Finance Tips for Parents of College Students

Finance Tips for Parents of College Students

Estimated reading time: 5 minutes

College is an incredible experience. Not only does it broaden your child’s career prospects, but it’s also an opportunity to learn the necessary financial skills they will need as an independent adult. Due to the expense of college education, many college students require some financial assistance from their parents or caregivers throughout their studies. Much of the cost can be covered by student loans, but the value of these is often capped. Once you hit the maximum annual or aggregate value for federal funding, you may need to consider other ways to provide financial assistance. Here are some ideas.

Private Loans

Private loans are available for students to top up their federal loans. Tuition, the cost of books, and the general cost of living add up quickly and many students (and their parents) need additional cash available to make the educational payments. Unlike federal contracts issued by the government, private student loans are issued by banks and credit companies. Having a good credit score can reduce the repayments due to lower interest, however, college students often don’t have enough of a credit history to make this work alone. 

The majority of those who take out a private loan will need a co-signer. As a co-signer to the contract, your child can benefit from your good credit score (with lower interest rates). The pros and cons of cosigning a private student loan are the same as for others, but the money in this case is specifically for your child’s education. As a co-signer, you will be held responsible for the repayments if your child fails to repay but this is also an opportunity to teach good financial habits. It also helps them build a credit score that will be beneficial when it comes time for them to insure a car or get a mortgage of their own.

Cutting Back On Expenses

Budgeting for additional expenses, while your household income remains unchanged, means that you may need to cut back elsewhere. It might help to create a list or a spreadsheet noting your outgoings. Include regular and essential monthly payments (mortgage/rent, food, electricity, insurance, etc.). Also, take into consideration the value and frequency of one-off expenses throughout the year as well as any nice-to-have luxuries. From this complete list of payments, you can more easily see the potential for decreasing your monthly outgoings, and which unnecessary expenses can be sacrificed while your child is in college. You might also be able to renegotiate some of your regular bills for a lower monthly payment. 

Take on Another Job

Increasing your household income is another way to introduce more financial flexibility in your budget. Many parents take on a second job to increase the amount of money they can then give to their child. If you have the time to take on more work, it can help mitigate some of the financial pressures that often come with a college education. Additionally, as a college student, your child can also work alongside their studies. Many work part-time to contribute towards their living expenses, without impacting their studies. Working while studying gives college students first-hand experience of adult responsibilities, as well as helps them build valuable skills and experience for their resumes.

Building A Good Credit Score

A good credit score matters. It affects the finance options available and has a direct impact on the interest rates and repayment plans offered. Your credit score shows whether you’re likely to repay the debt. A good credit score shows financial institutions that you have a good history of repayments and are responsible. To access some financing options as a parent, it will be important for you to have a good credit score. It may be worth your time to check your current score and make improvements.

Helping your child to build a good credit score is a great way to set them up as financially independent. Encouraging good habits will pay off and will open routes to credit unavailable to those with poor scores. Joining the electoral roll, paying bills on time, and being an authorized credit card user are some of the ways you can help build your child’s credit score. They can even use budgeting apps to track money and learn about how money works in terms of financial obligations. Having your child pay their cell phone bill, and perhaps taking out a student credit card, are ways to establish a good payment history for access to better credit later in their academic journey.

Parent Financing Options

If you have a good credit score, there are federal loans available to the parents of college students. These will help fill the gap between the federal financing options available to your child and the annual/aggregate maximums. There are several repayment options available and access to these types of funding will depend on the school your child will attend or is attending. This is direct lending to you, the parent, and is designed to give you access to funding specifically to help with your child’s expenses while in college.