How Do You Plan to Pay for Your Kids' College?

Lots of (long) discussion/comments to my post on Big Money Blunders to Avoid: Saving for College. The conversation was in response to me saying this in the post:

Our plan is to pay half of each child's college education. Their half can come from working, work study, scholarships, grants, etc. In other words, if our kids can get enough scholarships and the like to pay for half of their college educations, we'll take care of the other half.

Here's what the first commenter had to say:

My plan is to have enough saved for 25-50 percent of the total. If I don't have quite enough to cover half, I'll assess my own financial situation when the time comes (college is 16 years away for my son, thankfully) and either pay a bit out of pocket or take out a loan to cover some of it.

My son can pay for the other half with loans, work, etc. I do plan to start him off saving a percentage of gifts, allowance, etc when he's old enough to understand.

Because of complicated family dynamics, my son has two different 529 accounts, plus two different UGMAs. I'm wishing now I'd gone with Coverdells instead of 529s. At some point in the future I may see if I can convert the UGMAs to college savings accounts, but while my grandmother is living (and putting his birthday money in there every year) I have to leave them where they are.

The second comment gave the perspective of a student -- and now a parent:

The deal my brother and I had with my parents when I was in school ten years ago was this: They would pay 2/3 tuition, I would pay 1/3 tuition and "everything else" -- books, housing/rent, food, transportation, etc.

I took 7 years to get my four year degree, lived in WA state for a year to gain residency when I transferred, worked 40 hours a week while in school ... but I made it out with zero loans. [Because of the nature of my dad's business, and the fact that at the time, your parents' income was used in the calculation for financial aid if you were under the age of 25, regardless of whether or not you were still a "dependent," most conventional aid was out of my reach, anyways.]

My brother went to a private school and is still paying off his loans.

On the other hand, he was probably able to spend much more time on his studies than I did. So, I dunno.

My husband and I have decided that we would like to pay for our kids' school outright so they don't have to work as much as I did in school, and can concentrate on their studies without loans.

We save accordingly.

That's good -- that this person is saving now. It will take a TON to pay 100% for college.

Here's the next commenter with a different plan:

Here's the deal my wife and I have agreed to...

We'll finance 100% of college expenses for an in-state public university. If the kids what to go somewhere else, they'll need to earn the right to attend through savings or, hopefully, scholarships.

I don't believe there is much value in going to a private school versus a good state school. We're lucky enough to live in Virginia and have great state-school options like UVA and William & Mary.

Yes, in many cases state schools are as good as (or even better) than private ones.

Next, we have some thoughts from a future parent:

My wife and I haven't had children yet, but the day is coming. My thinking as of now is that we'll likely try to save enough to pay for four years at a state school, and anything above and beyond that our children will have to finance themselves (or perhaps we could dip into our budget at that time). Why will I probably not even make an effort to save for all of it?

1. I don't anticipate being able to save that much and still adequately fund retirement and other obligations. Plus, we don't yet know how many kids we'll have. We probably could save enough for two kids, but if we have three or four it gets dicey.

2. I think there's incredible value in making kids work their way through college and/or take on a little debt to finance it. I worked my butt off to get through college and I believe strongly that it helped me develop a solid work ethic and mold me into a better person. And student loans are among the best deals out there.

3. Making them pay for part of it gives them a stake in their own success. They will be more motivated to finish in four years (rather than slacking off and taking an extra semester) when they know they'll have to pay for part (or all) of it themselves.

4. I plan to not make any promises to my kids about what we'll pay for until they start to get serious about colleges. Again, it's about motivation. I don't want them to think they've got a guaranteed free ride and start to coast.

5. When the time comes to have serious discussions about college financing, I plan to lay it all out there and have my kids help me manage expenses. When I first went to college, my dad managed the financing. I helped pay, but he more or less told me what to pay, to whom, and when. But by my sophomore year, I assumed control of most of that and it helped me to make better educated decisions about my future. I took on something extra as a senior to avoid taking more in student loans, for example.

Again, this is what I think now. Who knows, if I come into a lot of money or something terrible happens to my family, all this could change.

I'm generally in agreement with these thoughts -- especially #2 and #3. That's why we have the 50/50 plan I noted above.

But the last commenter doesn't like to "pay for half" idea:

I am in disagreement with the let the children pay for it.

My core belief is that it is the parents' primary responsibility to help their children grow and prosper in our society.

My secondary belief is that active hands on education by parents should focus on values, ethics and responsibility. A child's character cannot be developed without aggressive attention from parents.

I had to pay (75%) for the vast majority of my education at an elite private institution.
Paying my way and accumulating debt was an enormous burden and a competitive disadvantage.

