Who Pays for College -- Parents, Kids, or Both? Round 5

A couple years ago we batted around the issue of who should pay for college -- parents, kids, or a combination of the two. The Wall Street Journal recently took on this topic. Here are a few of the highlights with my comments interspersed:

Should parents put their future needs above their kids'? Or, should we strive to save every possible dime we can for our kids' education on the theory that we're supposed to give them a head start to a better life than we have?

Personally, I'd recommend cutting spending (or growing income) so you don't have to choose between saving for college and saving for retirement. This can be done, for sure -- it's what we're doing.

A few years ago, in fact, we agreed that if our children do win scholarships, we would give them all the unused money we had saved for them, once they graduated. We recently told our son about the plan. Though he's clearly not savvy enough to understand the incentive at this age, he will eventually, and he'll see much to gain in striving for a scholarship.

Interesting incentive. Does anyone else think this might work?

Based on the monthly amount we're saving and a modest rate of return, I would expect my [sixth grade] son's account could reach about $19,000 by the time he hits college. That will be a nice bit of change for a kid coming out of college.

What if no scholarship is forthcoming, though? Will the savings cover his costs? In all likelihood, no. With so many variables -- tuition, books, fees, where he attends, where he lives -- it's hard to arrive at a ballpark figure for the total cost. But I fully expect the bills will go substantially higher, even at a state school.

Uh, yeah, I'd say it's a good bet that in seven years a college education will cost more than $19k.

So, given that I already expect a shortfall, should Amy and I strive harder to save even more? Many parents I know say absolutely yes. They are putting away every last dime so that their kids never have to worry about how to pay for college. Amy and I happen to be some of those lucky ones: My dad paid my bills and her parents paid hers, and we both emerged from college debt-free.

Others I know say absolutely not. One friend, in fact, specifically wants his daughter to take out a student loan for part of her college costs so that in working to pay it off after graduation she is forced to learn budgeting. Moreover, he hopes, the strategy means she better appreciates the value of her education and the hard work that goes into affording it.

I don't think it's an either or proposition -- you can do both -- save for retirement AND save for college. But that requires two things: earning a good income and keeping your spending well under what you make so you can save a bundle. Most people aren't willing to make the sacrifices necessary to save for both -- they have to have the "necessities" of life after all. Then, of course, there are people who truly can't afford to do both because they simply do not earn enough. IMO, these people should likely focus on retirement savings for the following reasons:

When I look to the future, the biggest expense I see is the giant costs awaiting Amy and me in retirement. While our kids' college degrees are certainly important, our ability to pay for our life after work is more important. As such, we've opted to funnel a much larger amount of cash into retirement savings than into our kids' educational accounts.

Some will argue that we're short-changing our kids and thinking only of ourselves. I argue, instead, that we're ultimately helping our kids to a far greater degree than we would if we were paying the entire cost of their diploma. By ensuring that Amy and I have an adequate nest egg for our retirement, we're also making sure that our kids will never be in the position of having to help us financially. I can't imagine a more important gift to our kids than making sure we are never a financial burden on them.

At the end of the day, I say parents should pay for their kids' education -- but only after saving for their own future. After all, when you stop working one day, there's no one waiting to hand you a scholarship or grant to retire.

So, I agree with the suggestion of what to save for first. For those who can't do both, save for retirement first, and then college after it (if you want to pay for it -- maybe you don't see any need/good/responsibility of doing so). But I'd challenge those of you who want to do both to look closely at your expenses and try to make more money as well. For many, you can find a way if you really want to.

As far as saving for college costs, our plan is to pay for half and let each child pay for half (through scholarships, grants, savings, loans, etc.) though we might be willing to pay for more to help our kids graduate with little or no debt. We have Coverdells and 529s for each of them and we should be well-saved for college by the time it gets here.

All this said, what do you think should be done (or what are you planning on doing)? Should parents even feel a responsibility to pay for all or part of a child's college education? Or should they focus on retirement only? Or maybe somewhere in between?

Comments

[MoneyGrubbingLawyer]

I am a proponent of not saving for a child's education, but likely for different reasons than most. While some view it in terms of the best or most efficient allocation of money (i.e. retirement savings take priority over college savings), my position is based purely on philosophy.

