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The 2022 Guide to Financial Planning for College

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    Planning for college is an exciting time. But unfortunately, it can also be costly. 

    The average student loan debt in 2022 is over $37,000, with the national total soaring to around $1.75 trillion dollars. While these figures are staggering, they shouldn’t deter you from attending your dream school and achieving your goals.

    With some insight into college financial planning, you can fund your academic efforts and realize your full potential. This article will discuss everything from expenses and tax deductions to cost-cutting options, financial aid opportunities, and more!

    Financial planning for college doesn’t have to be complicated as long as you know all available options. It’s important to remember that the right approach, extensive research, and creative exploration mean virtually any person can afford to go to college.

    Planning for expenses and then learning about all the cost-cutting options, financial aid opportunities, and tax deductions can help both students and their parents get the best for their buck. This guide will help you get started on that journey.

    Estimating and Understanding College Expenses

    Before you dive into financial planning for college, you need to gain an in-depth understanding of what you are paying for. Tuition is the largest expense, but it’s hardly the only one.

    You need to consider everything from tuition to room and board, supplies, and other fees. 

    Here’s a closer look at what you’re up against when planning for the cost of college in 2022.

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    1. Tuition and Fees

    This is the first and most important college cost to consider. Tuition varies depending on the type of college, its location, and the number of credits you take. The average college tuition for the 2021-2022 school year is as follows:

    • Private college: $43,775
    • Public college (out-of-state): $28,238
    • Public college (in-state): $11,631

    With out-of-state tuition costing double that of an in-state public college, staying close to home is something to consider. Although private college tuition is the highest, these schools offer more financial aid options.

    Some colleges include room and board in their tuition price. This is usually listed as “comprehensive fees,” so be sure to ask during the financial planning process.

    2. Room and Board

    If your college of choice doesn’t include room and board in the listed tuition fees, you’ll need to consider this cost when saving for college. Most large establishments offer several dorm room options for on-campus students. Meal plans are also available for both on- and off-campus students. 

    Students living off-campus should calculate rent and meal costs separately. Some students choose to live at home and commute to campus. Depending on the location, it may be cheaper to live off-campus.

    If you want the entire college experience, including living on-campus, take a look at the average room and board costs for 2021-2022.

    • Private, non-profit institutions (on-campus): $12,540 per year
    • Private, non-profit institutions (off-campus): $9,943 per year
    • Private, for-profit institutions (on-campus): $10,188 per year
    • Private, for-profit institutions (off-campus): $9,395 per year
    • Public institutions (on-campus): $7,008 per year
    • Public institutions (off-campus): $9,276 per year

    As you can see, these figures are relatively comparable and depend on your choice of a meal plan and living arrangements.

    3. Other Expenses

    Now that tuition, room, and board are covered, let’s discuss other expenses impacting your college financial plan.

    All college students need books and supplies. In 2022, both private and public school students spent around $1,240 on classroom materials

    College students also have other expenses, including personal items and transportation. Off-campus students renting an apartment or house must pay for electricity, internet, and other utilities. Most students also have to contend with cell phone bills, groceries, and entertainment costs.

    Transportation costs average, can exceed $1,760. This figure includes gas, insurance, car repairs, and public transportation fees. Here is a quick breakdown of what you can expect.

    • Books and supplies — the cost depends on the college you choose and your classes. The average is about $1,240.
    • Personal expenses — internet connection, cell phone bills, entertainment, groceries, medications, etc. This figure varies greatly depending on the student’s needs, but the rough average is $3,000.
    • Transportation — depending on a student’s transportation needs, this cost item can add up to $1,000.

    Accounts to Set Up to Save for College

    Once you choose a school and calculate the total cost, it’s time to start the college financial planning process. If you’re eligible for financial aid, apply! Just note that opening any of the following savings accounts may impact your eligibility. 

    Whether you’re planning for yourself or your child, here are some of the best accounts for covering the cost of further education. 

    1. A 529 College Plan

    This plan was formally known as the Qualified Tuition Program and is a tax-advantaged savings account. The money deposited in a 529 college plan is tax-exempt, as are the funds you withdraw for qualified college expenses.

