As a parent, it’s natural to want to help your children succeed. In fact, in our recent survey of parents, 37% of respondents said no investment goal is more important than saving for a child’s college education.
If you plan to pay for all of your child’s college expenses, you can expect to shell out tens of thousands of dollars for one year, according to the College Board’s 2017-2018 figures:
While it might feel good to give your child a head start in life, choosing to pay for their education might not be an easy choice for everyone.
“The decision to contribute to a child’s college education is a deeply nuanced and personal decision,” said Jeff Motske, a certified financial planner and the president of Trilogy Financial.
How you approach your child’s college costs is all about your individual situation. Here are five questions to ask yourself as you decide how to tackle the cost of your child’s education.
1. Can you afford to pay for everything?
Start by being realistic about how much you can afford.
When you apply for federal student loans using the Free Application for Federal Student Aid (FAFSA), you’ll learn your Expected Family Contribution (EFC). It determines how much the government thinks you should be paying for college. Your family circumstances might reveal that you aren’t capable of covering all education costs.
For example, I’m the oldest of five children. Even though the EFC formula indicated my parents’ income was high enough to cover a good chunk of my college costs, they didn’t pay for everything. While they provided help, they knew that they needed to take a measured approach if they were to help my siblings as well.
Look at your situation, including how many children you plan to have, and what you can save without jeopardizing your own financial future.
2. Are you putting your retirement at risk?
If you decide you want to help your child pay for college, it’s important not to jeopardize your retirement, warned Travis Boyer, an LPL financial adviser at Secure Planning Group.
“A parent’s earnings timeline is much shorter than their children’s,” said Boyer. “Parents should be saving for retirement during their peak earning years, not diverting that money to pay for college.”
In addition to making sure your retirement is funded, Motske pointed out that you should fulfill other financial goals, such as having robust emergency savings, before devoting a large amount of money to your child’s college.
“There are no scholarships or loans for retirement,” Motske said. “Don’t contribute a child’s college education at the expense of your retirement or other important financial goals.”
Figure out how much you need to set aside for retirement (and other goals) each month to secure your financial future. Only contribute to college savings after you’ve met those obligations.
Both Boyer and Motske also warned against taking on your own debt, such as a Parent PLUS Loan, to pay for your child’s college costs. The last thing you need is your own student-related debt as you approach retirement.
3. Can you use a hybrid approach?
Rather than looking at it as an all-or-nothing decision, consider how you might help pay for a portion of your child’s education. For instance, you can:
- Offer to pay only for tuition costs. That makes your child responsible for all other expenses.
- Provide a housing and meal stipend. In exchange, you could make your child cover tuition and fees by getting scholarships, a job, or their own student loans.
- Set a yearly or four-year amount you can contribute to your child’s education (e.g., $3,000 per year). Then, let your child determine how to use that money for college costs.
My parents used a combination of the last two approaches with my siblings and me. We could go anywhere we wanted — as long as we found a way to cover tuition. My parents foot the bill for other costs, up to $10,000 over the course of four years.
I received scholarships to cover tuition and used my parents’ offer to pay for housing and a meal plan. Eventually, my on-campus housing was paid for when I became a resident adviser. I covered other costs with a part-time job.
4. Do you have a college savings account?
Starting early can make a big difference in how much you can put toward your child’s college education, according to Motske.
“You don’t actually have to pick between your child’s college and your retirement,” said Motske. “The earlier you start planning for both, the more options you create.”
If you start saving for retirement with your first paycheck out of school, you’ll need to set aside less money each month to reach your retirement goals. That frees up more income to put into a college savings account, including a tax-advantaged 529 investment account.
The key, said Motske, is to create a plan early on — before your options are limited. “Earmark money for college savings as your child grows,” he suggested. “Once your child moves from daycare to public school, take the money you were spending and put it in a college fund.”
He said you can continue to use that approach for both your personal financial goals and your child’s college savings throughout the years, as your situation changes and as your income increases.
5. Are there ways to help without using cash?
Boyer pointed out that sometimes it’s not about providing cash directly to your children. Instead, there might be other ways for you to help without paying for education costs.
“One way parents can help, without borrowing themselves, is to cosign a private student loan,” said Boyer. “However, it’s important to look for a company that has a cosigner release so you aren’t responsible for the debt after school.”
Boyer also recommended that parents discuss realistic education options with their children. For example, parents could encourage their children to go to less expensive schools and help them consider the return they’ll receive based on their potential future salary.
Other ways parents can help their children with college costs include:
- Allow your child to live at home for all or part of their college career, reducing housing and food costs.
- Encourage your child to get a part-time job in high school to save some money for college.
- Review college options with your child, including starting at a community college to reduce long-term costs.
- Help your student apply for scholarships ahead of time by noting due dates and creating a schedule they can follow.
- Make sure your child fills out the FAFSA — and accurately fills out the parent information. This can help them get grants, work-study, and qualify for other programs.
