Important Considerations When Preparing to Send Your Child to College

Important Considerations When Preparing to Send Your Child to College

Sending your child off to college requires a lot of careful planning, preparation and communication between you and your new young adult. Here are some considerations for you and your family to include in your planning.

How will you pay for college?

Some families begin planning to finance their child’s education when they are very young. Others start to explore funding options much later - with many waiting until their child nears high school graduation to lock in a plan. No matter where you are on the journey, here are some considerations when deciding how to pay for college.

FAFSA and student loans

Regardless of your income level, do not skip submitting the Free Application for Federal Student Aid (FAFSA). All students must complete the FAFSA to qualify for federal financial aid, including grants, work-study opportunities and student loans. However, many colleges require students to complete a FAFSA if they want to be considered for merit-based scholarships, as well. You should submit the FAFSA to see if you qualify for merit aid, even if you aren’t eligible for the need-based aid the FAFSA usually unlocks.

If your family’s financial situation requires it, or if you want your child to have some “skin in the game” when it comes to paying for college, you may opt to consider student loans. When looking at loans, be sure to consider federal loan options first, as they typically offer lower interest rates and more flexible payment options as compared to private loans.

Lines of credit

In addition to loans, a line of credit is an open-ended loan that provides access to funds for you to use whenever you need it. It’s a flexible borrowing option that allows you to make interest-only payments and generally is offered at competitive interest rates. Some options to discuss with your bank are:

• Home equity line of credit:  Allows you to leverage the value of your home.
• Cash value line of credit:  If you have a life insurance policy with cash value, you might consider borrowing against it to help fund college expenses.
• Securities backed line of credit:  Allows you to borrow against your taxable brokerage account and make interest-only payments.

Gifts

Tuition and other college expenses can be paid by monetary gifts from family members and other individuals, either directly to the college or university or through contributions to a qualified 529 plan. Be sure to talk with your accountant or tax advisor regarding the tax implications of your gift.

Scholarships

There are an abundance of scholarships out there to help reduce the financial burden of college. Some have a need-based component, but many do not. Encourage your child to explore both merit and private scholarships for which they could qualify.

Merit scholarships are awarded based on your child’s academic performance, extracurricular activities or special talents. Many colleges offer merit scholarships, so you’ll have to research each school’s particular offerings.

Numerous organizations, foundations, companies and individuals provide private scholarship opportunities. Some will have general qualifications and draw in a high volume of applicants while others have more specific requirements with a much smaller pool of qualified candidates.

A high school guidance counselor may be able to help your child get started; and there are scholarship websites such as scholarship.com and scholarshipowl.com that list a wide range of available awards.

Have you covered the bases with important documents?

Whether your child is attending school nearby or across the country, there are three documents you should have in place - or at least discuss with your child - before they leave for college.

Healthcare Power of Attorney

A healthcare power of attorney is a legal document that allows your child to designate you as their agent to make medical decisions on their behalf if they are unable to do so. It also provides an avenue to access their medical information if needed.

Why do you need it? At the age of 18, your child becomes a legal adult. As such, they have certain rights - including privacy rights under the Health Insurance Portability and Accountability Act (HIPAA) of 1996.3 Many parents, accustomed to making virtually all healthcare decisions for their child throughout their life, are caught off guard when they are suddenly unable to consult with their child’s physician or obtain medical information.

In a worst-case scenario, if your college student has a medical emergency and can’t give permission for a doctor or nurse to share information with you, there will be no way for you to assist them unless you are their designated agent.

Simply put, executing a healthcare power of attorney when your child turns 18 is the best way to avoid a medical circumstance that can be frustrating, frightening or both.

Durable Power of Attorney

Like a healthcare power of attorney, a financial power of attorney, often called a durable power of attorney, allows your child to designate someone to access information and make decisions for them – in this case financial decisions and transactions – if they are unavailable or unable to do so. This includes managing bank accounts, paying bills and signing tax returns. Consider if your child will be traveling, studying abroad, or living away from home for a co-op or internship at any point over the next few years. This document will ensure you can assist in keeping their finances on track while they are away.

FERPA Waivers

Beginning at age 18, your child’s educational records are considered private and protected under the Family Educational Rights and Privacy Act (FERPA). This means, even if you’re paying the tuition bill, you can’t check their grades or otherwise discuss academics with their instructors or advisors without written permission from your child in the form of a FERPA waiver. For some families, this works. For others, shared access to academic records allows parents to stay informed and better support their child in achieving success in college. Many colleges have their own version of a FERPA waiver on file. Check with your school’s administration for this document.

Have you made insurance decisions?

Ensure your child has adequate insurance coverage while in college. Review your policies and make plans for the following:

• Health Insurance: Verify whether your child will be covered under your health insurance plan or if they need to enroll in the school’s health plan.
• Renter’s Insurance: If your child will be living in off campus housing, consider getting renter’s insurance to protect them and their belongings.
• Auto Insurance: To avoid a claim being denied, if your child is taking a car to college, be sure to check that their auto insurance policy covers them in their new location.

Have you talked about managing money?

Be sure to discuss and plan for how you will get money to your child while they are away. This could be as simple as sending money through platforms like Zelle^®, Venmo^® or PayPal^® or by setting up a joint account for easy transfers.

Additionally, as your son or daughter gets ready to take a step into adulthood, take the opportunity to impart some money management skills before they leave for school. Consider discussing the following:

• Budgeting: Help them develop a realistic budget that includes tuition, housing, books, food and entertainment.
• Saving: Encourage them to save or set aside part of any income or allowances for emergencies or larger purchases like a spring break trip, study abroad or membership fees for a fraternity, sorority or other campus organization.
• Credit: Teach them about credit, how to establish it, and how to use it responsibly. Help them understand credit scores and the importance of staying on track with timely payments.

In addition to these considerations, there are of course, numerous other plans and decisions to navigate as your child gets ready to take this major step. The journey can be both exciting and daunting for you both. Starting out with proactive communication in addressing questions regarding finances, essential documents and practical life skills will help to lay a solid foundation for your child’s success in college and their transition to adulthood.

Talk with your private banker or wealth advisor to learn more about the benefits associated with the products mentioned in this article. At Dollar Bank, our private bankers can provide specialized services, like custom credit solutions and deposit services, which suit you and your students’ needs, all with personalized attention.

Zelle^® and the Zelle^® related marks are wholly owned by Early Warning Services, LLC and are used here in under license.

This article is for general information purposes only and is not intended to provide legal, tax, accounting or financial advice. Any reliance on the information herein is solely and exclusively at your own risk and you are urged to do your own independent research. To the extent information herein references an outside resource or Internet site, Dollar Bank is not responsible for information, products or services obtained from outside sources and Dollar Bank will not be liable for any damages that may result from your access to outside resources. As always, please consult your own counsel, accountant or other advisor regarding your specific situation.