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College planning

Last-minute financial guidance for parents of new college students

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If your child is starting their first year of college soon, the first bill from the school may be on its way. That not-so-small detail can get lost in the excitement of high school graduation and college orientation.

It could be months ago that you learned of the expected family contribution (EFC) included in your student’s financial aid package. Many parents admit they didn’t look at dollar signs soon enough, or they may have steered the college conversation in a more economical direction.

But tuition bills come due and so do other college-related expenses—transportation, room and board, and school supplies. Decisions you make now about how to pay could affect your family finances long after your scholar earns a college degree.

Fortunately, there are options that can help reduce the sticker shock.

Talk about college costs now

If you haven’t done so already, time is running out to talk with your child about the cost of education. Discuss the bill when it arrives. You owe it to your student to include them in conversations about the cost of college, how much you can contribute, what they can expect when it comes to paying off their student loans and so much more.

Include your student’s share of costs

Does your student have a summer job? Have you talked about how those earnings and their other savings will be used for college? Make time for a budgeting conversation, especially if their spending money needs to last all year.

Calculate your new household budget

Speaking of budgets, think about all the ways you can save money once your child leaves home. Will you need fewer groceries and less gas for the car? How much will you save without school activity fees? Think about no longer needing to buy dance costumes or sporting equipment. You may be surprised to uncover a few hundred dollars each month that can be used for college costs.

Ask about college tuition payment plans

There’s still time to find out from the financial aid office whether the school offers an installment payment plan. If your total bill for the upcoming school year is daunting, making monthly or quarterly payments may be more manageable for your budget. Just be aware there may be fees or finance charges.

Strategize withdrawals from college savings plans

If you have dedicated college savings and investments, such as a 529 college savings plan or Coverdell education savings account, consider the best time to make withdrawals based on market performance and other funding sources1. Ask your financial advisor to help with your strategy.

Avoid borrowing from retirement accounts

You can probably borrow from your retirement accounts to pay college expenses. But that doesn’t mean you should. Think twice about loaning yourself the money from your 401(k) or similar retirement account.2,3

Aside from potentially paying an early withdrawal penalty, you may lose out on years of tax-deferred growth4. Rules vary for loans and withdrawals depending on the type of retirement account, so be sure to work with a financial advisor on implications5. Putting your retirement goals at risk should be considered a last resort.

Tapping your Roth IRA is an option

One exception when it comes to using retirement accounts for college is the Roth IRA. 6 Currently, you can make withdrawals from your contributions for eligible college expenses without an early withdrawal penalty.

And since you made contributions with after-tax dollars, you won’t be taxed when using the money. If you have had your Roth IRA for at least 5 years and you are 59½, earnings can be withdrawn without tax or penalty as well.

If you don't meet these requirements, earnings can be withdrawn without penalty but will still be taxable. Consider your unique circumstances when deciding whether to use funds from your Roth IRA for college costs or retirement.5

Consider PLUS loans & private student loans

If there’s a gap between your cash on hand and the total tuition bill, you may need to consider the range of available student loans. Using loans to pay for college is a necessity for many families. You can compare federal vs. private student loans and research the differences of private vs. PLUS loans.

Be mindful of borrowing significant sums without first considering other options, since repayment could hinder your ability to achieve future financial goals.

Federal direct student loans

This type of loan offers low, fixed-interest rates, a variety of repayment choices and even some forgiveness options.

Federal parent PLUS loans

These loans are issued in the parent’s name only and have higher interest rates than federal student loans.

Private student loans

Private student loans are offered by banks and credit unions for up to 100% of what isn’t covered in your financial aid package. Explore private student loan options from Thrivent Credit Union. 7

Sort out options with a professional

When it comes to paying for college, a financial advisor can help you sort out what's best for your family. If paying for college is a concern, they may have recommendations that fit well with your unique circumstances.5

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1Offered through a brokerage arrangement with Thrivent Investment Management Inc. 529 college savings plans are not guaranteed or insured by the FDIC and may lose value. Consider the investment objectives, risks, charges, and expenses associated before investing. Read the issuers official statement carefully for additional information before investing. Investigate possible state tax benefits that may be available based on the state sponsor of the plan, the residency of the account owner, and the account beneficiary. Consult with a tax professional analyze all tax implications prior to investing.

2Generally funded with pre-tax dollars.

3Gains/income subject to income tax when withdrawn.

4Withdrawals made prior to the age of 59 ½ may be subject to a 10 percent federal tax penalty.

5Thrivent and its financial advisors and professionals do not provide legal, accounting or tax advice. Consult your attorney or tax professional.

6Funded with after-tax dollars; gains may be tax-free.

7Deposit and lending services are offered by Thrivent Credit Union, the marketing name for Thrivent Federal Credit Union, a member-owned not-for-profit financial cooperative that is federally insured by the National Credit Union Administration and doing business in accordance with the Federal Fair Lending Laws. Insurance, securities, investment advisory and trust and investment management accounts and services offered by Thrivent, the marketing name for Thrivent Financial for Lutherans, or its affiliates are not deposits or obligations of Thrivent Federal Credit Union, are not guaranteed by Thrivent Federal Credit Union or any bank, are not insured by the NCUA, FDIC or any other federal government agency, and involve investment risk, including possible loss of the principal amount invested. Must qualify for membership in TCU.

Must qualify for membership in TCU.
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