May 2014 Newsletter
If you can identify with a May 1st deadline, you are likely dealing with a rising college student. For those who are not aware, May 1st is the date by which decisions must be made to accept the “college of their choice.” As we approach Memorial Day weekend, most families are deep in the throes of final exams, final concerts, graduations and the associated parties to celebrate the accomplishments of their graduates. This is indeed a time for celebration. However, if you look a bit deeper, it is also likely a time of angst as parents worry they haven’t accomplished everything necessary before their child leaves for college. There are the obvious things, like packing and paying the tuition when it comes due. There are also some essentials you may not have thought about, which need to be discussed before your child leaves the nest. Not only will it help make your life easier in the long-term, but it can go a long way toward clearly setting expectations and laying a good foundation for your young adult’s financial future.
Your child has earned their opportunity at the college of their choice. Now comes the more onerous part of paying for it. You’ve saved since they were babies, contemplated the costs and the financial aid award, and whether you can fully afford to pay the bills or if you desire to give your child a financial stake in their own education, there are discussions to be had. Even if your desire is to fully fund the education for your child, it can prove a valuable life lesson to make your children financially responsible for some portion of their expenses. Many children will take the opportunity much more seriously and work harder to succeed, if they have to put their own hard-earned money into the costs of college. Some parents have their children pay a percentage of the tuition costs, maybe 10%; others have them accept the federal student loans for each year they are enrolled; some parents pay all costs for all the college expenses. There is no “right” way, but students can sometimes be incentivized to greater success by having to front some of the costs. If your child has a successful college experience and you are financially sound, you may choose to pay off their debt upon graduation. If they choose to use college as a four-year party, you may allow them to keep their financial obligations as a means of maturation. This is simply a topic of conversation parents need to come to terms with and clearly communicate to their child well in advance of fall semester.
It’s no secret that college costs continue to increase year over year. JPMorgan recently conducted a study to see how families are adjusting their day-to-day behavior in order to make paying for college more tolerable. Interestingly, as you can see from the chart to the right1, 5 out of the 7 “Actions taken to make college more affordable” were changes made by the student, not the parent. If paying for college seems daunting, make sure you are discussing these options with your child before they leave for school.
Essential protections for the parent
At a mere 18 years of age, your children are considered adults and are therefore protected by the federal privacy laws, meaning you no longer have automatic access to their information.
- Legal Documents: Before your child leaves for college, you should prepare Health Care Power of Attorney (HCPOA) and HIPAA waiver documents for your 18+ year old. These documents enable you to gain quick access to their medical records and act on their behalf in the event of a medical emergency. Although you may think that as their parent, this would be automatic, you should take a moment to consider the following. Imagine you live in North Carolina and your child who attends college in New York is taken to the emergency room. Because your student is over 18, the privacy laws prohibit the hospital from sharing your student’s medical information or allowing you to speak to their doctor until you are able to either appear in person or they get legal authorization. If you have the proper documents in place, while you are figuring out the best way to quickly get to your child’s bedside, you can scan/fax the HCPOA/HIPAA authorization and gain instant access to the critical information you need in an emergency situation. These documents can be easily prepared by your estate attorney and require notarized signatures. Once you have these prepared, send a copy to school with your student and keep a copy with you at work and at home in the event of an emergency.
- Access to University Information: Remember these same privacy laws apply to accessing university information about your child. Although you are likely the one paying the tuition bills, you won’t receive this information from the university without permissions granted by your child. Your student will need to set up parental permission for certain accesses, typically by signing an online waiver to grant these permissions. At a bare minimum, you will need permission to view their billing information so that you can access the online payment records. You and your child will have to come to a mutual agreement on other accesses, such as scheduling and grades. When you attend orientation during the summer with your child, make sure you attend the parent orientations, as this instructs you on signups for parent newsletters and other email systems the university has, giving you details of upcoming events, scheduling and deadlines to help keep you in the loop.
Setting expectations about spending
Each day your children are away at college, they will be inundated with a vast array of spending opportunities. Before they leave for school, have discussions with your child about your expectations around their spending. It is essential they understand the boundaries on which expenses will be theirs and which ones you are willing to pay for well in advance of those expenses hitting a credit card bill. Spending can quickly get out of control, resulting in high credit card balances that can be difficult to eliminate.
- University “bucks” card: Theseare the common way for many on-campus expenses to be paid. These cards are issued by the university and can be pre-filled, or re-loaded, with money for things like laundry, food, and sports tickets. This card may be integrated with their meal plan or may exist as a separate accounting. It is important in advance of fall semester, to talk about what your expectations are for adding money to these cards. It is helpful to talk through a budget with your children, so they understand that $500 for the semester really means they can only spend about $33/week on the extras.
- Debit Card:Most high school students have a debit card linked to a personal bank account. This is typically set up once they begin driving and need to purchase gas or other items. However, many parents do not take the extra step of helping them understand how to keep track of their accounts online and monitor their spending and balances. Initially, it is NOT advisable to set up overdraft protection that automatically drafts from a savings account. If they choose to overspend and swipe that card once too often resulting in a negative balance, they are charged an overdraft fee. It’s a painful but tolerable lesson that will teach them to watch their spending more closely.
- Credit Card: Many college students have a credit card for their use during college. Some parents choose to have a credit card issued to the child off the parent’s accounts and some choose to open a new credit card account in their child’s name. You should be aware that applicants under the age of 21 are now required to have an adult co-signer. You may not be aware in the past credit card companies regularly set up tables on campus and enticed students to sign up for their credit card by offering them a free t-shirt or other “goodies”. The laws have reduced but not eliminated this issue. Students will still receive many direct solicitations to their college mailbox and you as a parent will never be aware of these. As the parent, your credit worthiness can be affected by your child in either case; therefore it is probably best to co-sign on a card issued in your child’s name. This will help separate the accounting for your child’s expenses and allow you to more easily monitor their spending. Regardless of the route you choose, a discussion about your child’s spending expectations, payment procedures and late fees should occur before fall semester to help them establish good practices. It would be advisable to obtain a card with a low limit of $500- $1,000.
- Lastly, you need to communicate your willingness regarding the cost of extracurricular activities they may want to be involved in. These costs may include fraternity/sorority dues, club sports fees, spring break trips, etc. If you haven’t been through this experience with other students, you may be surprised at how much an 18-year-old can spend in a very short amount of time. Some parents choose to draw the line at these costs and they let their students know that if they want to participate, they will need to fund it themselves.
One of the essential discussions you should have with your child before they leave for college is around the concept of privacy and protection of both their information and their belongings. Hopefully you’ve had discussions in the past about appropriate information to be displayed on social media sites such as Facebook and Instagram. This is just one area of privacy, but it becomes even more important when they are away at college. Privacy of their passwords, protection of their personal belongings, locking their doors, privacy of their secure information like credit cards, etc. are also essentials to discuss, helping them understand that not everyone they encounter will be honest and trustworthy. This is especially important if your child will be one of the more affluent attendees at a university. They need to understand that there are many who would prey on them if it is evident they have access to money, whether their own or yours.
You are making a huge financial commitment to send your children to college. Help them understand their responsibilities in this process and what their primary focus should be. It is our belief that a student who is financially invested in his or her education will put significantly more effort toward succeeding. Your goal in helping to pay for your student’s education is that they become educated, not just by the university they attend, but by you. Teach them critical financial lessons early in this newly independent stage and it will carry them toward a future where they can be financially independent, responsible adults. These are lessons that will last them a lifetime.
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1JPMorgan College Planning Essentials 2013