Why Parents Should Help their Kids Pay for College

Author: Ashley

24 Mar

This is a guest post from M is for Money. She started her blog in 2008 after pulling herself out of $20,000 of debt. If you like this article make sure you head over to her site.

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“You can get loans to pay for college but no one will lend you money for retirement”

Many parents struggle to balance saving for the future and providing for their children. Saving enough for retirement is difficult even without the added expense of kids and most people are woefully unprepared. But a college degree is the new high school diploma, a must to land a decent paying job. Any well meaning parent wants their kids to have the best possible start in life, a basic education. That leaves many parents with a difficult choice, should they take care of themselves or their children?

The opening quote is an often repeated piece of financial advice, advocating that parents should take care of retirement since there are alternative ways to pay for school. Many parents risk their own financial security so that their kids can have a better future. They put off saving for retirement so that little Susie or Johnny can attend the college of their choice. Since there is no substitute for retirement savings, they have instead jeopardized their own future.

Unfortunately there is a flaw with this advice, our system assumes that parents will help with college costs even if they do not. Most colleges use the Free Application for Federal Student Aid (FAFSA) to determine financial aid eligibility. This form collects information on the parent’s income and assets and is used determine the family’s share of the cost. The government and school will then help fill the gap with a combination of grants and loans.

Assets like retirement accounts and the family home are not included in the calculation, but any other savings and investments are expected to be used. Even if you have no assets, you will still be expected to contribute based on income. A family without assets, a taxable income of $60,000 per year, both parents working and two children would be expected to provide $4000 per year towards college. This is a simplified estimate based on the 2007-2008 guidelines. Assets or only one parent working would increase the amount that parents are expected to contribute.

If your family is expected to come up with $4000 per year for college and you don’t provide it, where will your child get that money? The college won’t reconsider aid because of a family’s unwillingness to help. From the FAFSA website – “Under Federal law your family is primarily responsible - to the extent they are able - for paying for your college expenses.” Your child will have to take out additional loans, most likely private loans at a higher interest rate, to cover your portion as well. Currently those loans are hard to find, college aid is drying up. What happens then?

I don’t think that parents should put off saving for retirement to pay for college. The money in your retirement accounts won’t be considered when they calculate your child’s financial need. In fact, maximizing your retirement savings will shield more of your assets and make your child eligible for more aid. But unless your income is very low you will still be expected to cover some of your child’s college expenses. It’s important to know how much your family’s contribution will be based on your finances and be prepared to provide that amount. There are online calculators that will walk you through the steps and give you the current expected family contribution.

I know many parents count on their kid receiving scholarships to cover the gap, but this is poor financial planning. What happens if the expected scholarships don’t materialize? By planning ahead for college you can cover your share of the costs without jeopardizing your retirement or your child’s education. Huge student loans are a burden on young adults, I know most parents want to help as much as possible. While covering the entire cost of a college education may be unrealistic, parents can be prepared for their expected share.

pic by: Schlusselbien2007

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12 Responses for "Why Parents Should Help their Kids Pay for College"

Miranda March 24th, 2009 at 8:03 am 1
I agree that help is important, but that parents shouldn’t cover everything. The child should also have a financial stake in his or her college experience.
Lynn March 24th, 2009 at 9:30 am 2
I was blessed to have my $100K+ school paid for by my parents. I am still not sure how they managed it but they told me they would pay for the school of my choice as long as I did the same for my children. Fast forward 17 years and I have 2 year old twins running around my house. Um, I have no idea how I am going to provide the same debt-free education for my twins. We are saving some money but not the huge amounts we are going to need. My husband has loans so he wants to do as much as he can so our children won’t have them. If our financial situation stays the same we won’t qualify for any loans and I won’t put undue pressure on my children to get scholarships. I think in all honesty, my children will have to take out loans. Will it kill them? No. But since I lived without student loans for a couple of years, it now stinks to be responsible for my husband’s loan.
Amy March 24th, 2009 at 1:39 pm 3
I think that with private student loans drying up enrollment is going to decrease at universities across the country. This will tip the scales of supply and demand somewhat so that schools will have to lower their costs in an effort to attract more students and bolster their dwindling numbers.
Miss M March 24th, 2009 at 2:17 pm 4
I don’t think parents should pay for all of college, I hope I didn’t imply that! But many parents seem to think they can pay nothing at all and I feel that does a disservice to your child. At least try to help based on your financial abilities. I see so many 20-somethings drowning in student debt, it’s a huge handicap when you’re just starting out in the world. There are resources that calculate the parent’s expected share, so the cost won’t be a surprise. I don’t even have kids yet and I worry about these things! Thanks for reading and to Ashley for the guest post.
Amanda March 24th, 2009 at 3:16 pm 5
There is also a tax savings parents can take advantage of when they are helping their child(ren) pay for college. Not only do you still get to claim a dependent(s) but you get a deduction up to a certain amount if they pay tuition.
There are also many ways to contribute pre-tax through 509 accounts like Upromise etc. Each state has different guidelines to how these accounts can be used so its important to see what your states rules are for them.
I think it’s important that you have the conversation with your child before they go to college as to what you will contribute etc.
Trevor @ Financial Nut March 25th, 2009 at 12:41 am 6
I can honestly say that my parents have paid nothing for my college education. I don’t fault them, nor do I get upset with the circumstances behind it. They have money, yes… but it doesn’t mean they have to pay for everything.

