Every year I write something to help parents give one last piece of financial advice to their soon-to-be college graduates. This is normally a time of great joy and anticipation, and I do want to congratulate you and your student for all the hard work you put into reaching this momentous occasion.
As with everything else in our “new normal,” however, the past year of COVID brings a bit more concern into this year’s celebrations. While these financial tips are usually pretty straight-forward, COVID demonstrated just how quickly the best laid plans can go astray. It left many families facing financial uncertainty and, unfortunately provided some life lessons the college class of 2021 will have to learn very quickly:
- Always prepare for the rainy day: We got lulled into a sense of security, when it felt like the good times would keep rolling. This affected our ability to make sound financial decisions, and allowed many families to be caught short when somebody got sick or a job was lost. The lesson here is to always be a little on the wary side. Enjoy the good times, of course, but also put away some money to serve as a rainy day fund just in case the skies decide to open up again. College students might feel like taking any cash graduation gifts or job signing bonuses and blowing it all on a fancy car or what they feel is a well-deserved trip. But strongly urge them to put some of this money away for future needs.
- Carefully control credit: We all got quite used to easy credit access, and didn’t really worry about the balances that were building up. As money got tighter, those high interest rates really hacked away at the monthly budget. Some families were able to cope because of moratoriums on evictions, and government stimulus payments, but those credit card balances are still hanging over their heads. Educate your college student about credit, interest rates, and credit scores. Teach them not to borrow to finance a life style that might actually be out of reach.
- And then there are those student loans: Student loan borrowers breathed a slight sigh of relief this year, as they did not have to make payments on their federal student loans. And there is talk that student loan balances might even be forgiven. But, here is the thing – as of right now, student borrowers do still owe that money. It has not yet been forgiven and, at some point, loan payments will start up again. Nobody knows for sure if, when, or how much a government loan forgiveness program will cover. And none of this applies to any private student loans your student may have accessed. Tell your student to head to the financial aid office, look online, or contact lenders directly to find out exactly how much money was borrowed, when payments start, what the monthly payment amount will be, and if there are any income-based repayment plans. Make career, living and spending decisions based on the information that is available right now. If things do not change, your student will be ready. If they do change, your student will still have a good plan and may even have more money than anticipated.
- Keep those budgeting skills: College students often learn to live on the thinnest of budgets, and that is not a bad skill to take into life. The first few years after graduation are often ones of upheaval and financial uncertainty. Your student may live with you, move in with others, get married, change jobs, or decide to pursue further education. Someone who knows how to live within a budget will easily be able to adapt to all life’s financial challenges.
Parents just starting on the road to sending a child to college can take advantage of a CFAA new client free strategy session, to coordinate your college search and financial aid timelines, and uncover any potential funding gaps. For the latest financial aid information and college application to-do lists, look for my weekly JustAskJodi emails and check out my monthly CFAA e-newsletter