When a child reaches the point of considering post-secondary education, she is no longer a child. Education is the responsbility of the young person, not of the parents. It is the first major "purchase" of adulthood, and it is important that young adults take responsibility for this purchase, as doing so builds independence, confidence, and fiscal responsibility. While paying for an education may seem like a nice gift, it (unfortunately) is often accompanied by a sense of entitlement.

There is one exception to this, namely any educational savings fund that is matched by government dollars. When such programs are available, obtaining the maximum matching amount only makes sense- it's free money.

If you are in a field that it makes sense, try getting a job at a college a few years before your kids are ready. Even if you can't be a professor, there are administrative/maintenance jobs available, and you will often be able to send your kids there for 25% of the cost. If they choose to go somewhere else, then they can pay the difference.

[Success Professor]

The quotes from this article are typical of North American thinking today. It is an either or approach. You can have more for your retirement or more for your child's eduction - not both. This is a fixed pie attitude that goes against everything that our history of an entrepreneurial society shows. You CAN have both. You can make the pie bigger - that's what entrepreneurship is all about. As you point out you can both cut spending and increase your income. My wife and I our doing both. Our home business is creating a wonderful extra source of revenue. Secondly, by paying off debt and being wise with our money we are able to spend less. The combination of these two allows us to move towards our goals more rapidly.

[Hondo]

I agree with MoneyGrubbingLawyer in that too many kids these days think they are entitled to a parent-funded college education. In addition, too many parents feel an obligation to pay for their children's college education. Sometimes this leads to the unforeseen consequence of becoming enablers for your children’s lack of financial responsibility.

My parents had three kids in college (including myself) and they had no way of fitting that in their budget. Still, I'm not sure they would have paid 100% if they could have. Luckily for us, federal loans were available and we took advantage of the lower interest and deferred payments. I view this as a way to build responsibility in your children. I had too many friends in college that were on the "Parent's Scholarship" and they squandered the money away by taking 5-6 years to graduate instead of pushing to get out in 4. They often didn't take their education seriously because after all, they weren't paying for it. It was like they were still in high school living for free except without the parental control. Heck, now that I think about it, I know too many young adults (28 years old or so) that still receive some sort of financial assistance from their parents. Is this raising financially dependent kids who cannot take responsibility for their financial future?

I feel that if parents feel obligated to pay for their child's college education, it should come with some conditions such as 1) you'll only pay for 4 years or 2) pay for the tuition and textbooks only and make them get a part time job for personal and extracurricular expenses.

I am proof that a kid can work through college and still maintain a solid GPA. Sure it takes work and you're forced to learn how to be responsible but it does wonders for preparing a kid for the real world and weans them off of mommy and daddy.

[ToughMoneyLove]

Here was (and is) our philosophy about education and debt as they go hand-in-hand when you are talking about college costs. We have put two through college and our third is there now. We told out kids that going to school is a job, that we are there employer in that job, and that we will pay for a job well done that is completed in four years. We also told them that one of our objectives was for them to enter the work force debt free. Therefore, if they decided to accept a credit card offer while in school, we would fire them. We pay tuition, books, room and board. All other expenses (recreation, entertainment, clothing, etc.) was their responsibility. Because we are their "employer", we also had substantial input as to where they would go to college. It has worked well for us. Fortunately we were able to do this and fully fund our retirement savings as well, but to do this you must be strategic about where these kids go to school and how much it will cost.

["Mo" Money]

I believe parents should put their future above putting the kid through college. There are many ways to get a college education, (scholarships, grants, loans, JOBS, etc.., but the only way to save for retirement is for YOU to save the money.

[a]

If you produce a child and you want them to enter the white collar working world you are basically obligated financially to get them into and through college. This doesn't make parents obligated to bankrupt themselves or to throw money down an educational rat hole.

There is no one size fits all answer. Parents need to know themselves and their kids to make the right choices. If your kid wants Harvard but you can only afford State U then your kid is going to have to pick up the slack either through scholarships or employment. If your kid is a flake then perhaps you need to put some limits on the funding (e.g. work requirements, grade requirements, must finish in 4 years). Some kids aren't so great academically and need to devote all their effort to studying in order to make descent grades. In this case requiring them to work through school is probably a recipe for failure. Some kids are so driven that all you need to do is let them go at it and they'll be done in three years with a triple major.

