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?
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.
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.
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.
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.
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.
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.
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|* 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.
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.
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.
Information advertised valid as of 4/22/2021. 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 CommonBond.
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. If you choose to complete an application, we will conduct a hard credit pull, which may affect your credit score. 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 0.15% effective Jan 1, 2021 and may increase after consummation.
4 Important Disclosures for Earnest.
5 Important Disclosures for SoFi.
UNDERGRADUATE LOANS: Fixed rates from 4.23% to 11.26% annual percentage rate (“APR”) (with autopay), variable rates from 1.22% to 11.66% APR (with autopay). GRADUATE LOANS: Fixed rates from 4.13% to 11.37% APR (with autopay), variable rates from 1.12% 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 1.29% to 11.89% APR (with autopay). PARENT LOANS: Fixed rates from 4.60% to 10.76% APR (with autopay), variable rates from 1.22% 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 4/1/2021. 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 Citizens Bank.
Citizens Bank Disclosures
Undergraduate Rate Disclosure: Variable interest rates range from 2.76% – 7.14% (2.76% – 7.14% APR). Fixed interest rates range from 3.01% – 7.50% (3.01% – 7.50% APR).
Graduate Rate Disclosure: Variable interest rates range from 2.19% – 6.73% (2.19% – 6.73% APR). Fixed interest rates range from 2.89% – 7.09% (2.89%-7.09% APR).
Business/Law Rate Disclosure: Variable interest rates range from 1.36% – 9.54% (1.36% – 8.82% APR). Fixed interest rates range from 4.13% – 9.84% (4.13% – 9.12% APR).
Medical/Dental Rate Disclosure: Variable interest rates range from 1.36% – 8.34% (1.36% – 8.04% APR). Fixed interest rates range from 4.03% – 8.64% (4.03% – 8.34% APR).
Parent Loan Rate Disclosure: Variable interest rates range from 2.10% – 7.41% (2.10%-7.41% APR). Fixed interest rates range from 4.69% – 7.83% (4.69% – 7.83% APR).
Bar Study Rate Disclosure: Variable interest rates range from 4.45% – 9.60% (4.45% – 9.53% APR). Fixed interest rates range from 7.39% – 12.94% (7.38% – 12.81% APR).
Medical Residency Rate Disclosure: Variable interest rates range from 3.55% – 7.05% (3.55% – 6.77% APR). Fixed interest rates range from 6.99% – 10.49% (6.97% – 10.07% APR).
Variable Rate Disclosure: Variable Rates are based on the one-month London Interbank Offered Rate (“LIBOR”) published in The Wall Street Journal on the twenty-fifth day, or the next business day, of the preceding calendar month. As of March 1, 2021, the one-month LIBOR rate is 0.11%. Variable interest rates will fluctuate over the term of the loan with changes in the LIBOR rate, and will vary based on applicable terms, level of degree and presence of a co-signer. The maximum variable rate is the greater of 21.00% or Prime Rate plus 9.00%.
Fixed Rate Disclosure: Fixed rate ranges are based on applicable terms, level of degree, and presence of a co-signer.
Lowest Rate Disclosure: Lowest rates require a 5-year repayment term, immediate repayment, a graduate degree (where applicable), and include our Loyalty and Automatic Payment discounts of 0.25 percentage points each, as outlined in the Loyalty Discount and Automatic Payment Discount disclosures. Rates are subject to additional terms and conditions, and are subject to change at any time without notice. Such changes will only apply to applications taken after the effective date of change.
Federal Loan vs. Private Loan Benefits: Some federal student loans include unique benefits that the borrower may not receive with a private student loan, some of which we do not offer. Borrowers should carefully review federal benefits, especially if they work in public service, are in the military, are considering possible loan forgiveness options, are currently on or considering income based repayment options or are concerned about a steady source of future income and would want to lower their payments at some time in the future. When the borrower refinances, they waive any current and potential future benefits of their federal loans. For more information about federal student loan benefits and federal loan consolidation, visit http://studentaid.ed.gov/. We also have several resources available to help the borrower make a decision on our website including Should I Refinance My Student Loans? and our FAQs. Should I Refinance My Student Loans? includes a comparison of federal and private student loan benefits that we encourage the borrower to review.
Eligibility Criteria: Applicants must be a U.S. citizen, permanent resident, or eligible non-citizen with a creditworthy U.S. citizen or permanent resident co-signer. For applicants who have not attained the age of majority in their state of residence, a co-signer is required. Citizens Bank reserves the right to modify eligibility criteria at any time. Citizens Bank private student loans are subject to credit qualification, completion of a loan application/Promissory Note, verification of application information, and if applicable, self-certification form, school certification of the loan amount, and student’s enrollment at a Citizens Bank participating school.
Loyalty Discount Disclosure: The borrower will be eligible for a 0.25 percentage point interest rate reduction on their loan if the borrower or their co-signer (if applicable) has a qualifying account in existence with us at the time the borrower and their co-signer (if applicable) have submitted a completed application authorizing us to review their credit request for the loan. The following are qualifying accounts: any checking account, savings account, money market account, certificate of deposit, automobile loan, home equity loan, home equity line of credit, mortgage, credit card account, or other student loans owned by Citizens Bank, N.A. Please note, our checking and savings account options are only available in the following states: CT, DE, MA, MI, NH, NJ, NY, OH, PA, RI, and VT and some products may have an associated cost. This discount will be reflected in the interest rate disclosed in the Loan Approval Disclosure that will be provided to the borrower once the loan is approved. Limit of one Loyalty Discount per loan and discount will not be applied to prior loans. The Loyalty Discount will remain in effect for the life of the loan.
Automatic Payment Discount Disclosure: Borrowers will be eligible to receive a 0.25 percentage point interest rate reduction on their student loans owned by Citizens Bank, N.A. during such time as payments are required to be made and our loan servicer is authorized to automatically deduct payments each month from any bank account the borrower designates. Discount is not available when payments are not due, such as during forbearance. If our loan servicer is unable to successfully withdraw the automatic deductions from the designated account three or more times within any 12-month period, the borrower will no longer be eligible for this discount.
7 Important Disclosures for Discover.
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.