How to Financially Prepare Your Child for College

Financial planning and literacy are important skills for any adult to have in their toolkit – yet they’re ones that aren’t always taught in American schools. A recent study found that 32% of U.S. teens don’t understand basic financial concepts, like the difference between a debit and credit card.

Personal finance can be complicated, particularly if you’re a student trying to understand college costs and make financial decisions for the first time. Before your child goes away to school, here are some ways to equip them for financial success.

How to financially prepare your child for college 

Even if you plan to help your child financially, there’s still a huge learning curve that comes with moving out of the nest. For parents and students alike, the time between high school and college can be emotional and anxiety-inducing. However, there’s a lot you can do to alleviate your child’s stress and prepare them to handle their newfound freedom. 

Have an honest conversation

Personal finances can be a sensitive subject. But part of preparing your child for college is having a frank conversation about your own finances. If you’ve been saving for college, determine how much you’ll be able to contribute to your child’s higher education. Or if you’ve just started the college process, it’s never too late to open a college savings plan like a 529 account. These are tax-advantaged savings accounts that allow families to cover college expenses with tax-free earnings. 

Explain their financial aid awards

Each year, billions of dollars in financial aid are left unclaimed. Make sure your child doesn’t miss out on financial aid simply because they don’t understand their award, or because they aren’t sure how to access funds. When your child receives their financial aid award letter, help them make sense of it. With some financial aid, like the federal work-study program, there’s a little bit of legwork required. Students who are awarded work-study will need to find a job themselves — and probably within the first few weeks of setting foot on campus.

Teach them how to budget

Most high school students don’t have a great sense of how to strategically spend their money. Create a college budget with your child. Start with their income. Do they have work-study or another part-time job? Are you planning to give them a monthly allowance? 

After you’ve calculated their income, deduct college expenses. Factor in hard costs like tuition. Then turn to the softer costs: needs, such as a meal plan, and wants, like extra money for late-night pizza runs. Teach your child to consider weekly expenses, monthly expenses, and to save extra money for unexpected costs. With financial planning, there’s room for everything in moderation. Simplify the budgeting process with tools like an online worksheet or mobile app

Encourage saving 

Saving might be the last thing on your child’s mind, particularly if they’re not bringing in any income. But even if your child can only afford to save ten dollars a month, tucking that cash away in a savings account can turn it into something meaningful in the long term. 

If they don’t have one already, help your child open up a savings account and kickstart an emergency fund. Regardless of their age, it’s wise to have a fund to cover unexpected expenses like a hospital visit or a fender bender. And while planning for retirement as a college student might feel premature, it’s not. Thanks to compounding interest, every dollar your child saves at age 20 could be worth 5x that by the time they retire. Teach them about IRA accounts and think about opening one, regardless of their ability to save today. 

Open a checking account 

With most banks, when you open a savings account, you’ll also have the option to open a checking account. Some financial institutions offer accounts just for college students. Watch out for banks that require account holders to maintain a minimum balance. Most of these charge high fees if the account dips below this number, which could result in your child racking up a small fortune in penalties. 

Fortunately, with many accounts for college students, parents can also view, contribute, or withdraw from the account. Depending upon your relationship with your child, this could be a good way to ensure they don’t spend above their means. 

Research student credit card options 

The average American carries a staggering $5,733 in credit card debt. For students, a credit card can feel like free money ––  but that way of thinking can lead to serious debt. 

Luckily, many credit card options for students have lower borrowing limits to help students avoid these common pitfalls. Shop around with your child to find the best student credit card for building credit. As you do, teach them the basics of owning a credit card. 

Explain terms like “APR,” “credit utilization rate” and “billing cycle.” Show them how to pull their credit report and identify suspicious activity. Make sure they know to pay more than the minimum due each month, and lay out what happens if they don’t. What should they charge to their card? What shouldn’t they? How do rewards work? What fees might they encounter along the way? 

