College: Who Pays? Who Cares?
Posted on August 16, 2006 by Her and tagged college
In deciding who should pay for college, there are two opinions: Either you believe the child should pay for school, or you believe the parents should. Most of the personal finance discussions I've seen on the topic have degenerated into a slothy pit of self-righteousness and generalization. Rather, I propose a truce: whichever you believe, HAVE A PLAN!
The choice of who pays has an economic effect on the entire family. I believe the best option is to create a plan that supports each individual's goals while respecting the needs of the family. It's important to develop the college payment plan early - really early. Decide what is financially possible and create a plan that is respectful of everyone's needs.
If you believe your children should shoulder the cost:
• Communicate your expectations early. Don't spring this on your child a year before college.
• With your child, research the best vehicle for your child’s savings. Teach your child about compound interest and help them understand how much money they will likely need to accrue.
• Be persistent in reminding your child to save. Make it a rule that a certain percentage of gifts, allowances, and income must go into the college account. Set up direct deposits if possible.
• Tell relatives about your family's plan and encourage them to be supportive. Relatives may be willing to give gifts of savings bonds etc.
• Reward you child for their hard work. Maybe you can match a portion of their savings or reward good grades with a contribution to their account.
• Help your child formulate a complete plan. It's unlikely that their savings alone will fully cover the cost of college. Help them put together a plan that includes savings, scholarships, income from a part-time job, and loans.
• If possible, consider loaning them the money yourself to help them save on interest.
• Consider purchasing their housing yourself. Maybe their student condo can become your retirement or vacation home, or be flipped at a profit. Some children assume mortgage payments and ownership after graduation.
If you believe parents should foot the bill:
• Be sure your plan truly reflects your financial abilities, rather than just what you wish you could do. It's unfair to promise the money only to come up short when the bill is due.
• Make retirement savings your priority.
• Communicate your expectations early.
• To teach kids responsibility, make them responsible for some of their expenses, such as a car.
• Research the best investment vehicle for your savings. Choose one that can be switched to retirement savings with no penalty, just in case your child ends up not needing the money.
• Consider attaching the money to reasonable expectations. Maybe you agree to pay 100% if they maintain a 3.0 GPA, but only 50% if they drop to a 2.5 GPA. Make these expectations clear and stick to them.
Every family needs to start early, create a respectful and achievable plan, communicate the plan to everyone, and then work together to achieve it. In the end, it doesn't matter who paid for what. What matters is that each person is respected and supported.
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Catherine | Aug 16, 2006
This is a great topic to address and it is a touchy one, but you give a lot of good advice to help families get started in figuring out how to handle the burden of college costs.
You did forget one thing: Families should educate themselves on federal aid, as well. I know that federal student aid may not apply to all families (and it's especially frustrating for middle class families who really don't have a lot of moeny to spare, but don't quality for fderal aid), but for those who do qualify, it is absolutely essential that they know what options are out there and how to apply for it. My family was lower middle class when I went to college and while I didn't quality for much, I was able to get about $1000 per year in state aid. Is $1000 much in the grand scheme of college costs? No, but that was $4000 I didn't have to take out in student loans. I took whatever I could get.
One important addition is that if you want kids to pay for college themselves, you shouldn't emphasize going to the "best" college they can get into at any cost. Understand that state schools provide fine educations, and don't pressure them to attend an expsenive liberal arts college, for example, because some arbitrary authority says it's best.
Good advice. I wish my parents had taken it. My mom had always told me not to worry about paying for college so I didn't. Then she died my Sr. year of HS. My dad paid for 2 years of community college and shortly after I graduated and had been looking into transferring to finish my degree, he told me it was up to me to pay for the rest. I had nothing saved and no means of paying for it. I didn't qualify for financial aid and was terrified of student loans. So I quit school. Haven't yet been able to afford to go back nearly 10 years later. A little detail like that can really affect a person's life.
liz | Aug 17, 2006
An interesting thing to do is do a search on EFC (estimated family contribution) and run the numbers on what your family would be expected to pay for college. You might be surprised at how little aid you would qualify for. If your child is attending college straight out of high school and is paying for it himself, the family income is still taken into account. Our family would qualify for some aid if we were paying 3 college tuitions at the same time, however, we only have two children. We have been saving hard since our children were babies (now 14 and 16) and have approximately $150,000 saved and it will likely not be enough since we want to help with grad school too. Our parents put us through school, including grad school, and we want to do the same.
Sharon | Aug 17, 2006
If the child has to pay for college he has to emancipate himself first from his parents. Otherwise the financial aid officer will take the parents' income into account when deciding the aid package. You can't just tell your kid he has to pay for college if you still are using him as a tax deduction and if you have not allowed him to declare independence. It's totally unfair and would result in the child not being able to start college for 2 or 3 years after high school. I know parents who refused to pay the amount that the school said they could afford and also refused to emancipate the child because they wanted to tax deduction. In that case the child is completely screwed by the parents.
Oh, this is such a great post.
I'm going home tonight and communicating my expectations to my son: "L, I will expect you to pay for one quarter of your college education. Start saving now."
He's two and a half. Do you think I should have started communicating this earlier?
I'm kidding of course. My only criticism of your excellent post is that all this communication and teaching of responsibility is easier said than done. I'm not sure how I'm going to teach him how to use a potty, not to mention financial responsibility, etc.
I guess the good news is parenting is one job where you have an infinite number of role models.
