Last-minute financial guidance for parents of new college students

If your child is starting their first year of college soon, the first bill from the school may be on its way. That not-so-small detail can get lost in the excitement of high school graduation and college orientation.

It could be months ago that you learned of the expected family contribution (EFC) included in your student’s financial aid package. Many parents admit they didn’t look at dollar signs soon enough, or they may have steered the college conversation in a more economical direction.

But tuition bills come due and so do other college-related expenses—transportation, room and board, and school supplies. Decisions you make now about how to pay could affect your family finances long after your scholar earns a college degree.

Fortunately, there are options that can help reduce the sticker shock.

If you haven’t done so already, time is running out to talk with your child about the cost of education. Discuss the bill when it arrives. You owe it to your student to include them in conversations about the cost of college, how much you can contribute, what they can expect when it comes to paying off their student loans and so much more.

Does your student have a summer job? Have you talked about how those earnings and their other savings will be used for college? Make time for a budgeting conversation, especially if their spending money needs to last all year.

Speaking of budgets, think about all the ways you can save money once your child leaves home. Will you need fewer groceries and less gas for the car? How much will you save without school activity fees? Think about no longer needing to buy dance costumes or sporting equipment. You may be surprised to uncover a few hundred dollars each month that can be used for college costs.

There’s still time to find out from the financial aid office whether the school offers an installment payment plan. If your total bill for the upcoming school year is daunting, making monthly or quarterly payments may be more manageable for your budget. Just be aware there may be fees or finance charges.

If you have dedicated college savings and investments, such as a 529 college savings plan or Coverdell education savings account, consider the best time to make withdrawals based on market performance and other funding sources. Ask your financial advisor to help you make a plan.

You can probably borrow from your retirement accounts to pay college expenses. But that doesn’t mean you should. Think twice about loaning yourself the money from your 401(k) or similar retirement account. Aside from potentially paying an early withdrawal penalty, you may lose out on years of tax-deferred growth.

Rules vary for loans and withdrawals depending on the type of retirement account, so be sure to work with a financial advisor on implications. Putting your retirement goals at risk should be considered a last resort.

One exception when it comes to using retirement accounts for college is the Roth IRA. Currently, you can make withdrawals from your contributions for eligible college expenses without an early withdrawal penalty. And since you made contributions with after-tax dollars, you won’t be taxed when withdrawing the money.

If you have had your Roth IRA for at least 5 years and you are 59½, earnings can be withdrawn without tax or penalty as well. If you don't meet these requirements, earnings can be withdrawn without penalty but will still be taxable.

Consider your unique circumstances when deciding whether to use funds from your Roth IRA for college costs or retirement.

If there’s a gap between your cash on hand and the total tuition bill, you may need to consider the range of available student loans. Using loans to pay for college is a necessity for many families. You can compare federal vs. private student loans and research the differences of private vs. PLUS loans.

Be mindful of borrowing significant sums without first considering other options, since repayment could hinder your ability to achieve future financial goals.

• Federal direct student loans. This type of loan offers low, fixed-interest rates, a variety of repayment choices and even some forgiveness options.
• Federal parent PLUS loans. These loans are issued in the parent’s name only and have higher interest rates than federal student loans.
• Private student loans. These loans are offered by banks and credit unions for up to 100% of what isn’t covered in your financial aid package. Explore private student loan options from Thrivent Credit Union.

When it comes to paying for college, a financial advisor can help you sort out what's best for your family. If paying for college is a concern, they may have recommendations that fit well with your unique circumstances.