I also think parents should demand something for their money education wise. In other words don't let you kid be a film major if you think that field has no chance for gainful employment.

My parents treated me similar to the description by ToughMoneyLove. School was my job and debt is bad. Therefore, bust your ass to study hard and get some scholarships and we'll pick up the rest. And they beat this philosophy into me for my entire life.

To summarize in two points:
1) If you can't afford a kid and the associated college costs, don't have one.
2) If you are at all paying attention and know your child's personality and your own financial situation you will be able to pick the right course of action to get them through college.

[P]

What should so called "rich" parents do about the fact that their income/savings will not allow their children to receive adequate loans to cover their education? If we are going to say that it is the child's responsibility, then why is the government determining who can get loans based on the parent's wealth?

I have a friend whose family didn't pay for any college costs, and even later said they had in fact saved the money to pay but just decided not to do it. While it might have helped build some character, it also resulted working lots of extra hours during school, probably not doing quite as well academically, and not being able to pursue some extra-curricular activities. All of these would have helped the pursuit of an advanced degree. They did fine anyways, but still there is some resentment that they didn't even help at all when they obviously could have eased the burden.

If we are moving to a model where parents aren't responsible for their children's education, should children be responsible for parents when they reach old age and need help?

[MasterPo]

I agree with TML, and disagree with MGL and Hondo. I think too many parent's have MGL/Hondo's POV. Now their kids ares tuck making $11/hr in Wendy's.

TML has it right. If the parents are going to pay the children can't take it for granted. That's a factor of parenting. If you have kids that are spoiled and take mommy&daddy paying the bills all the time that's a parenting issue. (Yes I am being judgemental)

History clearly shows that people with higher educations make more and do better overall in life than those who don't have higher educations. A Bachelor's is a must. A Masters is rapidly becoming a defacto requirement too.

[Simon]

As a financially conscious college student, I would insist on paying everything myself but nowadays that is very hard to do even with scholarships, loans, and grants. My parents know that coming out with debt is quite a burden and they've insisted on paying for everything after scholarships and grants while they told me not to take any loans. I'm grateful for them and I try to make it easier for them as much as possible (through work and side jobs).

It is important to see the most parents would not like anything more than to see you get an education and do something with it. My parents do not hesitate when it comes for paying for an education. They'd sell the house to put my sister and I through school. They would sacrifice very much just so their kids can do so.

[Jenny]

I'm so grateful my parents paid for college. It allowed me the flexibility to go where I wanted to go, rather than staying close to home and going to a less-rigorous school because it would be free. That's obviously not the path for everyone, but for me it was important to experience something new (a new city, a new group of people). I matured so much during my college experience.

Graduating without debt also allowed me the freedom to choose a nonprofit career. As long as I could cover my rent, food, etc, I was able to take a lower-paying job because I didn't have loan payments to cover.

I don't believe that forcing a kid to pay for college is the only way to teach them financial responsibility. The first job I had in high school, my dad took me to open a Roth IRA. He had me direct-depositing money into my savings account (an emergency fund) before I was 18. I worked in college too, and always saved a portion of my income. These habits have stayed with me since graduation and have allowed me to build up a decent nest egg at a very young age. If I were paying a few hundred dollars a month for loans I'd still have some of that nest egg, but it'd be a heck of a lot smaller. I haven't taken money from my parents (apart from tuition) since high school. This is not the case for a lot of people I know...many of them lived at home during college, and never really "cut the cord".

All that said, I do agree that parents should take care of retirement first and education later. But I disagree with the notion that refusing to pay for school should be some kind of moral lesson, and that kids can't learn financial responsibility otherwise.

[Danielle]

Parents should know that it IS possible for their sons and daughters to pay for a college education WITHOUT loans or mom & dad's money.

