5 College Budgeting Mistakes to Avoid
In an earlier post, I described six reasons families and students should have a budget for college. Having a budget for college helps students and families feel more confident in their decision-making. A budget also reduces the risk of overborrowing, so students won't be saddled with excessive loan debt after graduation.
Before you begin creating your college budget, I want to share some common college budgeting mistakes. These mistakes can derail even the best laid financial plans, so we need to know about them from the start.
Avoiding these five mistakes means your college budget will be more accurate and realistic. It also means there will be fewer surprise expenses during your college years. Fewer expenses means less student loan debt and more money in your pocket. So, if you're planning for college and want to build a better, money-saving budget, read on.
5 College Budgeting Mistakes to Avoid
#1. Focusing Only on Large Expenses
When researching colleges, families tend to focus on big costs like tuition and housing. Unfortunately, that's all many families use to estimate the cost of college. Tuition and housing are large expenses, but focusing on them exclusively is one of the most common college budgeting mistakes.
The truth is, many families spend thousands on college before their student even enrolls. When budgeting for college, you need to take into account pre-college expenses. Pre-college expenses include SAT/ACT tests and SAT/ACT test prep services. You also need to include application fees, which average around $40 per school. And if you want to make campus visits, you’ll need to factor in transportation and related expenses.
Families also need to think about things like insurance for students at college. Will they be covered by their parents’ health insurance or will they need to buy their own? Similarly, will they need their own auto insurance or will they stay on their parents’ policy? And if there’s a car payment involved, who'll be responsible for that?
These kinds of questions don’t usually come up in discussions of budgeting for college, but they should. I’ve included insurance and other often overlooked college expenses in my college budget checklist. You can find that in my free resource library; just fill in the form below to get the password.
#2. Not Budgeting for Experience Expenses
Experience expenses include things like extracurricular activities and study abroad. Such expenses are optional, of course, but many students want to participate in these kinds of experiences in college. Failing to plan ahead for them is another of the big college budgeting mistakes, since they can cost thousands of dollars.
If you want to join a fraternity or sorority, you need to consider the associated costs. You’ll have to pay membership dues to both your local and national chapters. If you live in the fraternity or sorority house, you’ll need account for the cost of housing and food. You’ll also need to consider incidentals, such as organization branded clothing and costs associated with sponsored activities.
Internships and summer field camps are also experience expenses and they can be costly. Internships may require you to temporarily relocate, buy a professional wardrobe and pay tuition for internship credits. Summer field camps, for majors like biology and geology, may also require you to travel, buy special clothing or equipment and pay tuition for field camp credits.
I encourage students to take part in at least one kind of experience like this, but it needs to be included when budgeting for college. If you have your heart set on a study abroad trip you need to start planning how to pay for it now.
#3. Relying on Published COAs
COA is the abbreviation for cost of attendance. This is supposed to be an estimate of the true cost of attendance at a school. COA takes into account tuition, fees, housing, textbooks and living expenses. Colleges post estimated COAs on their websites.
The problem is that COA estimates are often inaccurate, with many schools underestimating COA by as much as 20 percent. That could add thousands of dollars a year in expenses that families hadn’t anticipated when budgeting for college.
In addition to potentially wrecking your college budget, inaccurate COAs can reduce how much financial aid you’re awarded. Financial aid is based in large part on the estimated cost of your particular school. If your school reports a COA that's too low, you’ll receive less financial aid. You'll have to cover the gap between the estimated COA and the real COA out of your own pocket.
How can you avoid inaccurate COAs? By making your own college budget. Look up the actual cost of tuition and fees at your prospective college(s). You may not be able to nail down all the specifics, but doing the research yourself means you won’t make the mistake of relying on inaccurate information when budgeting for college. That in turn means potentially avoiding some nasty financial surprises down the road.
#4. Not Understanding Financial Aid
Knowing how COA relates to financial aid is helpful, but to properly budget for college, you need to better understand how financial aid works.
Most students and families know that income plays a big role in determining how much financial aid you get for college. There are other factors to financial aid as well, such as family size. The financial aid formula considers the total number of people and the number of college students in a household. If a family has two or more students in college at the same time, those students will qualify for more financial aid.
However, if one of those students graduates or leaves school, financial aid for the other student is reduced. That’s because the family should have more financial resources to devote to the remaining student. If a family isn’t expecting this reduction in financial aid, it can be a big hit to their college budget.
Since 70% of college students get some type of financial aid, students and families really need to have a good grasp of the basics of the financial aid system. You should ask your college financial aid adviser if you have questions about how changes in student or family status might affect your financial aid.
#5. Not Budgeting for Cost Increases
Another common college budgeting mistake is assuming costs will stay the same. The reality is that tuition, housing and fees are likely to increase every year. If your student is in college for six years (the average time to complete a bachelor's degree) these increases could total up to hundreds or thousands of dollars. That could hit your carefully planned college budget like a giant wrecking ball.
A common college marketing trick is to broadcast statements like "No tuition increases in the last five years!" or "Lowest tuition in the region!" Those statements may be true, but tuition isn't the only way colleges make money. You need to look closely at other expenses. In order to avoid massively unpopular tuition increases, colleges will often increase the size of current fees or add new fees to generate revenue instead. So colleges can still truthfully claim that they didn't raise tuition, but increased fees means students and families are paying more for college.
To avoid the sticker shock of tuition and fee increases, estimate these costs will rise between two and five percent each year. If you're lucky, you won't see any increases, but it's better to be prepared by including potential cost increases in your college budget.
Budgeting for college can be a daunting task, but the process is easier if you can avoid some common college budgeting mistakes. You’ll need to plan ahead and do some research to get realistic estimates of expenses. Learning about financial aid and making wise decisions about your choice of college will help you stay on track with your budget too.
So, how is your college budget looking? Want some help budgeting for college? Drop a line in the comments and I'll get back to you.