I don’t know… that’s just the way I was raised.

I can proudly say that I’ve paid for everything and am debt free.
R. May March 25th, 2009 at 8:40 am 7
Yes parents should help. No parents should not take on excessive debt as some do.

I’m a single mom. I will have so much money to put towards college. Likely Community College for two years then an in-state college.

If my daughter wants to go to Harvard - well then I guess she’s going to have to work for it.

It’s all about living within your means - education is no different then a house or car. Sure a more ‘elite’ education can get yo uin a few more doors, but a regular one will do just fine.
Alison March 25th, 2009 at 8:51 am 8
I was a child of parents who paid not very everything, but a good deal of it. I went to college, they paid for it (I did hold three summer jobs). However when I finally flew the nest my money skills were awful and finding out the cost of living and items was also astonishing. I vowed from the get-go this would not be the case for my children. I do have small amount of student loan debt, my husband has a great deal more because his parents did not help him. This statement, “huge student loans are a burden on young adults”, is true. BUT come on it’s an unfortunate rite of passage, and one the student needs to educate themselves on and learn financaial awareness. If it dosen’t start here, then when. In the media I see 25 somethings that went to college, being helped to buy their first home! Instead of what the parents can do, how about the prospective college student? They could also help this burden by:
1. Taking all available courses at the community college and transfering.
2. Take a year off not to travel, but to work hard full time to save for that extra $4000 a year needed.
3. Holding down a job during their college years to make up the diference.
4. By realising the Bank of Mom and Dad is limited and stops when your old enough to fly the nest!!

Life is tough, it will always be tough and if you want it you have to work for it. That’s how you get what your heart desires and when your in your 60s that’s how you enjoy it.
Alexia March 25th, 2009 at 12:41 pm 9
Thank you to Alison, that mentioned WORKING to pay that extra money. I mean sheesh, is the J*O*B word so bad? I began working at 16, and only now am I not working…. I should say I’m not getting payed to work, because now I am a stay at home mom. Anyway, if your child desires to get a higher education, he / she should be expected to pay for it. That doesn’t mean that the parents can’t help if they are so inclined, but WHY is it that we HAVE to pay for this for able bodied adults???
Anyway, I think the only thing that hasn’t been mentioned is working during your high school years to save up for collage (or GASP!) to pay for a start up business, and skip the collage?!!?
Anyway, just my opinion.
Alexia
wellheeled March 27th, 2009 at 8:17 pm 10
This topic is always one I think about, because I was the beneficiary of a private school education that cost over $100K out of pocket (AND I got financial aid and had work study too! And I still graduated with loans) for my parents. My parents never took a vacation, never went out to eat, never went to the movies, instead, they saved. That was an incredible sacrifice that I don’t think I’ll ever be able to repay.

Given my experience, then, I feel the obligation to properly prepare for my kid’s college education as well. Maybe not a pricey school, but a state school? Certainly. I’m trying to save as much as for retirement right now, so that when I have a kid, I’ll have a good little starter retirement fund and can also afford to save for his/her education. The enormous cost of higher education (combined with my own feeling of obligation to fund at least a majority of it) is one of the reasons why I am strongly leaning towards having only one child, if I do have children.
Joe April 1st, 2009 at 11:56 pm 11
Very good post. I agree that parents should help their children with college costs.
itsaboutresponsibility April 14th, 2009 at 10:45 am 12
Parents should not pay for college tuition at all. I have seen a huge number of my friends (not all) who got a free ride blow off their education (this is a huge problem all across America). This is both in terms of partying and not caring while in school and not doing anything with their education after. Many simply took their education as a “required” part of life but they truly didn’t understand the point of it.

There is also a huge upset in the markets after school. New graduates entering the workforce without debt are willing to work for much less pay. Those of us with large debt HAVE to make a certain amount just of offset our loans. While I understand this is a part of life, it is something that is directly influences the modern American attitude.

IMHO I believe that if parents properly raise their kids to be responsible for paying the money they borrow then there is no need for them to carry their kids. This teaches kids to be responsible for their debt and their OWN future. It also makes the kids question the value of their education and not simply take is as a entitled gift.

The bottom line… Students in college are NOT children and we need to stop treating them as such. If you’re old enough to go to college you SHOULD be responsible enough to pay for it