As a parent, you want to give your children the world. But when it comes to paying for their college education, should you be responsible for footing the bill?
The answer is more nuanced than a simple yes or no. A college degree can be a solid investment in your child’s future. But an investment is only wise if you can afford it. Don’t fund your child’s college education if it puts your own financial situation in jeopardy.
Here’s what to consider.
When Parents Shouldn’t Pay for College
Paying for your child’s degree can impact your ability to retire and may have unintended negative consequences for your student.
You’re behind on your retirement plan.
If you’re behind on retirement savings, prioritize catching up over funding your child’s college savings. Your kids have other options to pay for college, like applying for scholarships or taking out loans. There’s not much you can do if your nest egg is underfunded. Your primary option, in that case, would be to keep working into your retirement years and significantly downsize your life.
Before you save for your child’s education, examine your 401(k), Roth IRA, and other retirement accounts. Unless you’re confident you’ll be able to fund your own retirement, it doesn’t make sense to save toward your child’s college fund. Talk to a financial planner to see if you’re on track to meet your retirement goal. They can assess your financial situation and help you prioritize your savings.
Your child doesn’t want to go to college.
College isn’t for everyone, and your child may not want to attend college after high school. Michael Kothakota, Certified Financial Planner™ at Wolfbridge Financial, said if your child chooses to go into the military or pursue a trade, there’s less of a need to save.
If you or your child are unsure that college is in the future, you can save money for them in a separate taxable brokerage account. Natalie Pine, managing partner of Briaud Financial Advisors, recommends this strategy. Pine says that while your earnings won’t be tax-free for education, they can still be used even if your child doesn’t go to college.
College-specific accounts such as 529s charge a penalty if you withdraw money from the account for non-education expenses. The advantage of a taxable brokerage account is that you can withdraw the funds and put them toward something other than education without paying these additional fees.
Your student’s grades may suffer.
University of California sociology professor Laura Hamilton published a paper titled “More Is More or More is Less? Parent Financial Investments During College.” According to Hamilton, college students who receive parental aid are more likely to graduate. However, parental aid was also linked to a decrease in the student’s GPA.
Zaneilia Harris, Certified Financial Planner™, believes that children are more committed to their studies when they have to pay for all or some of their college. “I will pay for a portion of my daughter’s college, but not all of it,” Harris said.
Harris’s 12-year-old daughter is very conscientious about saving for her education. Whenever she receives any money, she asks for it to be put toward her college fund. Harris is hopeful that this will encourage her to take her studies seriously and succeed while in college.
Rather than funding your child’s college experience, consider splitting the costs with your student. Offer to cover certain expenses, like tuition or housing, and help them explore options like scholarships or loans to cover the rest.
The opportunity cost is too great.
Opportunity cost is what you miss out on when you make one decision over another. According to Jake Northrup, Certified Financial Planner™ at Experience Your Wealth, LLC, before paying for your kids’ college education, it’s important to weigh those costs.
For example, if you save money for college expenses, you may have to sacrifice other financial or lifestyle goals like traveling with your family or purchasing a vacation property. Before deciding which opportunities are worth the cost, take stock of your values.
If you value world travel and having quality experiences as a family, then it may make more sense to prioritize annual vacations abroad or taking a month off every summer to visit your favorite national parks. Missing out on these experiences to save for college may not be worth it for your family.
On the other hand, if you value education, then ensuring your children can pay for a quality college experience may top your priority list.
Your child may develop poor spending habits.
If college is completely paid for, your child may have a harder time understanding the value of money and be more likely to overspend.
Val Breit, a parent of two young children, said when she was in college, the students whose parents paid for tuition and living expenses were typically the ones with poor spending habits.
Breit believes that having college debt helped her and her husband learn how to budget and live frugally. Therefore, she doesn’t plan to pay for all of her children’s college. Instead, she will educate them on the costs of college and what they can do to graduate without being buried in debt.
Reasons to Consider Paying for Your Child’s College
Funding your child’s education comes with perks for both you and your student.
You can give your children a head start.
When your child graduates college debt-free, they don’t have to worry about student loan repayments looming over their head for the next 10 to 30 years. Instead, they can focus on saving for a house or funding their retirement accounts.
