Should Parents Pay For College or Should Students? Here’s How to Decide

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Should parents pay for college? It’s a hard question to answer. It’s natural to want to help your children succeed, but choosing to pay for their education might not be an easy choice for everyone.

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?
2. Are you putting your retirement at risk?
3. Can you use a hybrid approach?
4. Do you have a college savings account?
5. Are there ways to help without using cash?

1. Can you afford to pay for everything?

The expense of higher education is a legitimate concern for many families. Even public institutions can cost tens of thousands of dollars for just one academic year.

Consider this: For the 2019-2020 school year, the average cost for two semesters, including room and board at a four-year, in-state university is $21,950, according to data from CollegeBoard.

In our survey of parents, 37% of respondents said no investment goal is more important than saving for a child’s college education, but it is important to be realistic about how much you can truly afford to spend.

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.

Take siblings into account

Consider how many siblings you have. Even if your EFC suggests your parents’ income is enough to cover a significant amount of your college costs, it’s possible they won’t be able to pay for everything once they take any siblings and their future college expenses into account 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, said Travis Boyer, an LPL financial advisor at Secure Planning Group.

“A parent’s earnings timeline is much shorter than their children’s,” Boyer said. “Parents should be saving for retirement during their peak earning years, not diverting that money to pay for college.”

Jeff Motske, a certified financial planner and the president and CEO of Trilogy Financial, pointed out that in addition to retirement savings, 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 to a child’s college education at the expense of your retirement or other important financial goals.”

Use caution when considering college loans

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 may 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, and make your child responsible for all other expenses.
  • Provide a stipend to cover housing and meals. In exchange, you could make your child cover tuition and fees by getting scholarships, a job or their own student loans without a cosigner.
  • Commit to an annual 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.

It may be possible to use a combination of approaches. For example, you could offer to pay a specific amount and help your child search for scholarships and grants to make up the rest.

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,” he said. “The earlier you start planning for both, the more options you create.”

If you started saving for retirement with your first paycheck out of school, as you get older, you may need to set aside less money each month to reach your retirement goals. That could free 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, if possible. “Earmark money for college savings as your child grows,” he said. “Once your child moves from daycare to public school, take the money you were spending and put it in a college fund.”

You could also 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?

It is not always 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 and don’t wait until the last minute to talk to your student about the reality of paying for college.

Having honest conversations about the expense with your children as early as is practical may be helpful when it comes to deciding how to pay for college.

Maya Dollarhide contributed to this report.

Need a student loan?

Here are our top student loan lenders of 2020!
LenderVariable APREligibility 
1.09% – 11.98%1Undergraduate, Graduate, and Parents

Visit College Ave

1.25% – 11.10%*,2Undergraduate and Graduate

Visit SallieMae

1.24% – 11.99%3Undergraduate and Graduate

Visit Discover

1.24% – 11.44%4Undergraduate, Graduate, and Parents

Visit Earnest

1.78% – 11.89%5Undergraduate and Graduate

Visit SoFi

2.69% – 12.98%6Undergraduate and Graduate

Visit Ascent

3.52% – 9.50%7Undergraduate and Graduate

Visit CommonBond

* 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.

1 Important Disclosures for College Ave.

CollegeAve Disclosures

College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.

  1. Rates shown are for the College Ave Undergraduate Loan product and include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
  2. This informational repayment example uses typical loan terms for a freshman borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 8.35% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $179.18 while in the repayment period, for a total amount of payments of $21,501.54. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary. This informational repayment example uses typical loan terms for a first year graduate student borrower who selects the Deferred Repayment Option with a 10-year repayment term, has a $10,000 loan that is disbursed in one disbursement and a 7.10% fixed Annual Percentage Rate (“APR”): 120 monthly payments of $141.66 while in the repayment period, for a total amount of payments of $16,699.21. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.

Information advertised valid as of 11/2/2020. Variable interest rates may increase after consummation. Lowest advertised rates require selection of full principal and interest payments with the shortest available loan term.


