Last week’s post discussed how every $100 prepaid within 120 days after her fall Federal Direct Unsubsidized Loan funds are disbursed can reduce an undergraduate’s repayment amount by an additional $175. Urge your student to make such a prepayment. But remember, she shouldn’t prepay loan funds she’ll need.
How can she know what she’ll need? The best way is for you, as a loving parent, to use your real world experience to help her create an effective spending plan (also known as a budget, though many students consider that a dirty word, right up there with terms like diet and pop quiz!).
A great time to do this is when she’s home for Thanksgiving in a few weeks. Here are key components:
- Time Period: Make the plan for the right time period. That’s at least each academic term but, if your student depends heavily on financial aid, it should probably stretch to when she’ll receive such aid for the next term.
- Time Increments: Split the plan into weekly or monthly increments and use it to anticipate each increment’s income and expenses, which may vary by week or month.
- Income: Plug in funds your student will receive — financial aid, take-home pay, money from you or other family members, savings withdrawals, etc.
- Expenses: Help your student break down what she needs to spend in each increment. The U.S Education Department offers great guidance on what to include in a student’s spending plan and on building a spending plan.
- Needs versus Wants: It’s hard, but help her separate needs (crucial necessities) from wants (spending on goods and services your student could get through college without).
- Savings: Coach your student to stash away some money for emergencies; also for predictable future spending — travel between school and home, holiday and other gifts, maybe even spring break.
- Review and Adjust: Your student’s actual income and outlays since leaving for college can help predict income and expenses for upcoming time increments. Review her fall pay stubs, credit/debit card records, and even paper notes on cash outlays. At the end of each of the next few months, help her compare such records to her plan, then refine her plan as necessary.
An effective spending plan will benefit your student during and after college. Help her learn how to build and execute one. It’ll be some of the best parental support you’ll ever provide.
College Affordability Solutions will help you tailor various strategies for making higher education more affordable. And to make sure the price of our services doesn’t become an impediment to them, they’re all provided at no charge. Call (512) 366-5354 or email email@example.com to access these services.