first try to cut down from other, non- essential categories, and the supplement that with some money from the ‘Other’ category.
Action steps – Exercise 1 (15 minutes)
- Do you plan on financing your child’s living expenses at college either fully or partly? If yes, what financial arrangements have you made already or plan to make?
- Let’s discuss what you think about working while studying. Do you believe that students should work part time during college? Justify your answer.
Lesson wrap-up
Today’s lesson was a bit hefty and dense. We provided a lot of information starting with some facts about the financial realities of college. The second thing we looked at was college tuition and fees and the differences in the cost of different types of colleges. We then looked into living expenses and what to expect based on the college’s location, but also how to go about preparing for it. We have also looked into the different methods through which you can finance your child’s education. The last thing we looked at, is how to help your child prepare for handling their finances at college.
At this point we will wrap up today’s lesson. First, we will go over the learning objectives of this lesson and we want your feedback as to whether they have been achieved and then we will address any questions you may have. Please feel free to ask anything you’d like in relation to today’s lesson and we would love to hear how the concepts we discussed today relate to your athlete kids, and your family!