2 Sallie Mae Disclaimer: Click here for important information. Terms, conditions and limitations apply.

3 Important Disclosures for Discover.

Discover Disclosures

  1. Aggregate loan limits apply.
  2. Students who get at least a 3.0 GPA (or equivalent) qualify for a one-time cash reward on each new Discover undergraduate and graduate student loan. Reward redemption period is limited. Please visit DiscoverStudentLoans.com/Reward for any applicable reward terms and conditions.
  3. Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and Auto Debit Reward. The interest rate ranges represent the lowest and highest interest rates offered on Discover student loans, including undergraduate and graduate loans. The fixed interest rate is set at the time of application and does not change during the life of the loan. The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable margin percentage. For variable interest rate loans, the 3-Month LIBOR is 0.250% as of October 1, 2020. Discover Student Loans may adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Our lowest APR is only available to customers with the best credit and other factors. Your APR will be determined after you apply. It will be based on your credit history, which repayment option you choose and other factors, including your cosigner’s credit history (if applicable). Learn more about Discover Student Loans interest rates.
  4. Lowest APRs shown for the Discover Private Consolidation Loan are available for the most creditworthy applicants and include a 0.25% interest rate reduction while enrolled in automatic payments.The variable interest rate is calculated based on the 3-Month LIBOR index plus the applicable margin percentage. For variable interest rate loans, the 3-Month LIBOR is 0.250% as of October 1, 2020. Discover Student Loans may adjust the rate quarterly on each January 1, April 1, July 1 and October 1 (the “interest rate change date”), based on the 3-Month LIBOR Index, published in the Money Rates section of the Wall Street Journal 15 days prior to the interest rate change date, rounded up to the nearest one-eighth of one percent (0.125% or 0.00125). This may cause the monthly payments to increase, the number of payments to increase or both. Our lowest APR is only available to customers with the best credit and other factors. Your APR will be determined after you apply. It will be based on your credit history, which repayment option you choose and other factors, including your cosigner’s credit history (if applicable). Visit Discover.com/student-loans/consolidation for more information, including up-to-date interest rates and APRs.
Lowest APRs shown for Discover Student Loans are available for the most creditworthy applicants for undergraduate loans, and include an interest-only repayment discount and a 0.25% interest rate reduction while enrolled in automatic payments.

4 Important Disclosures for Earnest.

Earnest Disclosures

  1. Rates include 0.25% Auto Pay Discount
     
  2. Explanation of Rates “With Autopay” (APD)
    Rates shown include 0.25% APR discount when client agrees to make monthly principal and interest payments by automatic electronic payment. Use of autopay is not required to receive an Earnest loan.

    Available Terms
    For Cosigned loans – 5, 7, 10, 12, 15 years. 
    Primary Only – 10, 12, 15 years

    In school deferred payment is not available in AL, AZ, CA, FL, MA, MD, MI, ND, NY, PA, and WA).


5 Important Disclosures for SoFi.

sofiDisclosures

UNDERGRADUATE LOANS: Fixed rates from 4.23% to 11.26% annual percentage rate (“APR”) (with autopay), variable rates from 1.88% to 11.66% APR (with autopay). GRADUATE LOANS: Fixed rates from 4.13% to 11.37% APR (with autopay), variable rates from 1.78% to 11.73% APR (with autopay). MBA AND LAW SCHOOL LOANS: Fixed rates from 4.30% to 11.52% APR (with autopay), variable rates from 1.95% to 11.89% APR (with autopay). PARENT LOANS: Fixed rates from 4.60% to 10.76% APR (with autopay), variable rates from 1.88% to 11.16% APR (with autopay). For variable rate loans, the variable interest rate is derived from the one-month LIBOR rate plus a margin and your APR may increase after origination if the LIBOR increases. Changes in the one-month LIBOR rate may cause your monthly payment to increase or decrease. Interest rates for variable rate loans are capped at 13.95%, unless required to be lower to comply with applicable law. Lowest rates are reserved for the most creditworthy borrowers. If approved for a loan, the interest rate offered will depend on your creditworthiness, the repayment option you select, the term and amount of the loan and other factors, and will be within the ranges of rates listed above. The SoFi 0.25% autopay interest rate reduction requires you to agree to make monthly principal and interest payments by an automatic monthly deduction from a savings or checking account. The benefit will discontinue and be lost for periods in which you do not pay by automatic deduction from a savings or checking account. Information current as of 11/04/2020. Enrolling in autopay is not required to receive a loan from SoFi. SoFi Lending Corp., licensed by the Department of Business Oversight under the California Financing Law License No. 6054612. NMLS #1121636 (www.nmlsconsumeraccess.org).


6 Important Disclosures for Ascent.

Ascent Disclosures

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.