Not every parent can pay higher education expenses, but it’s possible to provide help and support to students.
Communicate with your child
No matter what you decide about paying for college, set clear expectations for your child.
My parents let me know while I was in junior high that I’d be responsible for my tuition. That helped me stay focused on grades and extracurricular activities throughout high school, leading me to scholarship opportunities.
I’ve used this lesson in setting expectations with my own son. We’ve talked about different options for college, including the local community college and the possibility to receive a discount by attending the university where his dad teaches.
He knows I’m saving in a 529. But he also understands that it’s probably not going to be enough to cover four years of school — so he’s on the hook for part of his costs.
Don’t wait until the last minute to talk to your student about the reality of paying for college, Motske said. These are ongoing conversations that you should have with your child as early as is practical.
Need a student loan?Here are our top student loan lenders of 2018!
|1 Important Disclosures for CollegeAve.
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or Nationwide Bank, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
Information advertised valid as of 11/1/2018. Variable interest rates may increase after consummation.
2 Important Disclosures for Discover.
3 Important Disclosures for Ascent.
Before taking out private student loans, you should explore and compare all financial aid alternatives, including grants, scholarships, and federal student loans and consider your future monthly payments and income. Applying with a cosigner may improve your chance of getting approved and could help you qualify for a lower interest rate. Ascent Student Loans may be funded by Richland State Bank (RSB). Ascent Student Loan products are subject to credit qualification, completion of a loan application, verification of application information and certification of loan amount by a participating school. Loan products may not be available in certain jurisdictions, and certain restrictions, limitations; and terms and conditions may apply. Ascent is a federally registered trademark of Turnstile Capital Management (TCM) and may be used by RSB under limited license. Richland State Bank is a federally registered service mark of Richland State Bank.
* Application times vary depending on the applicants ability to supply the necessary information for submission.
* The Sallie Mae partner referenced is not the creditor for these loans and is compensated by Sallie Mae for the referral of Smart Option Student Loan customers.
4 = Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.
5 Important Disclosures for PNC.
PNC Bank is one of the nation’s largest education loan providers. For over 40 years, PNC has been committed to helping students and their families make possible the adventure of college.
6 Important Disclosures for SunTrust.
Before applying for a private student loan, SunTrust recommends comparing all financial aid alternatives including grants, scholarships, and both federal and private student loans. To view and compare the available features of SunTrust private student loans, visit https://www.suntrust.com/loans/student-loans/private.
Certain restrictions and limitations may apply. SunTrust Bank reserves the right to change or discontinue this loan program without notice. Availability of all loan programs is subject to approval under the SunTrust credit policy and other criteria and may not be available in certain jurisdictions.
SunTrust Bank, Member FDIC. ©2018 SunTrust Banks, Inc. SUNTRUST, the SunTrust logo and Custom Choice Loan are trademarks of SunTrust Banks, Inc. All rights reserved.
7 Important Disclosures for LendKey.
Additional terms and conditions apply. For more details see LendKey
8 Important Disclosures for CommonBond.
A government loan is made according to rules set by the U.S. Department of Education. Government loans have fixed interest rates, meaning that the interest rate on a government loan will never go up or down.
Government loans also permit borrowers in financial trouble to use certain options, such as income-based repayment, which may help some borrowers. Depending on the type of loan that you have, the government may discharge your loan if you die or become permanently disabled.
Depending on what type of government loan that you have, you may be eligible for loan forgiveness in exchange for performing certain types of public service. If you are an active-duty service member and you obtained your government loan before you were called to active duty, you are entitled to interest rate and repayment benefits for your loan.
A private student loan is not a government loan and is not regulated by the Department of Education. A private student loan is instead regulated like other consumer loans under both state and federal law and by the terms of the promissory note with your lender.
If your private student loan has a fixed interest rate, then that rate will never go up or down. If your private student loan has a variable interest rate, then that rate will vary depending on an index rate disclosed in your application. If the interest rate on the new private student loan is less than the interest rate on your government loans, your payments will be less if you refinance.
If you don’t pay a private student loan as agreed, the lender can refer your loan to a collection agency or sue you for the unpaid amount.
Remember also that like government loans, most private loans cannot be discharged if you file bankruptcy unless you can demonstrate that repayment of the loan would cause you an undue hardship. In most bankruptcy courts, proving undue hardship is very difficult for most borrowers.
9 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|3.94% – 12.78%1||Undergraduate, Graduate, and Parents|
|4.04% – 13.04%3||Undergraduate and Graduate|
|4.34% – 12.99%2||Undergraduate and Graduate|
|4.12% – 10.98%*,4||Undergraduate and Graduate|
|5.03% – 11.23%5||Undergraduate and Graduate|
|4.12% – 13.13%6||Undergraduate and Graduate|
|4.92% – 10.01%7||Undergraduate and Graduate|
|3.72% – 9.68%8||Undergraduate, Graduate, and Parents|
|4.26% – 12.13%9||Undergraduate, Graduate, and Parents|