    There’s no limit on how much money you can deposit and withdraw from this account, and it’s reasonably easy to use and manage. Check with your state to learn more about the in-state benefits of a 529 college plan. 

    Pros:

    • Tax benefits
    • Easy to manage
    • Automatic investment options
    • Unlimited contribution

    Cons:

    • Money must be used for higher education (although some plans for elementary and high school education exist as well)
    • May affect financial aid eligibility
    • Limited investment options

    2. Roth IRA

    One of the most common types of savings accounts, a Roth IRA is a specialized retirement account that lets you make qualified tax-free withdrawals. Paying for college is an approved, tax-free expense.

    Account-holders can withdraw up to the amount they contributed free of penalty. Roth IRAs are funded by after-tax dollars, and contributions aren’t tax-deductible.

    Pros:

    • Flexibility (can be used for other purposes besides higher education)
    • Doesn’t affect financial aid eligibility
    • Numerous investment options

    Cons:

    • Contribution limits and income restrictions
    • If you withdraw money for any purpose, it counts as income on future Free Application for Federal Student Aid (FAFSA) applications.
    • No state income tax deduction

    3. Savings Bonds

    Savings bonds are issued by the United States Department of Treasury to keep your money for a set period in exchange for a certain interest rate. Simply said, you are loaning the money to the government to get a little more back in the future when your child goes to college. U.S. savings bonds (Series EE and I) offer advantages to parents who want to save money for college, are virtually risk-free, and come with tax benefits for higher education when all requirements are met.

    Pros:

    • Low-risk, guaranteed by the U.S. government
    • Tax advantages
    • Small impact on financial aid

    Cons:

    • Small interest
    • Not every owner is eligible for tax advantages
    Piggy bank with money hanging out from a person Financial Planning for College

    4. Custodial Accounts

    If you’re starting the college financial planning process early, you can open a custodial account for your child. You maintain control over the account and its contents until they reach legal age. Then, similar to a Roth or 529 plan, you can contribute as much to the account as you want.

    There are no penalties for withdrawing money from a custodial account as long as the funds are used for your child’s needs.

    Pros:

    • Easy to manage
    • Easy to withdraw money at any time
    • No penalties for withdrawals if used for a child’s needs
    • No contribution limits

    Cons:

    • No tax benefits
    • Reduces eligibility for financial aid.

    5. Education Savings Accounts (ESA)

    An Education Savings Account (also known as Coverdell accounts) is very similar to the 529 plan. With an ESA, you have an opportunity to choose any kind of investment (stocks, mutual funds, bonds), which makes this option a more flexible choice.

    Pros:

    • Federal tax benefits
    • Flexibility (can be used for elementary and high school education)
    • FDIC insurance coverage

    Cons:

    • Income limitations
    • Contribution limitations
    • Non-qualified withdrawals are taxed

    Teaching Children about Budgeting Early

    While financial planning for college, it may be a good idea to set aside some time to teach your children about budgeting. This might include:

    • Helping them understand what financial planning is all about and how important savings are for reducing student loan debt in the future.
    • Explaining how having a part-time job can help earn extra cash for everyday expenses. 

    Working in high school can help children understand the importance of both time and money management, giving the necessary skills to hit everything on their to-do lists and cover personal expenses when they are in college.

    College financial planning can be confusing, and it’s possible to make mistakes even with sufficient research. Working with a trusted wealth management professional can help you gain valuable assistance in estimating expenses and selecting the right savings approach.If you have any questions about financial planning for college, contact Bogart Wealth today. We are always here to help.

    It’s Never Too Early to Think About College Financial Planning

    The cost of college and higher education is a significant concern for most people. However, parents want their children to succeed, starting with a quality education.

    As college costs continue to rise, it’s never too early to start the college financial planning process. The trusted team at Bogart Wealth can help you estimate your expenses and choose the best savings approach for your needs.

    Don’t let saving for college overwhelm you. With some forethought and planning, we can help set you on the path to success and financial security.

    Connect with us today, and let’s discuss your options.

    Work with a financial advisor who puts your needs first.

    Want to talk first? Call us at
    (866) 237-0121

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