It's all about realizing there is free money out there--lots of it--that is given to the most proactive students. The ones who work for it, and market themselves accordingly. For an undergrad education, scholarships are relatively easy to come by and qualify for--your major, your educational goals, your childhood, your hobbies can all work in your favor. If you're deemed as needing aid it's even easier! (I was part of that middle-class black hole that is too "rich" to be poor, but too "poor" to be rich. Not being eligible for Cal Grants or other FAFSA-oriented financial aid made it more difficult to find appropriate scholarships, but it was done, nonetheless).

5 years after I began, (I graduated with a double major + thesis,), I had my education entirely paid for by scholarships. NO DEBT! My mantra? "If they're giving away free money, it might as well be to me!" I must admit Mom & Dad occasionally assisted with car expenses (I lived at home and commuted to school to cut costs, but it created some maintenance issues/bills), but I covered everything else with the scholarships and three on-campus jobs.

All that being said--my time searching for scholarships was invaluable, and I did the best I could in all of my classes because I worked to find the money to pay for them. Failure, or "average" grades were not an option. This mentality is assisting me in my grad school endeavors--my schooling is paid for, due to fellowships I sought out (awarded through experience and academics).

This is work--lots of it--but it can be done. I believe parents should fund their retirement first, like mine did. Life isn't a game, and these college lessons last a lifetime. Why not encourage them to seek alternative means (scholarships) to fund their education first, instead of relying on mom & dad or loans?

[J-Bird]

I was fortunate enough to have parents who set aside enough money to pay for my undergraduate degree. I got a few scholarships, and decided to work while studying. Now as a recent graduate, I have a good chunk of that money still lying around, which I plan to use toward a downpayment on a home further down the road (I offered it back to my parents, but they extremely generously refused it).

Having just graduated, I was exposed to a bunch of different strategies for tuition payment, from the student end, and my favourite one (which seemed to lead to extremely well-adjusted graduates) was a "phase out" scheme. The parents financed the first year's tuition and living expenses (according to a predetermined budget, not just paying off bills willy-nilly), and the first term of second year's tuition and book fees only. After that the students were on their own. This gave them time to adjust to the new pressures of going to university, but also impressed upon them the importance of budgeting and money-management. While I didn't meet too many friends on this (or a similar) plan, that group tended to graduate with fewer and lower debts, and when they did have debt, it was far more likely to be a student loan rather than on a credit card.

[Jess]

I earned $22K/year in scholarship money, which covered roughly 80% of my college costs. I took out a Stafford loan each year for the four years of my undergraduate degree, which I am now working to pay off. My parents paid room & board and various miscellaneous expenses while I was an undergrad. We had a joint credit card, which I used to purchase textbooks. (I only recall one time that I used the CC for something other than books -- a $20 sweatshirt).

I had a job in college and worked as much as I could, but I double-majored and spent the majority of my time either reading for assignments, studying, or practicing/in rehearsal (I am a musician). My job money went towards rent, groceries, gas. Even with my scholarship money, I could not have gotten by without my parents' help.

I feel that we struck a nice balance. I obviously wouldn't have had the kind of money to front the bill for my education at that time, but I contributed by winning two sizeable scholarships. My parents paid at the time but now the loan is my responsibility, which I feel good about. (The payments are not terribly high and my interest rate is locked in at 2.8%). Unlike many of my friends, I never called home for money if I was stuck.

And the studying I was doing that prevented me from being able to work more hours at my job paid off: I got a free ride to graduate school and lived off of a paltry $9K a year each year of my Master's program. Talk about learning to manage money!

My boyfriend thinks it would be nice to save money for a child's education but make them pay initially, and then gift that money later. I think that's a terrible idea -- as P's story illustrated, I think it would just make a kid resent all the things they couldn't do because they were working. I definitely think having parents and kids both contribute is best. In the long run, I'll have paid the majority of the bill for my education, and I'm glad about that.

[Millie]

I just stumbled upon your blog today, and I enjoy it so far!!

I really like what J-Bird's parents did. I also like what ToughMoneyLove has done for his/her kids. Those are great ideas and something for me to strive for.