Discussing these with your child can set the foundation for good spending habits and a solid credit score come graduation. 

Make a plan for student loan repayment

Student loans often make up a significant amount of college funding. According to Sallie Mae, 41% of families used some borrowing source to pay for their child’s college in 2022. If this is the case for your family, create a plan with your child for how you’ll tackle the student loan repayment process. Your child’s loan type will dictate when they need to start making payments. Most loans have a grace period, but some may require you to make payments during school. In any case, plan ahead so you’re not faced with any unwelcome surprises on graduation day. 

During school 

Most federal student loan borrowers aren’t required to start repaying their loans until 6 months after they graduate, or if their college enrollment drops below part-time. Loan repayment timelines can vary greatly, and some private lenders might require students to start making payments while enrolled1. Look over each of your child’s loans and factor the repayment terms into your plan. If you’ve taken out any parent loans on your child’s behalf, like the federal parent PLUS loan, your loan will have its own repayment terms, too. 

A crucial part of paying back student loans is understanding the interest they accrue. Private student loans and unsubsidized federal student loans accrue interest while your child is still in college. If you or your child don’t pay down this interest while they’re in school, it will capitalize (be added to the loan principal) after the grace period ends. Then, you or your child will be charged interest based on the new principal amount going forward. 

Avoiding capitalization can save your child a significant amount of money in the long run. If possible, encourage your child to make interest payments while they’re in school. 

If your child has a lot of federal loans, student loan forgiveness is a possibility – and it might affect how they approach their college education. Educate your child about the specifics of Public Service Loan Forgiveness (PSLF) and how they might qualify for it. Only a handful of career paths are eligible for forgiveness like social work, government, law enforcement, and others. Depending upon your child’s interests and skills, this list could be something to consider as they choose their course of study and plan for their future. 

Use a loan payment calculator to estimate how much overall debt including interest your child will owe. While this number might be daunting, it will give your child a savings goal and an idea of their future monthly payments. The future debt balance might also provide a bit of focus and perspective when the temptation to spend all their extra money on typical college student expenses becomes too enticing. 

After graduation 

After your child graduates or leaves school, the grace period begins. It’s typically six months –– though some private lenders, like Earnest, offer a more generous nine-month grace period2. Once it’s over, your child will start making student loan payments. 

Unlike private loans, federal loans offer more flexible repayment terms and borrower protections. For example, income-driven repayment allows borrowers to pay monthly only what they can afford based on their income. If your child doesn’t get a high-paying job right after graduation, they’ll have more flexibility to pay back as much as they can afford with this type of repayment structure. Other types of forgiveness are also available for federal borrowers who meet certain eligibility requirements. 

If your child has a number of loans, it might make sense to explore consolidation or refinancing. Consolidation is only applicable to federal loans. If your child chooses to consolidate their loans, they will take out a new Direct Consolidation loan from the government to repay their existing loans. Then, Instead of making payments on multiple loans, they’ll just make one payment on the new consolidation loan. Consolidation can simplify the monthly payment process and help ensure your child never misses a payment –– though it can’t lower your interest rate. 

Refinancing3 a loan is similar to consolidation –– but instead of using a federal loan to pay off your current federal loans, it involves taking out a new private loan to pay off one or more federal and/or private loans. When you refinance, you can potentially get a lower interest rate and better terms, but if you refinance a federal loan, be aware that you will lose eligibility for federal protections and benefits like income-driven repayment and student loan forgiveness. Depending on the types of loans you have and their size, it may be beneficial for you to refinance4

Make sure they fill out the FAFSA each year 

Financial aid is key to affording a college education. But many college students don’t know that they need to fill out the Free Application for Federal Student Aid (FAFSA®) each year in order to maintain their financial aid package. 

For this upcoming year (2024-2025), the FAFSA® opened on December 30th. However, each year, the FAFSA® usually becomes available on October 1st. The earlier you can fill it out, the better chance you’ll have to receive the maximum financial aid possible (some aid is awarded on a first-come, first-served basis). Filling out the FAFSA® correctly is crucial to receiving the maximum amount of federal financial aid possible.