I disagree with those who argue that their children should pay for 1/2 or more of their schooling. If they are hard working and competitive students, they should have the opportunity to focus on their education and competing for good grades.

Let them save up for personal expenses, vacations, etc....

A large school debt is a significant burden for new graduates who should concentrate on investing as much as possible into their new retirement accounts - not paying off student loans. We all know the value lost by not saving early on. Furthermore, high student debt might dissuade children from furthering their education, i.e. "how can I afford graduate school with all these college loans? (I do understand they can be differed)"

A solid work ethic is what enables them to be admitted to a most competitive school and to succeed within it. That ethic can and will be diluted with external work obligations.

For those unsure if their children will value their education if they do not pay for it, I recommend having their children take a year off before attending college - most likely at their own expense.

Let them work for a year as an intern in the careers they are considering or as an unskilled laborer. Both will educate them greatly and motivate them to excel in their education.

Also, a gap year might help them achieve a certain level of maturity that the entering freshman may not initially have. Think of it as a chance to explore and grow without risking grades.

So, what do you think? What are you planning to do for your kids when it comes to paying for college?

Comments

[Jason]

Having recently completed Grad school and now havings twins of my own, saving for college has been on my mind a lot lately - and so far I've decided to do it the way my father handled it with me.

For the first year of college by dad agreed to pay for 100%.

The second year it was 50%, the third year 25%, etc. The thought being that as I progressed in school I would have a better handle on time management and studying effectively so that I could work as well as go to school. I thought this plan was very effective because it allowed me to get my feet wet Freshman year, have that true "college experience" but then it eased me into reality.

[GHoosdum]

All of the comments that you quoted seem to have very well laid-out and logical positions. My wife and I have not yet decided our strategy for college payment. We are already putting away small amounts of money in an account for college, although we don't yet have any kids.

In my case, my father told me that he would pay for four years of college tuition at in-state costs. My mother was responsible for paying for my books (my parents are divorced). My undergraduate degree took 5 years to complete, because I changed schools after the first year. My father held to his word and paid for the first four years. My mother paid for books for all five years. I funded the fifth year with student loans.

I then decided to enter into a one-year intensive MBA program, which was funded mostly by a scholarship. I funded the remainder through student loans. I did work through my five-plus-one years of college to pay day-to-day living expenses, additional school fees that are tacked onto tuition, etc.

This plan worked out, for my father at least. He makes a rather respectable income, and my stepmother was able to purchase a new Lexus when they stopped paying for my college. My father is also driving a brand new car, and they live in a McMansion. I, on the other hand, am living with $20K in student loans, the payments on which would make a nice monthly contribution to my Roth IRA if I did not have the loan burden.

Honestly, I'm not sure whether or not my father took the right path in setting a hard limit to what he would fund. I suspect that my stepmother had a lot to do with the end of his funding of my college. If I were as well off as they are, I would almost certainly continue to pay for my child's college rather than purchase a new Lexus. However, if my income does not rise at higher levels through my career than it has since graduating college (I got a job 1 year after graduation making less than half of the average MBA graduate salary) I'm afraid that I will have to set limits on how much of my childrens' college I will be able to fund.

[Kira]

When it was time for me to start looking at colleges, my parents basically just said, so, where've you decided to go? I didn't get any guidance from them on what we could afford, and we only visited a few schools. I really wish my parents had taken the time to sit down with me and look at various schools, the difference between state and private, etc etc.. things might have been a lot different. As it was, since I had heard about getting scholarships and loans and so you didn't have to pay the full cost, I applied and got in to an expensive private school. Naturally the scholarships and loans weren't enough, so I bet at that point my parents were wishing they had pointed me in the direction of a state school! They did support my decision, but I wish they had talked to me about what was involved first, since at the time I wasn't particularly invested in going to that school over any other, and probably would have been amenable to going someplace a lot cheaper if they had brought it up. I just didn't know it mattered to them.

[The jester]

There are a number of calculators out there to help one decide how much college will cost in the future. I used one of these calculators to figure that if I put about $22K aside for each of my children, when they were born (2 months ago and 2.5 years ago) then their tuition should be covered. Basically the price of a car in today's dollars.

Using the power of compounding to pay for college seemed like a good idea and a lot less painful than worrying for the next 18 years.

[William Tanksley]

A quote: "I am in disagreement with the let the children pay for it. My core belief is that it is the parents' primary responsibility to help their children grow and prosper in our society."

This is a total non-sequitur. Letting the children pay for it -- requiring them to make their own investment in their own future -- does not in any way contradict helping their children grow and prosper. In fact, it could be argued that it encourages the children to grow and prosper as adults.

I will not make that argument here; I just wanted to rebut the unstated assumption the poster who said the above was making.

(It seems to me that either decision could be right; it would depend on how the parent brought the child up.)