August 20, 2008
Freshman Finance 101
By Jane Bennett Clark
Here's how to handle the unexpected expenses when your kid heads off to college.
You thought you were finished with the college bills when you figured out how to pay the tuition. But you hadn't reckoned on buying the microwave, the mini-refrigerator and, of course, those extra-long sheets.
Once your kids head off to school, you may face other financial emergencies. What if they get sick, lose the laptop or overdraw their checking account? Here's how to handle those situations with a minimum of pain to your pocketbook, and your child's will probably be covered if he or she needs medical attention at school. Many colleges require that you either show proof that you have health insurance or take out a policy through the school, at a cost of about $300 to $400 per semester.
If you have the choice, keep your child on your group policy, advises Mike McCartin, an independent insurance agent in College Park, Md. Policies you purchase through the school often max out at $50,000 or $100,000 of coverage, compared with the $1 million or more offered on employer policies, and carry relatively low limits on other benefits, such as inpatient care.
Don't rely on your own insurance, however, until you make sure it covers your student beyond the age of 18. Lately, some companies under financial stress have been trimming benefits, including coverage for full-time students over 19, according to Bob Wirag, director of health services at the University of Central Florida.
Also see that your plan offers a provider network near campus. If not, you'll have to choose between a school policy and independent coverage. To compare prices and benefits, find a broker through the National Association of Health Underwriters or go to eHealthInsurance.com.
Damaged or lost laptops and other stuff. If your child's computer is lifted from the bio lab (or wounded when your kid jumps off the loft bed and lands on top of it-hey, it could happen), your homeowners policy should cover the loss or damage as long your student lives in a dorm. Call your agent to review the specifics of your policy.
You can also buy separate coverage for a specific item, such as a laptop or cell phone, if you want to reserve your homeowners insurance for major claims or cover property whose value falls below the deductible. Safeware, at safeware.com, offers $1,000 worth of coverage on a laptop, with no deductible, for about $70 a year.
Homeowners insurance doesn't apply if your student moves off campus. In that case, you can pick up a renters policy for about $200 a year.
Over-the-top texting. Ask teenagers to limit their text messages and you might as well expect them to stop breathing. So it makes sense to go with a cell-phone plan that includes unlimited texting, such as Verizon's Wireless Select, which starts at $60 a month for an individual and $100 for the family plan. As for voice minutes, a conservative number probably suffices for text-happy kids; if not, you can always upgrade. Parents who use their own minutes sparingly will save money by putting their student on the family-share plan.
Alternatively, decouple your accounts by having your kid use a prepaid plan. That strategy protects you from youthful excess and teaches your student how to budget, says Joseph Pawlikowski of goingcellular.com, which reviews cell phones and service plans. "Once the minutes run out, they're gone." Virgin Mobile offers a pay-as-you-go plan that provides 1,000 minutes for $50; for another $20 a month, you can get unlimited texting.
Pity the kids who have to take calls outside in the cold because their dorm room is the dreaded dead zone. Before locking into any plan, have your student scout out which network gets the best coverage on campus. And don't forget to see that his or her cell phone has your area code. Otherwise, you'll rack up long-distance charges every time you call your frosh on your landline.
Your student may insist that everyone has a smart phone, but phones with fewer features can perform wonders on an as-needed basis. Verizon's GPS-enabled phones, for instance, let your student download the VZ-Navigator for 24 hours, at $3 a pop-letting you rest easier when he or she takes a road trip.
Overdrawn checking accounts. Contrary to what parents and students believe, many banks cover debit-card overdrafts -- and then exact a fee, typically about $35, for each transaction. Rather than have your student pile up the charges, find a bank that transfers money from savings to checking when the checking account runs dry.
Or go with a bank, such as ING Direct, that extends a line of credit for the overdraft at the prevailing interest rate. Many students use their debit cards -- which at some schools are linked to their student IDs -- for transactions as low as $1 or $2, according to the Center for Responsible Lending. Better to pay 18% on a $1 overdraft than $35 a pop.
A bank's overdraft policy is just one thing to consider when you're helping your child set up an account. Once, students simply went with the bank closest to campus. But with online banking, "proximity to campus is an irrelevant feature of choosing a bank," says Sanjeev Dheer of CashEdge, a banking services company.
Online accounts let students check their balance and pay bills from their laptop. They can also use their cell phone to eyeball their balance and conduct other banking transactions. In that case, they'll need a Web-enabled phone that supports the bank's system; fees depend on the cellular service plan. Check the bank's Web site and the cellular plan for details.
Convenient as cyberbanking may be, you still have to consider proximity to ATMs lest your kid rack up fees using another bank's network. That doesn't mean being limited to a bricks-and-mortar bank. ING Direct, an online-only bank, gives access to 32,000 ATMs in the Allpoint network. HSBC reimburses ATM surcharges.
And when you get that frantic phone call for more cash, some banks let you transfer funds electronically from your account to your kid's even if you don't share the same bank. The transfer typically takes one to three days to clear and costs a few dollars per transaction.
Other student-friendly banking features include e-mail or text-message alerts that let account holders know when their balance is low, and one-time fee forgiveness -- called "Stuff Happens" at Bank of America -- for overdrafts.
The alert system came in handy for Genna Salmon, a junior at Oregon State University, when it told her the coffee she had purchased with her debit card would put her bank balance under water by 75 cents. She zipped over to the bank and put money in her account, saving herself a $35 overdraft fee.
Out-of-whack budgets. Salmon balances her checkbook every few months, but she mostly tracks expenditures online and settles up later with her parents. "When I come home, my mom and I look at my account and put down 'Genna' or 'Mom.' We can tell whether the purchase was for school or not," she says.
Some parents put their name on their student's account or get the password so they can keep an eye on where the money is going. (Memo to snoopers: Kids keep the beer runs private by using the ATM.)
You can encourage your student to budget by pointing to Web sites such as Wesabe, Mint or Geezeo. These free sites allow users to gather bank and credit-card accounts into one place and organize spending according to category.
Wesabe and Geezeo also offer social networking; users can share financial tips, goals and predicaments. In one recent posting on Wesabe, a grad student asked for advice on paying down $10,000 in credit-card debt. So far, the posting has elicited 22 responses.
But no shared wisdom or techie gimmick beats common sense, which for Salmon would mean curbing her latte habit -- or burying the expense in the petty cash category. "I get a latte about four times a week, at $3 each. That's $12 a week -- it's ridiculous. My mom does the same thing, but she pays cash so my dad doesn't find out. That's what I should do."