Make sure they know the rules of their scholarships 

Scholarships are one of the best ways to pay for your child’s college education because they never need to be repaid. However, different scholarships come with different rules. Some awards might be for four years while others might just be for one. If your child wins a four-year award, they might have to maintain a certain GPA or course load to remain eligible. Another common rule of scholarships is that the funds must be used for educational expenses like tuition, fees, etc. But there are other awards that can be used for anything, from books to room and board. Read the fine print of your child’s scholarships to ensure they know how to put those dollars to use. If your child has to re-apply for an award each year, put those application dates in your/their calendar, too.

Discuss cost-saving options with your student 

Another aspect of financial planning is finding ways to save on college costs. At the beginning of the college process, encourage your child to keep an open mind. They could prioritize public schools over private colleges, which tend to carry higher tuition bills. Or they might explore the idea of starting their degree at a community college to fulfill their general education requirements at a lower cost. If your child is going to school in-state or close to home, they could continue living with you. Or, help them find off-campus housing to split with roommates at a lower cost than on-campus dorms. Get creative – there are so many ways to lower costs from buying used books to applying for scholarships. 

Get matched to scholarships with Going Merry

If your child hasn’t explored scholarships as a way to afford higher education, encourage them to do so as soon as possible. Scholarships can be a meaningful way to lower the cost of attendance and avoid student loan debt. And there are awards available for every type of student – even if your child doesn’t have a sky-high GPA or test scores. 

One of the easiest ways to find scholarships is through Going Merry. We curate high-quality awards for all of our members. Just input some identifying details like interests and hobbies, and we’ll send verified scholarship opportunities straight to your inbox. Sign up for Going Merry – and encourage your child to do the same. 

Disclaimer: This blog post provides personal finance educational information, and it is not intended to provide legal, financial, or tax advice.

1 Before applying for private student loans, it’s best to maximize your other sources of financial aid first. It’s recommended to use a 3-step approach to assembling the funds you need: 1) Look for funds you don’t have to pay back, like scholarships, grant and work-study opportunities. 2) Next, fill out a FAFSA® form to apply for federal student loans. Federal Direct subsidized and unsubsidized loans, excluding PLUS Loan for Parents and PLUS Loan for Graduate and Professional Students which require a credit check and a credit worthy endorser if the parent or graduate or professional student has adverse credit, do not require a credit check or cosigner, and offer various protections if your struggling with your payments. 3) Finally, consider a private student loan to cover any difference between your total cost of attendance and the amount not covered in steps 1 and 2. For more information, visit the Department of Education website at

2 Nine-month grace period is not available for borrowers who choose our Principal and Interest Repayment plan while in school.

3 You may lose benefits associated with your underlying federal and/or private loans if you refinance such as federal Income-driven Repayment Plans, Economic Hardship Deferment, Public Service Loan Forgiveness, or other deferment and forbearance options. If you file for bankruptcy, you may still be required to pay back this loan.

4 Choosing to refinance to a longer term may lower your monthly payment, but increase the amount of interest you may pay. Choosing to refinance to a shorter term may increase your monthly payment, but lower the amount of interest you may pay. Review your loan documentation for the total cost of your refinanced loan.

Earnest Private Student Loans are made by One American Bank, Member FDIC, or FinWise Bank, Member FDIC. One American Bank, 515 S. Minnesota Ave, Sioux Falls, SD 57104. Finwise Bank, 756 East Winchester, Suite 100, Murray, UT 84107.

Earnest loans are serviced by Earnest Operations LLC, 535 Mission St., Suite 1663 San Francisco, CA 94105, NMLS #1204917, with support From Navient Solutions, LLC (NMLS #212430). One American Bank, FinWise Bank, and Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by agencies of the United States of America. 

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