For many families, paying for college is really a cash flow problem. The reality is mom and dad will be receiving a $25,000 to $60,000 bill they never received before every 6 months for the next four years!
Hopefully scholarships will help pay for a good bit of this bill if you make an informed college selection choice, but very few students get a full ride. So the question remains, how will you pay the rest of the bill?
For most families, money to pay the bill is split into three buckets:
- Savings (529, mutual funds, stocks, bonds, etc.)
- Cash Flow
When families start looking at how much money they have available to pay for their child’s college education, people often limit their thinking to money saved and set aside specifically for that purpose (#1 above) and loans (#3) to fill the gap to pay the total cost of attendance including room and board.
So what DO we mean by “cash flow” (#2)?
Teenage parents have a very specific idea of what “cash flow” means. The cash flows IN to you and back OUT again into their eager hands or paying for their expenses—food, clothing, fun, etc.
Maybe you were hoping to not have as much “flowing” every month once your teenager has left home for college? At Capstone, we take advantage of this cash flow situation when figuring out how much families can afford to pay for school. Using cash flow can help keep student loan amounts lower.
Families must evaluate how much they are spending on their son or daughter every month now. $400 per month? $500 per month? (Seems like more, doesn’t it?!) This money needs to be included in their resources!
Take a look at our sample funding plan worksheet:
This family spends $400 per month on their student—that’s $19,200 for four years! That $19,200 can be included in the resources available when you sit down to figure out how much college a family can afford.
Another important thing to keep in mind is most colleges offer a 0% interest payment plan allowing you to pay them monthly over the course of the semester–an under-utilized resource. Instead of giving that $400 or $500 to your teenager every month, you use that cash flow to keep loans down and pay as you go.
This type of pre-planning is at the core of what we are all about here at Capstone. Long before visiting colleges, spouses or co-parents need to have a conversation, and then with their student about their college budget.
When planning, consider all available funds:
- Student resources (savings, UTMA, job earnings)
- Parent resources (529 savings, other assets, and cash flow)
- Parent loans (hopefully zero!)
- Student loans (federal max $27,000 for 4 years)
- And other sources (maybe grandma or grandpa?)