Parents: Know What You're on the Hook for While Child is at College

Plan Ahead for Known, Unknown Expenses

Date: July 15, 2010

Contact: Paul Golden 303-224-3514, [email protected]

DENVER—When college freshman Elisabet Torrents headed to the University of Wisconsin last fall, her parents had budgeted for tuition, room and board, books and other typical expenses. But soon into the school year, unforeseen costs arose. And Elisabet began calling home for money.

"The unexpected expenses were all the extras: extra food, extra clothes, extra 'Greek' expenses, such as her sorority dues," said Elisabet’s mother, Hope Torrents, of Coral Gables, Fla. "Then she had to go to the dentist because of impacted wisdom teeth. And because our dental insurance only covers her in Miami, we ended up paying for her dentist visits [in Wisconsin], along with her prescription medicine."

It’s impossible to predict whether your child will experience unexpected costs or an emergency during his or her time in college. But by researching, planning and budgeting for the known and unknown, you’ll be less likely to experience a big financial hit.

Set Financial Responsibilities Beforehand

Before August, sit down with your child and outline all the expected costs of college—everything from living expenses to entertainment extras. Then, establish what you plan to pay for and what your son or daughter must cover. Aurita Apodaca and her husband, of Westminster, Colo., have been clear with their soon-to-be college freshman, Sonny, about financial responsibility. The parents together have been saving $250 a month from their paychecks to fund Sonny’s college education.

"We have budgeted for food, gas, car insurance and personal hygiene items, knowing that Sonny will be receiving care packages from us and her grandparents," says Apodaca. "Sonny is responsible for all of the things paid for with scholarships, money we have saved, money she has saved and gift money from relatives. She will have to take out loans to cover anything above and beyond that."

Similarly, Neil Reiter, of Brooklin, Maine, wants to curb unplanned costs when his son, Max, enters the University of Pennsylvania in the fall. Reiter will have all of Max’s bills, such as cell phone, debit card, meals, etc., sent home.

"At least I’ll have the ability to monitor his charges to make sure everything is appropriate," says Reiter, who has made it clear to Max he’ll be responsible for movies, restaurant tabs, sporting events, etc. "He’s not expecting us to support his extracurricular spending."

After establishing the responsibilities, it’s a good idea to set aside all your education funding into a separate account with a little padding in it for emergencies.

"You’ll sleep better at night knowing you have the financial backing to support your child while he or she is away at school no matter what happens," says Paul Golden, spokesperson for the National Endowment for Financial Education.

Check Insurance Coverage

Anything can happen, so it’s important to make sure your child and his or her property have the appropriate insurance coverage while they’re away at school. This includes health, car, renters’, and any technology insurance for cell phones or computers.

If you decide to keep your child on your insurance policies because it offers better coverage or rates, decide if you will cover the entire payment or if your child is responsible for his or her part. If you decide to help your child establish his or her own plan, read the fine print carefully and make sure your teen understands what is and isn’t covered.

Health Insurance

The health care reform law makes it possible to keep your child on your own health insurance plan versus having him or her use a college-sponsored plan. Effective September 2010, parents can keep their kids on their own plan until the age of 26. Previously, young adults often lost that coverage at age 19 or upon graduation from high school or college. To avoid coverage gaps for new college students and young adults, the White House asked insurance companies to provide coverage voluntarily before the September implementation date. Many have complied to do so, but check with your insurer. Then, make sure your insurance covers any doctor’s appointments or prescriptions in your child’s college town. If it doesn’t, you could be paying out-of-pocket for such costs (and need to budget).

If you opt for your child to have his or her own insurance plan, check with the school to inquire what it offers students. Does the college plan provide cheaper rates and doctor’s visits at its campus clinic? Does it cover your child’s every health care need, such as dentist visits, physicals and wellness exams? Make sure to compare the premiums and coverage to what your child could retain on your insurance. Part- and full-time jobs also might offer health insurance for your student.

Car Insurance

If your child brings a car to college he or she will need insurance. People younger than 25 years of age typically face higher insurance rates, so it may be cheaper for your child to remain on your insurance. Sonny will bring a car to the University of Northern Colorado in the fall. Her parents are keeping Sonny on their policy after evaluating whether she should obtain her own insurance.

"We have the best deal because we have been with the agent for six years and we have three cars, our house and life insurance with the same company," says Apodaca.

If you decide to keep your child on your policy, remember that your rates could go up if your teen is in an accident or is ticketed for speeding. However, insurance companies also offer perks such as “good student discounts,” which may qualify your student for a lower rate.

Beware the Credit Hook

Certain situations can leave you on the financial hook for your child, including cosigning your son or daughter’s credit card. Recent legislation—the Credit Card Accountability, Responsibility and Disclosure (CARD) Act—prohibits applicants younger than age 21 from obtaining their own credit card unless they can prove they have the financial means, such as a pay stub from a job or bank statement with adequate funds, to pay the bills.

If you want your teen to begin building credit in his or her name or want him or her to have a card for emergencies, you will have to co-sign for credit. And, if you co-sign your child’s card, you are jointly liable and your own credit might suffer if your child doesn’t pay the bill on time. This is the time to set clear expectations for your son or daughter.

As for off-campus housing, you’ll also inherit a financial stake in your son’s or daughter’s apartment if the landlord requires you to co-sign the lease. Be aware of your responsibility if a roommate fails to pay rent or leaves, or if damage to the property occurs. Elisabet will be renting an apartment in Madison, Wis., next fall. Her mother co-signed the lease, but not before her father, a lawyer, read it with a fine-tooth comb.

"No matter how much or how little you plan to contribute to your child’s college education, living expenses and emergencies can arise. So it’s critical to plan ahead," says Golden. "By setting expectations and responsibilities with your child early about the costs of living on his or her own, you’ll both be prepared to have any enjoyable, and affordable, college experience."

Graduation 2010: Cover the Basics Before Your Child Leaves the Nest
Parents provide the most influence on their children’s financial knowledge, attitudes and behaviors. Our graduation series provides information and topics weekly to help you start a conversation with your kids. For more information and to download NEFE’s 40 Money Management Tips Every College Student Should Know, visit: here.



  • Paul Golden

    Media Relations Director

    Direct: 303-224-3514
    Cell: 303-918-3620
    [email protected]

  • Patricia (Pat) Seaman

    Senior Director of Marketing and Communications

    Direct: 303-224-3538
    [email protected]