The Logistics of Paying for College: 6 Things You Need to Know
By Joe Messinger, CFP®
June 23, 2023
You finally made it to the end of your student’s senior year of high school. Congratulations!
As a family, you successfully found a college that was just the right fit academically, socially, and financially. Your student applied and was accepted.
They weighed all the options and decided that they’ll be a Buckeye, Bearcat, RedHawk, Rocket, Falcon, or Bobcat (for all our Ohio friends).
In next few weeks, your student will begin their college journey and leave home. Now, how do you pay for it? What are the finer points and the logistics of paying for college?
6 Things You Need to Know:
Every student needs to fill out the Free Application for Federal Student Aid, or the FAFSA. As a first-time college student, we hope your student has already applied in order to get the best financial aid offer they can. However, if you haven’t, take some time to do it today, even if you don’t think you qualify for federal financial aid. You’ll need to file to get federal student loans and having one on file makes future changes easier should your circumstances change.
Please note that for the 2024/2025 FAFSA, the application will not be opening up until December 1, 2023 (Typically October 1st). This will only occur this year as FSA is redesigning the application. There will be more information on this as we head into the fall.
Besides the FAFSA deadline, the college your student chose will determine payment deadlines. By the fall of your student’s senior year, you will probably have already paid the deposit to accept their offer of admission. You will have also already paid the housing deposit to secure a spot on campus. Our biggest recommendation here is for you to impress upon your student the importance of reading their emails.
They may have (or soon will have) a new email address from their college. The college will communicate solely with the student. The student needs to understand they are at the touchpoint now. They are adults, after all! Mom and Dad will no longer be keeping an eye on communications. The college will be sending everything to the student. This lesson is important for your student to understand because they can’t attend college if the bill isn’t paid.
We frequently talk about “cash-flowing” college. Not too many parents can write a check for $10,000 to pay for a semester of college. One payment method to look into is installment payments, sometimes called deferred payments. Many colleges will offer an installment plan option, but you may have to ask about it. Installment plans are a great way to manage your cash flow during your college years.
The tuition, room, and board charges are divided out over the months of the semester, sometimes in equal amounts and sometimes with a larger first payment. They may have a monthly service fee or perhaps a one-time setup fee. You may decide not to go with the installment plan if the service fee is too high.
An excellent example of an installment plan is at the Ohio State University. Their plan is called Tuition Option Payment Plan (TOPP). For a $30 non-refundable enrollment fee, you can divide the payments equally over the semester. 5 monthly installments are a standard plan. You can decide how much you would like to pay over the semester and avoid taking out a loan to cover the difference.
We recommend using a direct electronic payment via ACH when setting up installments. Debit and credit cards will probably charge a hefty per-transaction percentage. In addition, watch out for late charges. At OSU, they’ll charge you $300 if your payment is late!
4) Paying with a 529
So, you have some 529 savings to help pay for college. Way to go! You can use those funds to pay for qualified expenses like tuition, room and board, and necessary fees. As the account owner, you can send funds directly to the institution, the student/beneficiary, or yourself. The method you choose depends on your preferred way of keeping records.
For tuition and room and board paid directly to the university, you may have a check sent from the 529 directly to the university. It makes things much more straightforward. Be sure to save all the receipts of payments and give the 529 enough time to process and send the check. (Often, 529 plans will request 10 business days to process.)
Some qualified expenses you will be paying for yourself, like textbooks and off-campus housing. In these instances, you can pay for the expense and be reimbursed by the 529. Again, those payment receipts are essential to show that the 529 reimbursement was for specific qualified expenses.
Many parents choose to have a joint checking account with their students so that they can deposit funds for these types of expenses. That way, you both can access the account, and Mom and Dad can monitor transactions!
One thing to note about off-campus housing is to be a qualified expense, the student must be at least a half-time enrolled student in a degree program, and the “maximum amount permitted for off-campus living cost is the amount the college cites as the off-campus room-and-board figure for federal financial aid purposes.” Utilities and related costs can also be included if the total is still below that amount.
5) Paying with loans
Student loans are part of the equation for most families when paying for college. Be sure to ALWAYS take advantage of available federal loans before turning to private loans. Federal loans are capped at a certain amount each year. (Read more about the types of loans here.)
Since you’ve applied for the FAFSA (see #1 above), your school will tell you the amount of federal student loan dollars you can borrow each semester and if a portion of the loans will be “subsidized” based on demonstrated financial need. On subsidized loans, no interest will accrue while the student is in school. Every student is eligible for the “unsubsidized” federal direct loan regardless of financial need. The financial aid office at your college will be able to provide you with the exact details of the process, including how to apply for it.
6) Planning out all four years
With all these payment options (installments, 529s, loans), plan things out for all four years. Some families make the mistake of using up all their 529 money first and then are forced to take out private loans in year three or four. (This blog can show you what we mean. Also, note the tax tip in #5!)
Lay out with pencil and paper or a good old Excel spreadsheet and estimate the amount due each semester and exactly where the money will come from to pay the bill. You will be able to make smarter decisions with your plan all laid out for each year.
Updated June 2023.
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