A while back, a financial follower friend asked for college savings advice and I’m finally turning it into a blog post!
Q: Talk to me about parents and paying for their kids college. Ways to save some along the way, and some evidence why I shouldn’t have to foot the bill! I know many people who pay for their kids education and I just cannot wrap my head around that. I had some loans and a job and I feel it gave me responsibility. I want the same for my kid, within reason.
A: I’m with you. It is a tough topic. I was fortunate enough to have scholarships and my parents paid the rest and yet I still think that kids should have some kind of loan so they appreciate school and don’t goof off.
Problem is, if school rates keep rising 5% per year, our kids’ college costs could be hundreds of thousands of dollars! I really hope they reform that system before then, but who knows. I want to help offset that but I remember Suze Orman talking a lot about how you have to take care of yourself first!
So here’s what we’re doing. Not saying it’s the best thing but I feel like it’s kind of a compromise half way point.
- We make sure we meet all our savings goals – contributing up to the point of the match in a 401k, fully funding Roth IRAs and then various savings like vacations, cars and house maintenance.
- Then we save $100/month for college.
- Extra windfalls go straight to the college fund. Christmas and Birthday monetary gifts for sure (don’t get me started on how I’d rather people give money toward this then buy toys and things kids barely use…). We also contribute portions of tax refunds, bonuses, extra paychecks, dependent care FSA reimbursements, etc.
- For now, this money is going into a Vanguard S&P Index Fund so it can grow and compound. The plan would be to start taking it out and securing it several years before college starts to ensure market fluctuations don’t decimate the fund just when it’s actually time to use it.
I feel like my goal is just to offset the ridiculous school costs and between scholarships, loans, work study, etc I hope the rest will be made up.
529 Plan: I chose not to contribute to a 529 plan because I don’t like that it HAS to be used for education. If I only have one kid that never goes to college and we never want to go to grad school or anything I want to have full control of that money to do what I want with it. I also don’t love the limitations regarding state or out of state schools. If you have more than one kid and feel confident that the money will be used on a state school education than I think it’s totally worth it for the tax benefits.
Put Yourself First: Obviously the sooner you can put away anything and invest it, the more time it will have to grow, but if you’re still working on your own savings goals then you need to put yourself first! Getting out of YOUR debt and saving for YOUR retirement should be prioritized over saving for your child’s college costs.
Suze would often pose this scenario: parents that give every last cent to their kids – pay for their Ivy League education, give them money whenever they ask, etc – and never plan for their own retirement will then have to burden their adult children to take care of them in their old age. Even if you can’t pay for a child’s schooling, if you make sure that you’re providing for yourself, you’re doing them a favor in the long run! It’s not selfish to take care of yourself first.
I developed pretty strong views about college after I graduated. I had very little loyalty to the school. I didn’t feel like one college was sooo different from another that it warranted paying tens of thousands more dollars (ahem, Ivy League and out of state schools). Even with scholarships and such, I felt it was an expensive way to get a piece of paper that allowed me to get a full-time job. Having a Bachelor’s is a prerequisite for a lot of jobs these days, but as you get into your career it often does not matter what the degree is in or where it came from.
Community College. With that in mind, why not encourage your child to start with community college? Tuition is cheaper but you also save on room and board. Kids don’t really know what they want to major in when they graduate high school anyway. Let them take a few years getting the Gen Ed courses out of the way cheaply. Then they can transfer to a 4 year school and live on campus (because I do believe that living away from home and taking care of yourself is an important life experience for everyone). The Bachelor’s degree will be from the 4 year school and the student can put that on his or her resume. My husband actually took this route, and he wanted to add that with this plan, you don’t need to take the SATs! Plus, community college classes are often smaller than those at a big university so if your child requires a little more attention or will get lost in a sea of students, this is a great option.
College Loans for Parents: Suze Orman would often speak against cosigning college loans for your children (well, really, cosigning loans in general is a big no-no for her). Do you want to be on the hook for that money should your child default? If your children can’t get enough loans on their own to cover the costs, are they maybe biting off more than they can chew? Maybe they need to consider a cheaper school.
Bottom line: You have to do what’s right for you and your child. You should take care of your own finances before saving (or going into debt) for your child’s college education. If you can’t help pay for college, you certainly won’t be the first or only parent in this boat! You will more likely do them a favor if you force them to figure it out on their own.
Do you have any thoughts on this topic? Share them in the comments below!