Parents: "How do I budget for my kids' college?"

“How do I handle the cost of college tuition for our kids?”

I hear this question a fair amount, especially within my family. Several adults in my family had children who were about to start college and were trying to make a decision on where they ought to go. Unfortunately, for a lot of people, the near-adults wind up making the decision, and usually it is emotionally based.

As parents it is our job to lead our children into making the right decisions. That is the same with money, ethics, and values. With that in mind, here we have a money question: How do we decide what school our kids should go to?

The answer to this question is largely based on your own financial situation. First, assess how much money you have put away for each child and if you have children who are still a few years out, calculate how much you will have saved for them (the best way to do that is multiply how much you’ve been saving by how many years until they hit 18). Of course, that may change as your salary changes but just look down the road and see what a realistic goal is based on your current and future situation.

Next, look at scholarships. I encourage parents to start the application process as early as Junior High School. There will be limited scholarships for kids that young, but they are out there. And most importantly, keep the process going all the way to their senior year. If they did one application per week for 6 years that’s 312 scholarship applications; they will get some money.

Lastly, and this is most important. Pick a school that falls within your budget. We have a student loan crisis here in America and the government isn’t too concerned because they are making money off of 8% interest student loans. Your calculation would include the following:

  • How much money you have put away
  • How much they have in scholarships
  • How much you can cash flow while they are in school
  • The total cost of their school for four years

In-state schools are a good option because they are less expensive than out-of-state and provide the same education. If the child needs to go out-of-state (and that’s rare), make sure you can justify the cost and cover it. Student debt should never be an option to get through school. We should be setting our children up for success, not failure.

Also, two things I would encourage is for your soon-to-be high school graduate to be working full-time during the summers and part-time during the school year. Studies show that kids who work during school have higher GPAs and it gives them work experience and a leg-up on the competition when they finish college.

Imagine this, your kid just graduate college with a bachelor’s degree in business, has no debt, and four years of work experience along with some money is his (or her) pocket. That’s setting someone up for winning and teaching them the value of money. Student loans only bring hardship and difficulty. Cash flow is the way to go.