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As you help pack up the minifridge, laptop and extra-long twin sheets for your college freshman, you might consider a few other last-minute chores:
• Scour your health-insurance coverage for loopholes.
• Reread your homeowner’s insurance policy.
• Call your lawyer.
Sending a child off to college for the first time is wrenching enough, but a slew of conflicting rules and changing banking and health-care laws are making this year’s move-in season more confusing than ever.
And with college costs and student debt at record levels, it is all the more important for students—and their parents—to avoid the new financial traps cropping up on campuses these days, from debit cards to health insurance.
Overlooking small details now, in the frenzied rush to campus, can invite much stress later on.
Hannah Gómez learned this lesson all too well. Before her freshman year at the University of Arizona, she and her parents chose the school’s health insurance plan after reading a brochure. “I assumed I was just going to go to a doctor a couple of times for the flu,” she says. Because it was a student plan, “we assumed it would be a good deal.”
As a result, they glossed over specifics, like a prescription benefit that didn’t pay anything until she had spent $1,000 out of pocket. After she signed up, allergy and asthma problems required new medication that ran about $2,000 a year. The plan also limited coverage of pre-existing conditions and physical-therapy treatments, which became a battleground after Hannah tore a ligament in her elbow at the end of her first semester.
Ms. Gómez, now a senior, says she has since switched to a private insurance plan that costs less than the university plan and has better prescription coverage.
Parents’ financial to-do lists are getting so complex that Summit Financial Strategies Inc. in Columbus, Ohio, began compiling a cheat sheet last year for clients who were asking questions. What started as a single page of bullet points has grown to a six-page checklist to cover all of the recent changes, including health care, finances, textbooks and travel.
“Parents are spending all this money on school, and they don’t want their kids to mess it up,” says William Whitaker, a Summit financial planner.
Here is a packing list to help your child get ready for the rigors of the real world, finance-wise—and avoid new money-management, health-care, insurance and other problems:
• Set a cash strategy. Plastic now dominates on college campuses, meaning students must be adept at managing money online and aware of new rules regarding credit cards and bank overdrafts.
The ubiquitous student ID, which opens dorm doors and functions as a library and meal card, often serves as a debit card as well. Most ID cards can be used for purchases at the campus bookstore and are necessary to run laundry machines. Many also can be used off campus at restaurants, drugstores, dry cleaners and even Starbucks.
Typically such accounts must be fed electronically, and many schools encourage parents to link their own debit or credit cards to the accounts so that money can be transferred easily.
Some schools even offer links to bank accounts. At Stony Brook University in New York, students can open an account at a local credit union and use their ID as their ATM card. PNC Financial Services Group Inc. has arrangements with about two dozen schools to link student IDs and bank accounts so the card can be used as a regular debit card. The online student checking account requires $25 to open and allows only three free paper checks a month.
Regular student checking accounts are moving online, too. This week, Bank of America Corp. dumped its Campus Edge account for an online bank account that requires users to get their cash and make deposits at ATM machines. Those who want to use tellers for routine transactions will pay $8.95 a month.
• Watch those fees. There can be a fine line between providing a monthly allowance and becoming a human ATM. If you are going to provide money for personal expenses, you need to decide if you will feed the bank account or the student ID account, or both, and how much.
Students should be aware that new banking rules mean that debit card and ATM transactions that exceed their balance will be rejected unless they link to another account or pay for costly overdraft protection. PNC customers who opt for such coverage, for instance, will pay up to $36 for each overdraft, up to four transactions a day, plus an additional $7 a day if the deficit isn’t fixed in five days.
Bank of America doesn’t offer such overdraft protection on debit-card purchases, but this fall it will begin allowing customers to authorize a $35 charge at the ATM if their cash withdrawal exceeds their balance.
Given that high cost, parents and students should talk about what happens if the student runs out of money.
• To cosign or not to cosign? Whether or not your freshman has a credit card this year is largely up to you. As of February, students under 21 years old must have a parent as a joint account holder unless they have enough annual income—perhaps $3,000 or more—to repay the debt.
If they get a card, they will need to understand how interest charges work, the importance of paying the bill in full each month and the penalties for failing to pay on time.
Young adults also can be added as authorized signers on parents’ cards, a move that can help them build a credit record. If you choose that option, you should detail what the card can and can’t be used for. Some cards, like those from American Express, allow you to set your student’s credit limit. If the card is misused, you can cut off the credit privileges with a phone call.
• Have the textbook talk. A piece of the Higher Education Opportunity Act that took effect July 1 requires schools to post details about the books required in each class so that students can shop around. In addition, study guides and CDs must be sold apart from related textbooks.