This topic is something that my friends and I have been debating lately, as we are all in pretty sad situations. I'm not ready to have kids anytime soon, however, I will NOT be doing what my parents have done for my brothers and me. I fully funded tuition and living expenses for my entire college career. I attended school out-of-state (my midwest school was ranked in the top 8 public schools for my major, and cost about the same as my in-state options in California). I did receive a few scholarships for academic achievements, but the majority was paid with student loans. It took me five years to graduate, but probably could have been done in four and a half if I'd been more focused the first year. For three of my years in college, I worked a minimum of one part-time job to pay for groceries and plane trips home.

I've been blessed with a stable, well-paid job since graduating last May. Even then, one entire paycheck per month is dedicated to student loan debt. With over $115k remaining in the next twenty years, I do not see myself owning a house anytime soon. I don't really see myself being able to afford to start a family, though I'd like to do so in the next ten years.

Some of my friends are not so lucky with their job situations; I don't know how they keep up their heads above water! Student loan debt is totally overwhelming; it's the first thing that pops into my head in the morning, and it's my last thought before falling asleep. I do NOT want my kids to choose between their huge student loan payment and food, like I do. I do NOT want them to have two part-time jobs in addition to their "real job," like my friends and I have done. I'm not sure if I will have the luxury to pay for all of my kids' college expenses like ToughMoneyLove did, but there is no freaking way I could ever put them through this!

[Sarah]

I basically agree with a above. If you want your child to be a successful white-collar worker, you need to recognize that that requires an expensive education and the time to devote to it. So many people seem stuck with the memory of what public education cost in the 60s, or don't grasp how competitive the top grad schools are and how hard it will be to get into a worthwhile law, business, or medical school from Podunk State U (not that it can't be done, but it's much much harder).

On a more basic level, if you are worried that your kids won't take school seriously, will screw around instead of learning, etc., then you have already seriously failed your children. Yes, that's right. Because you didn't teach them either to value knowledge for its own sake or to follow a plan for success. Sure, there will be some kids who will stray (seriously--everyone screws up somewhat in their adolescence) no matter what you do, but I hear so often from people who haven't even had kids yet, or have them nowhere near adolescence, and yet anticipate that their kids won't be mature enough to take advantage of college unless the tuition is extracted from their lifesblood. Start by teaching your kids to love books, to be interested in the world around them, to be curious and to follow up that curiosity well, and you most likely won't need complicated incentive schemes to keep them invested in college. But, you know, that takes time and work and having that spirit in yourself.

[Steve]

I think as a parent there is an obligation to pay for or help out with education. My family does well ourselves , so I want to help out my children so they do even better for themselves.I view it as a early inheritence. Just think of the head start in life if they get into a highly compensated field with little to no debt. For the people who don't have the money, that is just poor financial planning. Even 50 to 100 dollars a month over the course of 18 years or so really adds up.

[BW]

If the students spend a couple years at a community college and get an AA before going to the university, that would make the costs much more manageable for parents and kids. If the parents let them live at home for a year or two after high school, they could make some money while taking a few community college classes. With the savings of not paying to live in the dorm or an apartment, the student could then have some money saved up to transfer to a university.

[Marie]

As a financial advisor, ALWAYS take care of RETIREMENT FIRST before saving for college education. To take care of college funding and forgo or short change retirement is as dumb as it could get. FUND the retirement account to the max, after all THERE ARE EXCEPTION to the rules if you're not old enough to withdraw from it...such as TUITION. IF you CAN'T fund your retirement account to the amount allowed by law then don't save for your kids college education. Remember, student loans are available to pay for tuition. THERE is NO such thing as retirement loans. PLUS, retirement accounts has far more options as far as investment vehicles and this is such an advantage especially if the kids are still young.

[Hondo]

@ MasterPro - Perhaps you misunderstood in how I agreed with MGL. I agreed with one aspect of his post, the sense of entitlement comment.

My take on the subject mirrors that of ToughMoneyLove in that there should be some some conditions that go with a parent-funded college education. I agree with you that a college education is a must and that parenting probably pays the biggest part in how a child handles a parent-funded education.

Some great comments on here. Good job on the engaging post FMF!

[plex]

I believe there is at least a minimal obligation to help, even if you are leaving it up to the children to pay for everything, they may not even be able to get the money they need through loans. They will have no credit history, and federal loans are often NOT available in any significant quantities to even moderate income families for undergrad. So at the very least the parent should help undersign some of the loans.