Wow, this is the post I wish my parents could have read oh say 15 years ago. They told me they would help out with college but they never saved anything and never informed me of that minor detail until fall of freshman year. Being a teenager without having been taught any lessons about saving or finance I hadn't saved anything either. Needless to say, my college experience did not go as expected. Sitting down to communicate and form a plan that everyone is aware is so important.
This is a hugely important topic and oddly enough a topic that I brought up a few months ago with BoyDucky. He and I had very very different experiences and I wanted to see how that would affect what he would like to do for his children. I was mildly surprised to hear that he felt the same way I did, that our kids should pay for their college educations.
Regardless of how you feel, knowing what the game plan is will be critical to your child's success. Claire, you're absolutely right that communicating this is easier said than done, but it really can be done. My best friend's family just reiterated that they would be expected to finance their own educations and the parents still ended up funding some portion - they were saving all along but didn't want the kids to assume they were getting a free ride. Another student's single mom simply told her son all through junior high and high school that if he was going to college [and he was, no doubt about that] he would have to earn merit scholarships to pay his own way. He ended up with a full ride plus expenses because he knew through the critical years that his studies would dictate the amount of school he could afford. Personally I haven't got a clue how to teach kids about money, but it's encouraging to see that it can be done in any number of ways.
NoChoice | Aug 18, 2006
Unless you are divorced and then you have no choice in who pays or not. My husband's daughter chose a private school, she has poor grades and basically received little financial aid. We are still required to pay.
Jenni | Aug 18, 2006
Wow this post is great. Their are the problems though. My parents, like Jason's, always told me not to worry about college, that they were going to take care of it, but come freshman year, not a penny was saved up. They also never taught me about saving (which I'm slowly teaching myself), so it's loans loans loans for me.
Catherine | Aug 18, 2006
Just a note in response to a poster above, students can only be declared independent (for federal student aid) if they (www.fafsa.ed.gov):
1. are an orphan or a ward of the court
2. are married
3. provide at least 50% of the financial support for a child
4. are a verteran of the military
5. are over the age of 23
6. are currently pursuing post-graduate work
Individual schools have the power to do a "dependency override" for students with special circumstances (e.g. student is not an orphan, but hasn't known the whereabouts of mom or dad in 'x' # of years and lives with grandma), but it does not happen often and the federal government has seriously cracked down on the overrides. So, just a warning to parents who want to declare their kids indepenent--it doesn't matter if you don't claim them on your taxes, if they don't fit into any of the above criteria, in the eyes of the federal government, your child is a dependent until the age of 23. It's a highly flawed system that can wreak financial havoc on more families than I care to think about...
Just a friendly FYI!
Jen | Aug 19, 2006
My parents did spring on me at the last possible moment that they would not be able to pay the EFC for my pricey private college, and I did have to pay for it myself (via loans). However, I DO NOT believe this is tantamount to "screwing me over" since I was not emancipated prior to attending college. I find it utterly ridiculous that this should be considered as much.
Honestly, parents raise you until you are 18 and then, because they ask that you pay your own college costs, they are "screwing" their kids by not legally freeing them so they can qualify for more aid? Years of food, housing, clothing, lessons, toys, etc. and it all comes down them relinquishing a tax deduction for a couple of years? What a hot steaming load of bunk.
It is not abuse to suggest that a child consider putting off college for two to three years. It may feel like it when all of Sally and Johnny's friends are at school, but a job might actually make them appreciate the education more.
Reminder to readers...
This is about establishing a fair plan, communicating it clearly, and supporting family members while respecting the needs of everyone involved. This is not about entitlement.
I, like several other posters, was also told by my Mom to choose whichever school I really liked the best, within reason, and that I "don't need to worry about it" when it came to paying for school. I was under the impression for years that she meant, "You don't need to worry because we're going to pay your student loans back for you (or at least help.)" Yeah, I really should have asked for clarification. :-/
It was really 2 years after graduating college (after 2 years of claiming financial hardship, as I was making practically nothing as a touring actor), when I finally got a steady desk-job, that my mom informed me I should start paying my loans back. Wait a second...me? I'M paying for them? News to me!
I would have been ok with it if my mom had explained this to me ahead of time. I probably would have chosen to go to a less expensive school if I knew I would be fully responsible for paying the bills. So the moral is, yes, be totally open with your children about what is expected. This will cause the student to take more ownership of their education, knowing they will be the ones paying for it. NEVER make vague statements like, "don't worry about it..."
Janice | Aug 25, 2006
This is the best article I've ever read on this subject. My son is 8 m.o. and we've already started saving for college (thanks to a windfall from his great-grandmother, who never got to know him). My original plan was to pay for college entirely, as my parents did for me. But after reading this, I think it would be better to enter into a dialog with him about the cost of college at an early age and encourage him to set aside some of his own money as the years go by. Do I think he's going to amass the $200,000 it will take in 2023? No. But he at least will feel that he's been a part of it and be more financially aware than I ever was. Good parenting is more valuable than any college education in my book. ;)
Sarah | Aug 16, 2006
I am very impressed with how detailed this post is. Too many people do not address this topic with their parents or children, or think that it will work itself out (kinda like retirement saving for some people!!!)
I was fortunate enough to have my parents be up-front with me that they weren't funding my college education, but, they were also insistent on me saving. Working was for college savings, not for play money. My husband and I are light-years away from children (or so it seems now!) but we have already discussed our opinions on how to handle our children's education... I had $4800 in interest-free loans from my parents after college and grad school, he has $60k in loans after college and grad school. The difference between us? Preparation for college from pretty much birth on for me, and we hope that we'll be able to do the same for our kids.
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