With the cost of some new textbooks crossing $200, the big campus booksellers are jumping into the rental business, which was dominated by online companies like Chegg.com. After a 25-store test this spring, Barnes & Noble College Booksellers says that more than half of its 640 stores will begin renting some textbooks this fall, while Follett Higher Education Group is launching rentals at about 700 of its more than 800 campus stores.
Though selection will be limited to newer and more expensive books, rental prices should be less than half the price of a new book. Students have to open an account backed by a credit card and they may be charged the full price if the book isn’t returned on time.
The price differences can be dramatic. At Georgetown University’s bookstore, an introductory psychology book costs $134.25 new, $100.75 used and $60.41 to rent for a semester. A digital version sells for $31.50.
• Make a health insurance plan. New legislation passed in March will allow young people to stay on a parent’s health plan until age 26, but it doesn’t take effect until September. While some plans are offering the coverage right away, others won’t adopt the rule until their next plan year begins in 2011.
At the same time, many private schools and some public universities are so insistent about insurance coverage that they charge for the university’s student health-insurance plan automatically; students on parent plans must fill out a waiver every year to opt out of the coverage, which can run from $1,000 to $3,000 annually.
If you opt for a company plan, beware: As Jen Kozin and her mother, Donna, learned last year, some insurers won’t fully cover what they consider to be nonurgent visits or trips to doctors outside of a network or geographic area.
Ms. Kozin, a public policy major at Duke University in Durham, N.C., needed emergency surgery and a follow-up operation last year after a wound from a moped accident became infected. Because she hadn’t needed care before and the family’s coverage under a Blue Cross Blue Shield of Massachusetts plan had always been good, her mother says she never thought to study their plan’s details before the surgery.
It turned out that the Kozins’ plan treated urgent care differently from regular care and required a call to a primary-care physician after an emergency so that the doctor could be involved in the follow-up treatment.
Blue Cross balked at paying the full bill—and it took several phone calls to get it straightened out.
Ms. Kozin’s experience offers a lesson to others: Parents should check their coverage before a student goes out of state, not after the fact.
A spokeswoman for Blue Cross said she couldn’t discuss the specific case, but said families should pick their plans carefully if one member will be in another city and ask questions if they aren’t sure how a student’s care might be covered.
Student plans aren’t always a good deal, either. While some plans offer thorough coverage at reasonable rates, many university plans are “totally junk,” says Stephen Beckley, a consultant on student health plans. He estimates that 60% exclude pre-existing conditions, have high deductibles, offer little or no prescription benefit or have maximum coverage of less than $100,000, which may not be enough for a serious illness or accident.
In April, New York Attorney General Andrew Cuomo said a review of college insurance plans found low coverage limits and excessive costs for what was provided.
Good coverage, experts say, would include reasonable prescription benefits, a maximum deductible of a few hundred dollars, mental-health coverage and at least $250,000 in maximum benefits.
• Ensure communication.Even as parents foot the bill for health care, privacy laws restrict doctors, nurses and student health from sharing information without an adult student’s permission. That is where the lawyer comes in.
After a few clients ran into difficulty getting information about adult children who were ill, Sheila Benninger, an attorney in Chapel Hill, N.C., began recommending that clients’ children designate a health-care power of attorney after they turn 18 to identify who can speak for them if they can’t.
She also includes a Health Insurance Portability and Accountability Act, or HIPAA, release form that allows patients to determine who can receive information about their medical care and whether information about treatment for substance abuse, mental health or sexually transmitted diseases can be disclosed.
You don’t have to use a lawyer. Generic health-care power-of-attorney forms can be found online. If the school has a HIPAA release online, it’s best to use that more-tailored document.
Parents should keep a copy in an email folder, where it can be easily accessed in an emergency. And students should designate a general power of attorney so someone can pay bills or handle other issues if they go abroad.
“Even if you end up never using these documents,” Ms. Benninger says, they help young people “understand the obligations of adulthood.”
• Protect stuff. Typically, your homeowner’s insurance will cover what is in your kid’s dorm room, up to 10% of your coverage for personal possessions. Expensive items like that new iMac may not be fully covered; if you are worried about replacing it, you may want to insure it separately.
Belongings in off-campus housing may or may not be covered; check with your insurer.
• Call your car insurer. If your student leaves a car at home and attends school at least 100 miles away, you may get a break on your auto insurance. If your child is a B student or better, you also may get a good-student discount.
If the car is going to school and you live in an urban area, it may be worth checking to see if rates are lower in the college town than at home.
• Create a personal file.While getting their belongings together, students should set up a file of key personal information, including a copy of their driver’s license, insurance cards, Social Security card, debit and credit cards and immunization records. A passport or a copy of one also is useful, both for travel and to confirm citizenship if you apply for a job.
Copies of prescriptions also can be helpful, though many national chains can refill prescriptions in any city.
They also may want to take absentee voting forms; they are adults, after all.