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The 2023 Guide to Financial Planning for College

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 for the 2023 School Year

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 2023.

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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 college tuition for the 2022-2023 school year is a pricey investment for college students, with significant increases in tuition costs. On average, college tuition has seen an alarming increase of 4.5% from last year and 5.4% from two years ago. This size of increase has been seen for five consecutive years and is not expected to stabilize anytime soon. College tuition can be quite a burden financially, but it could also be a great investment for your future if you consider all your options carefully before enrolling.

The average college tuition for the 2022-2023 school year is as follows:

  • Private college: $39,400
  • Public college (out-of-state): $28,240
  • Public college (in-state): $10,940

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:

  • 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 2023, 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.

IMPORTANT DISCLOSURE INFORMATION:
Please remember that past performance is no guarantee of future results.  Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Bogart Wealth, LLC [“Bogart Wealth”]), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful.  Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions.  Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Bogart Wealth. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Bogart Wealth is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of the Bogart Wealth’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request or at www.bogartwealth.com
Please Note: Bogart Wealth does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Bogart Wealth’s web site or blog or incorporated herein, and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly. 
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