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After years of funding 529 plans, parents are taking out their statements to see if they have saved enough to cover the costs.

Many of these families have been saving diligently for years. Yet the burden of the cost of college isn’t just something that they should keep as a private discussion. Many families are finding that their 529 plan is a great tool to use for talking about money with their children.

The decision of how to pay for college is as momentous as buying a house. While the College Board estimates that the average annual cost of a Private Four-Year College is $32,410, many students will find that the actual cost is more in the range of $60,000 or $70,000 a year. For this reason, financially savvy parents feel it important to involve their college-bound child in making the decision.

This approach has many benefits. It takes years to build personal finance skills that can create resiliency in one’s financial life. Helping your child understand the cost of college and how to pay for it can create a sense of accountability that lasts a lifetime.

Many families want their children to learn about money, so they are taking the issue of the cost of college out of the shadows and onto their kitchen table. With paper, pen and a calculator or Excel, you can get your child to engage with three key steps.

Step One: Understanding Direct Costs

Your child hears the word ‘tuition’ often when preparing for college. Tuition is just one of the many costs of college – but it is a good example of a direct cost. Direct costs include tuition, housing, meal plans and school fees. As part of the financial math involved with going to college, your child needs to calculate what their direct costs will be.

In determining the ‘all in’ cost of college, your child can get some help from the Financial Aid Offer letter that most schools send with their acceptances, as they usually have a breakout of direct costs.

On your child’s budget sheet, these costs should be listed out individually with a ‘Q’ noted beside them. The ‘Q’ stands for qualified expenses and thus can be funded by their 529 plan.

Step Two: Understanding Indirect Costs

Direct costs are just the beginning of what your child needs to understand. Often these Financial Aid Letters will reference indirect costs but not always give an estimate. Indirect costs can include, but are not limited to, books, transportation and personal expenses. Any parent who has dropped a child off at school can testify to the fact that the bill to set up a dorm room can be steep.

Your child’s next step is to list out these indirect expenses. They can be hard to estimate but even a rough calculation can help. Unlike direct costs on the budget sheet, your child should note ‘NQ’ for not qualified, indicating that they do not qualify as expenses that can be reimbursed by their 529 plans.

Step Three: Building the Budget and Understanding the Gaps

With this analysis, your child should have a rough budget of total costs for the entire college experience. That number itself might surprise them.

However, this is where the rubber meets the road. Your child needs to then take their 529 plan balance and see if it covers the annual direct costs – the ones they marked with a ‘Q’. This may require that they build out a simple Excel calculation, starting with their 529 plan balance and deducting the ‘Q’ expenses. Further, to understand the full bandwidth of the college savings, the direct costs should be grown out at a 5% inflation rate for sophomore, junior and senior years.

For the expenses that don’t qualify for reimbursement from 529 plans, there needs to be a plan for how they will be covered. It can be from parents, loans or even savings your child has accumulated.

The Impact May Be Educational

For some, there will be enough in the plan to cover all the qualified expenses. If not, the conversation should address how to fund the additional expenses. Either way, it’s the educational experience of working through the numbers that is eye-opening for many college bound seniors.

Financial planners who use this technique with their clients often share that it is a key moment of engagement for children. They start to approach money as an adult, and they feel accountability to create value from what is being spent. If done early enough, it can also enable a child to compare the financial impact of choosing among the various schools where they have been accepted. Now is the time to schedule a sit-down with your child to do the tough math of going to college.


This article was written by Megan Gorman from Forbes and was legally licensed through the NewsCred publisher network. Please direct all licensing questions to legal@newscred.com.

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The views expressed by the author are not necessarily those of MetLife and are solely the opinions of the author. Nothing in these materials is intended to be advice for a particular situation or individual.