Money mistakes parents of college students make

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Sending your child off to college is a major milestone in both of your lives. It's often the culmination of years of hard work, saving money, touring campuses and navigating the complex college application process. The years leading up to college are paved with many major decisions that affect your finances for years to come - and unfortunately your stress isn't over once your son or daughter heads to orientation. Here are the top money mistakes that trip up parents of college students before, during and after they continue their educations.

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Waiting to save

According to CollegeBoard, the average tuition and fee price for public four-year universities for the 2018-19 school year is three times as high as it was in 1988-89. This means the price of a college education has roughly tripled in 30 years, which is why many financial advisors recommend parents start saving as soon as their child is born. Start with your savings goal, such as covering four years of tuition at an average-priced school for each child, and work backward to determine how much you need to set aside each month. 529 savings accounts are investment plans with federal and state tax benefits that you can use to save for your child's higher education expenses.

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Putting money into a savings account

How you save your money can make a massive difference, and unfortunately the option many people default to doesn't do them any favors in the long run. Standard savings accounts have only a 0.1% interest rate on average, while CD rates are at historic lows. The national average for 1-year CD accounts is 0.87% interest. Storing your cash in these accounts doesn't put your money to work like investing does. In comparison, the S&P 500 stock market index has an average annual return of roughly 8% across the past 60 years, and the average treasury bond interest rates for 2019 have hovered around 4%.

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Saving in your child's name

Saving money in a child's name no longer yields the tax savings it once did after the "kiddie tax" closed some tax loopholes as of 2018. Because of how assistance is calculated, for many parents, it's actually a smarter strategy to save for college in their own name rather than in their child's name. When calculating expected family contribution (EFC) under the federal need-analysis formula, students must contribute 20% of their assets toward paying for college, while parents are expected to contribute 5.6%. The rates are similar for institutional aid. Therefore, having additional assets in their name could decrease a child's aid eligibility. Having savings in your name means you maintain control of the funds and have the flexibility to move that money around as needed.

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Skipping FAFSA

Many parents and prospective college students don't fill out the Free Application for Federal Student Aid (FAFSA) form because they incorrectly assume they aren't eligible. But the FAFSA form isn't just used to qualify for federal money -- it also determines if you can receive aid from states and institutions in grants or loans as well as outside scholarships. Putting in the extra work of filling out this form could totally change the way you and your child fund their continuing education. Fill out your FAFSA as soon as possible after Jan. 1 of your child's senior year of high school.

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Over-borrowing

The fastest-growing population with student loans in America is people 60 and older. Part of this epidemic is parents feeling pressured to over-borrow. The pressure can come from different places, whether it be a "keeping up with the Joneses" scenario or even the desire to please their own child. When it comes to federal loans for students, there are limits to curb dangerous borrowing. There are not similar guardrails on federal parent PLUS loans, with loans available for full cost of admission to the university, exacerbating the over-borrowing issue.

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Sacrificing your own future

As a parent, you want the very best for your child. But don't sacrifice your financial future for your student's college education. You can borrow for college, but you can't borrow for retirement. And you might think you're doing your children a favor now, but you could end up becoming a financial burden on them later in life if you're unable to support yourself. You shouldn't have to choose between paying a medical bill and making a student loan payment.

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Not be willing to make sacrifices today

It's tempting to pull funds from your retirement to avoid affecting your spending habits in the present. But that's a short-sighted plan. Consider ways you can sacrifice today so that you can relax in the future. Consider working longer hours, finding a secondary source of income, downsizing, putting off that vacation or even moving to a more affordable area.

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Fixating on status

For everything from coffee to cars to college, higher prices don't necessarily mean higher quality. While your child (or you) might crave the bragging rights of attending an elite school, various studies and models have debunked the myth that Ivy League schools guarantee higher salaries or higher return on investment. The same goes with private versus public universities. For example, according to CNN Money, graduates from public schools Texas A&M University and the University of Texas have comparable early career earnings to those of graduates of pricier private schools Texas Christian University and Southern Methodist University.