“I want to pay for college because I want to help my children eliminate the largest potential debt of their lives,” said Ja’Net Adams, a mother of two children ages 7 and 12.
She likes the idea of paying for some of her children’s college and allowing them to take care of the rest through student loans, scholarships, and part-time jobs. With this strategy, she says they can avoid massive amounts of debt but still have some “skin in the game.”
Some education accounts come with tax benefits.
One of the most popular ways to save for college is through a 529 college savings plan. This plan can house the funds your child needs to cover tuition and other education-related expenses in the future while providing you with tax benefits today.
Adam Cornwell, Certified Financial Planner™ at North Ridge Wealth Advisors, said that saving for college with a 529 plan offers tax-deferred growth and tax-free spending when the money is used for anything related to education. If you live in a state with income tax, your state’s 529 plan may also provide an income tax deduction on any contributions.
Your graduate can be more self-sufficient.
A TD Ameritrade survey found that 50% of young millennials ages 22 to 28 planned to move back home with their parents after college. Student loan debt is one of the primary forces causing many young adults to return to the nest and delay other major life decisions like buying a house and having children.
According to the Federal Reserve, the typical monthly student loan payment is between $200 and $299. That can make up a significant portion of the take-home pay for a new graduate. “If you pay for your child’s college, they’ll be more likely to make enough money to survive on their own,” Cornwell said.
Without student loans, new graduates can worry less about making ends meet and focus more on long-term financial goals.
Allows them to focus on their studies.
A study from Georgetown University found that students who worked while in college had lower grades and were less likely to graduate. Those risks were especially high for lower-income students and those who work more than 15 hours per week.
The more time your student spends working, the fewer hours they have available to focus on their studies. While this can be a valuable lesson in time management, it can also hinder their ability to perform academically.
Other Factors to Consider
Paying for a child’s college is a major financial undertaking. Here are a few other factors to consider:
Your own debt. If you have a significant amount of debt, especially credit cards or other high-interest balances, it’s best to pay it off before you start saving toward college. By doing so, you could save hundreds or even thousands of dollars that you can eventually reallocate for your child’s education savings.
Your cash flow. Before you start saving, make sure it’s within your budget. Write down your monthly income and expenses. Take a look at how much you have left after accounting for all regular expenses, retirement, and any other savings goals. If saving for college isn’t in the current budget, you may need to make adjustments or revisit your priorities.
The long-term commitment. Paying for college is a commitment. If your child earns a traditional bachelor’s degree, that’s four years of tuition installments. If they pursue a graduate degree, you may be committed to six, eight, or even ten years of payments. Ask yourself how much you’re willing to commit to, and make sure your student knows. You could always agree to pay for two years of college, or a bachelor’s degree. Anything beyond that can be your child’s responsibility.
Stipulations. To ensure your child is working hard and doing well in college, consider discussing academic requirements. For example, you may agree to cover tuition as long as your student maintains a 3.0 overall GPA. Dave Jacobson, financial coach and founder of Coach Connections, plans to fully fund his son’s college. However, if his son gets below a B- in any class, he’ll have to pay for that particular class on his own. He believes that this stipulation will motivate his son to do well.
What Parents Who Pay Should Know
If you decide to save for your child’s college education, know that your student doesn’t have to rely solely on your resources. They can still apply for scholarships and financial aid. Once the time comes, be sure to fill out the Free Application for Federal Student Aid, or FAFSA, to see what aid your family qualifies for.
If your child receives funding from other sources, it doesn’t negate your savings, but it does provide options. You can still use some or all of your college savings for education-related expenses. Or, if your student receives enough funding elsewhere, you can gift your funds for another purpose like a wedding or a down payment on their first house.
Whether or not you pay for your child’s college education is a personal decision. It depends largely on your finances, priorities, and values. If you do decide to foot the bill, choose which aspects you’re willing to pay for and how much financial responsibility, if any, your student will bear.
If you can’t or choose not to pay for your child’s college, then encourage them to explore all options. Financial aid, scholarships, and part-time employment can help reduce their financial burden and make paying for college more affordable.