Also, if someone's parents paid for their education, I would think it would be pretty selfish to not pay for their own child's education as well, at least somewhat close to what their own parents supplied. The parent got a huge financial boost when they needed it most, allowing them to earn more money significantly quicker. Why aren't they trying to help their own child in the same way? Didn't they learn something from their parents?

[Anitra]

I feel much like plex - it is important to give at least SOME help to your children. It's unrealistic to think that they can pay for it all on their own (some kids can, through work and scholarships, but most can't).

To the folks who say paying for yourself "teaches financial responsibility", let me share an anecdote... I was already financially responsible when I left for college, and my parents still paid the majority of my expenses. I graduated with small student loans and no consumer debt. My husband had to completely finance his degree himself, and was VERY irresponsible with money until he graduated - and then realized what a heaping pile of debt he had built for himself.

Now we are about to become parents ourselves, and although we want to start saving for our child's post-secondary education, we still have pretty massive debt from our own. We'll probably put a little in the kid's fund (an ESA or similar), but most of it will probably come from the grandparents, since we still need to focus on our own debt and retirement savings. Not all children will go to college, and not all will have to pay for it out of pocket - but nearly everyone will need to support themselves with retirement savings at some point (either in true retirement, or because of a disability, etc.)

[Michael]

Here is what my parents and I do, they pay for my tuition, books, housing, and food for the first year. For all the years following, my parents pay for tuition, and if I get a scholarship they will help me pay for other things instead of tuition. I love this plan, and it has worked great for me and my siblings. Have a great day!

[Joe]

When I went to school ('85 to '90) I was on a merit tuition scholarship - full tuition for eight semesters. I still remember the letter I received. It said the university expected the value of the scholarship, over eight semesters of tuition, to be $8,800! Times have changed for sure - in 20 years $8,800 barely covers one year of tuition.

That being said, I did support myself through college by working part time during school and full time during summers and having a roommate. College was my job. My parents did help out by giving me $100 a month. I feel like I went a long ways toward paying my own way. I was not living at home, I took care of my own car and expenses, and all the other costs from college such as books. I have to imagine the same could be done today, but I think it is more difficult - what other items can you name that have increased in cost by 300% over the last 20 years? (Oil is not fair...)

But, there are other options. Our community college has courses at $65 a credit hour - about $2000 for a year's worth of tuition. If you're on a budget, there is no reason you cannot go to a community college for two years, especially one with a transfer program to a four year college. Then you transfer and only have the cost of two years of tuition. If you are working at least part time the first two years, you can start to put a pretty sizable next egg away for tuition for the last two years. Add in working part time while going the last two years and I think a person can graduate without debt.

That stuff about extra curricular activities, etc., is plain nonsense. College is your JOB! If you want to do extras, you need to figure out how to manage that. A student needs to pick - at home, being a child, living by the parent's rules and taking it easy financially, or, at school on their own, making their own decisions, paying their own way, with whatever help is available (scholarships, grants, x dollars a month from Mom and Dad, etc.). That can include taking out loans. If you can't afford a college (and don't want to end up with $100K+ in debt) THEN DON'T MAKE THAT CHOICE!!! You cannot have a champagne appetite on a beer budget. THAT is called a BAD FINANCIAL DECISION!!! That's the whole point of this blog, right??? Getting better at not making bad decisions.

[Chris Giese]

OK Very interesting comments. I have always had a plan to get my kids to college. First off, my parents did not pay for my college. I started with a Licensed Practical Nurse one year program. Then 10 years later got a ADN followed by a BSN and later a Masters of Science in Health care Administration. This only took me 30 years.
When my kids came along I started a college fund of $70 a month. but you know what happened to the stock market. So I had about a third of the money when i needed it.
Well here is my plan. I pay for the first 2 years of college. Tuition, books, housing, health insurance, car, car insurance, cell phones and clothes. This is huge. The first one is done with his 2 years and the next two are on him. People say I am nuts, but I didn't have kids to make their life miserable. They know it is 2 years or they start over. It is a lot of work for me, but hey, why have kids if you can't contribute to them being the best that they can be!