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Going 4-year or bust

The college experience depicted in TV shows and movies is typically at four-year colleges or universities, but there are so many other paths your child can take, including community college. Many state universities have transfer agreements with local community colleges that allow you to take more affordable basic classes and prerequisites before transferring to a four-year program and ultimately earning your bachelor's degree from that school.

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Pushing your child toward college

Even before your child heads to college, it's worth discussing whether they should even go in the first place. A college education used to be both more affordable and a much bigger competitive edge when it came to getting a job. But in 2019, about 40% of millennials have a bachelor's degree or higher, according to Pew Research Center. There are plenty of high-paying job fields that don't require four-year degrees. For example, commercial pilots only require their pilot's license and a high school diploma and make a median annual wage of $80,000 a year, according to the U.S. Department of Labor's Occupational Outlook Handbook.

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Not doing a cost-benefit analysis

When considering where your child wants to apply to school, it's important to compare the total cost of their college education with how much their loans would cost, how much their expected salary will be after graduation and average cost of living in their desired area. According to the National Association of Colleges and Employers (NACE), the average starting salary for graduates from the Class of 2018 is $50,944, which even without taxes won't pay for the median monthly rent to live in cities like New York or San Francisco. Although you want your child to have the best, encouraging them to take out large loans to attend a pricey private university could financially hinder them from following their dreams in the future.

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Not haggling

This might come as a surprise, but you can actually haggle over financial aid. If money is what is coming between your child and the school they want to attend, don't rule it out just yet. Appeal the program's need-based or merit-based financial aid offers. Look online or contact the school's financial aid office and ask about the appeal process. Often this involves outlining your circumstances in a form, letter or email. Make sure to specifically break down your family's financial situation, mention if you've received better offers from other schools and have your child explain why they're passionate about attending this program.

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Taking out private loans

Private loans should be a last resort after you've exhausted other options. These loans, offered by companies rather than the federal government, often have higher interest, variable rates and less flexibility when it comes to repayment plans. Federal student loans are set at a fixed rate of 4.53% for the 2019-2020 academic year, graduate school loans are 6.08% and Parent PLUS loans are 7.08%. In comparison, the average fixed interest rate on a private student loan from 2016 to 2019 was 9.97%, according to a report by LendEDU, an online marketplace for student loans and student loan refinancing.

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Keeping your child in the dark

Your child should be informed of the realities of their financial situation. Many parents find it uncomfortable to discuss money with their children and want to protect them from money worries so they can focus on their studies. But that can make your child feel like they've been thrown into the deep end once they graduate and are expected to manage their own finances. Even if you're helping to pay, involve your child when it comes to budgeting, paying tuition and student loans, and crunching the numbers to determine if they can afford to live off campus or take an unpaid internship.

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Not factoring in extra expenses

There are so many additional college costs outside of tuition. Rent, dorm fees, meal plans, school trips and activity fees add to your child's college experience as well as add up to significant extra expenses. To help you and your family save and budget appropriately, many schools and the U.S. Department of Education have net price calculator tools that help you estimate the amount your child would pay to attend a school in a single year after subtracting any scholarships and grants.

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Teaching them to manage money exactly like you

The financial landscape has changed drastically since you were your child's age, so the decisions you made back in the day might've worked out for you but could be an unwise move for your son or daughter today. For example, millennials may not want to buy a home for investment reasons. Renting is often more affordable than buying, and your child can save and invest that extra cash. Your children also shouldn't emulate the financial decisions you're making today. Parents nearing retirement have different financial goals and much lower risk tolerance than their children.

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Trying to do it on your own

Almost 50% of parents with kids under age 21 give themselves a grade of C or lower in financial literacy, according to a survey from Country Financial. If saving for college, applying for loans and helping your child manage their money is an overwhelming source of stress, you might consider meeting with a financial adviser. Their expertise can help you navigate your particular situation and find efficient solutions that make the best use of your money. Their services can be a pricey additional expense upfront but could end up saving you money in the long run.

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