• College: Who Pays? Who Cares?

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    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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