  1. Competitive variable rates calculated monthly at the time of loan approval based on a margin plus the 1-Month London Interbank Offered Rate (LIBOR) rounded to the nearest 1/100th of a percent. The current LIBOR is 0.152%, which may adjust monthly. Your interest rate may increase or decrease, based on LIBOR monthly changes. Rates are effective as of 11/01/2020 and reflect an Automatic Payment Discount. Automatic Payment Discount is available if the borrower is enrolled in automatic payments from their personal checking account and the amount is successfully withdrawn from the authorized bank account each month.(See Automatic Payment Discount Terms & Conditions.)
    1. Undergraduate Loans: Your variable interest rate may increase or decrease, based on LIBOR monthly changes, resulting in an APR range between 2.69% and 12.98%.  Fixed rate loans will not increase or decrease over the life of the loan and have an APR range between 3.58% and 14.50%. Rates reflect an Automatic Payment Discount of 0.25% on the lowest offered rate and a 2.00% discount on the highest offered rate. The following table shows a 48 month in-school period plus 9 months of grace prior to a full repayment term of either: 60-months (lowest fixed/variable rate), 144-months (highest fixed rate) or 180-months (highest variable rate) with examples of (i) Interest Only payments, (ii) $25 Minimum payments, and (iii) Deferred repayment options.((See Undergraduate Loan repayment examples.)
    2. Graduate Loans (Graduate, MBA & Law): Your variable interest rate may increase or decrease, based on LIBOR monthly changes, resulting in an APR range between 3.65% and 12.40%. Fixed rate loans will not increase or decrease over the life of the loan and have an APR range between 4.62% and 13.54%. Rates reflect an Automatic Payment Discount of 0.25%. The following table shows a 36 month in-school period plus 9 months of grace prior to a full repayment term of either: 84-months (lowest fixed/variable rate), 144-months (highest fixed rate), or 180-months (highest variable rate) with examples of (i) Interest Only payments, (ii) $25 Minimum payments, and (iii) Deferred repayment options. (See Graduate Loan repayment examples.)
    3. Medical: Your variable interest rate may increase or decrease, based on LIBOR monthly changes, resulting in an APR range between 3.65% and 12.40%. Fixed rate loans will not increase or decrease over the life of the loan and have an APR range between 4.62% and 13.54%. Rates reflect an Automatic Payment Discount of 0.25%. The following table shows a 48 month in-school period plus 36 months of grace prior to a full repayment term of either: 84-months (lowest fixed/variable rate), 144-months (highest fixed rate), or 240-months (highest variable rate) with examples of (i) Interest Only payments, (ii) $25 Minimum payments, and (iii) Deferred repayment options. (See Medical Loan repayment examples.)
  2. Payments may be deferred. Subject to lender discretion, forbearance and/or deferment options may be available for borrowers who are encountering financial distress.
  3. Making interest only or partial interest payments while in school will not reduce the principal balance of the loan. There are three (3) flexible in-school repayment options that include fully deferred, interest only and $25 minimum repayment. (See Undergraduate Loan repayment examples.)
  4. Flexible repayment plans may be offered up to a fifteen (15) year repayment term for a variable rate loan and ten (10) year repayment term for a fixed rate loan. Students must be enrolled at least half-time at an eligible school. Minimum loan amount is $2,000.
  5. Interest rate reduction of either 0.25% (for Credit-Based Loans) or 2.00% (for Undergraduate Future Income-Based Loans) applies only when the borrower and/or cosigner sign up for automatic payments and the payment amount is successfully deducted from the designated bank account each month. The amount of the discount is dependent upon the loan product and credit history of the borrower at the time of application. Interest rate reduction(s) will not apply during periods when no payment is due, including periods of in-school, deferment, grace or forbearance, unless a regular payment amount has been arranged with the servicer. If you have two (2) consecutive returned payments for Nonsufficient Funds, we may cancel your automatic debit enrollment and you will lose the interest rate reduction. You will then need to re-qualify and re-enroll in automatic debit payments to receive the interest rate reduction.(See Automatic Payment Discount Terms & Conditions.)
  6. All applicants (individual and cosigner) are required to complete a brief online financial literacy course as part of the application process to be eligible for funding.
  7. Eligibility, loan amount and other loan terms are dependent on several factors, which may include: loan product, other financial aid, creditworthiness, school, program, graduation date, major, cost of attendance and other factors. Aggregate loan limits may apply. The cost of attendance is determined and certified by the educational institution.
  8. The legal age for entering into contracts is eighteen (18) years of age in every state except Alabama where it is nineteen (19) years old, Nebraska where it is nineteen (19) years old (only for wards of the state), and Mississippi and Puerto Rico where it is twenty-one (21) years old.
  9. 1% Cash Back Graduation Reward subject to terms and conditions. Click here for details. In order to be eligible for the 1% Cash Back Graduation Reward, borrower must meet the following criteria after graduation:
    • The student borrower has graduated from the degree program that the loan was used to fund.
    • The student borrower may change majors and/or transfer to a different school, but must obtain the same level of degree (e.g. – undergraduate or graduate)
    • The graduation date is more than 90 days and less than five (5) years after the date of the loan’s first disbursement.
    • Any loan that the student has borrowed under the Ascent loan is not more than 30-days delinquent or in a default status as of the graduation date and until any Graduation Reward is paid.
  10. Students can apply to release their cosigner and continue with the loan in only their name after making the first 24 consecutive regularly scheduled full principal and interest payments on-time and meeting the other eligibility criteria to qualify for the loan without a cosigner.

* Application times vary depending on the applicant’s ability to supply the necessary information for submission.


7 Important Disclosures for CommonBond.

CommonBond Disclosures

Offered terms are subject to change and state law restriction. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900), NMLS Consumer Access. If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown. All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 0.17% effective Sep 1, 2020 and may increase after consummation.