Cash Flow is King!

By Joe Messinger, CFP®

July 21, 2023

3 min READ

For many families, paying for college is a cash flow problem. The reality is that parents will be receiving a $25,000 to $60,000 bill they’ve never dealt with before every six 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?

Most families pay their college bill using three different money buckets:

1. Savings (529, mutual funds, stocks, bonds, etc.)
2. Cash Flow
3. Loans

When you start looking at how much money you have available to pay for your child’s college education, people often limit their thinking to money saved and set aside specifically for that purpose (#1 above) and use loans (#3) to fill the gap to pay the total cost of attendance including room and board.

So, how can you use “cash flow” to cover your tuition bill?

How is cash flow part of your college-funding plan? Maybe you were hoping not to have as much “flowing” every month once your teenager has left home for college? Well, at Capstone as part of our 3-step plan to graduate college with less debt, we take advantage of this cash flow situation when figuring out how much you can afford to pay for school. Using your cash flow can help keep your student loan amounts lower.

How much are you spending on your 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 your resources!

Let’s look at an example:

• You have $25,000 in your child’s 529 savings plan.
• You have $3,000 in other invested assets to contribute to the cost of college.
• Your child plans to get a part-time job that will earn them approximately $200/month for 48 months (the length of their college career) — totaling $9,600
• They’re eligible for the maximum amount of $27,000 in Federal Direct Student Loans over their four years at college.
• You know that your parents (your child’s grandparents) are planning to gift them a total of $5,000 over the course of their college career, as well.

If we add up all of these figures, you have a total amount of $69,600 available for their four years of tuition, room, and board.

However, if you also spend an average of $400 on your child every month between sports enrollment fees, gas money, new clothes, school supplies, food, and entertainment, those funds can also be directed toward the college bill.

This means that you’ve essentially freed up an extra $19,200 for the cost of college over the next four years – that’s incredible!

Of course, there are also other factors to consider, like the American Opportunity Tax Credit, which can also help you save money and increase cash flow toward paying the college bill.

Want to learn more about what your “College Pre-Approval™” amount is and what schools will expect you to pay? Sign up for our free College Money Report™ by clicking here. It will help you better understand what you have to spend on college, what your top schools will cost, and what financial aid might be available to your student.

Take advantage of payment plans.

Another vital thing to remember is that many colleges offer a 0% interest payment plan allowing you to pay them monthly over 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 pre-planning is at the core of what we are all about at Capstone Wealth Partners. Before you even begin visiting colleges, you need to talk with your spouse or co-parent and then with your student about your college budget.

Consider all available funds and “Know before you go!”:

• Student resources (savings, UTMA, job earnings)
• Parent resources (529 savings, other assets, and cash flow)
• Parent loans (hopefully zero!)
• Student loans
• And other sources (maybe grandma or grandpa?)

And remember, we’re always here to help! Reach out to us with any questions you have by clicking here.

Originally published 11/2015
Updated 7/2023