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You May Be Paying for College the Wrong Way

Updated: Sep 26, 2019

Once you’ve done your best to save for college and to reduce your overall bill, it’s time to pay for college. A major question that often comes up is who is responsible for paying, the parents or the child. For many large families, paying for college for all of their children is next to impossible. However, if it's something you are financially able to do for your children, you are still stuck with wondering whether you should.

Personally, I think it is always a good idea to have your child contribute something to their college education, even if you as a parent can pay for all of it. If their own money is invested in their education, they’ll take more ownership of it and are less likely to get into trouble. From my own experiences, a large portion of college students who had all of their education paid for by their parents spent more time partying, drinking, goofing off, and skipping classes and less time studying. It also took them longer to finish their degree. On the other hand, students who were paying for part or all of their education themselves never missed a class, studied hard, got good grades, and finished their degree quickly. Which kind of student do you want to encourage your child to be? Hint: The latter are probably less likely to need to move back into your basement after graduation, because they quickly found a job.

Now comes the part when you have to actually pay the bill. What do you do? In my opinion, after you have done everything you can to reduce the cost of the education as much as possible using the tips in Drastically Cut the Cost of College with these Tips, you should then turn to scholarships, the best way to pay for college (Hey, it's free money!). Have your kid apply to as many scholarships as possible. Universities offer merit scholarships based on standardized test performance (for help in this area, check out SAT prep resources on Amazon). Private companies offer scholarships. Check with your (the parent’s) employer, since many companies provide scholarship opportunities to employee family members. If your child is working, check with their employer too. Have your child treat applying for scholarships like a part-time job, because in the end it could pay much more than any summer job could.

The next source is financial aid grants. Many universities award grants based on financial need to offset the cost of college. However, within the U.S., you are usually required to submit the Free Application for Federal Student Aid (FAFSA) to be eligible. The FAFSA is an extremely invasive application where you have to list most of your financial assets, including 529s and bank account balances for both the child and the parents. You may decide that this invasion of privacy isn’t worth it. But if you do fill out the FAFSA, it spits out an dollar amount that it claims your family can contribute to a college education annually, which the university uses to determine financial need. Often, this number seems much too high, and it probably is. Financial aid comes in the form of grants, student loans, and work study. Grants are good - you want to accept everything they offer you, because they are essentially the same a scholarships. I’ll talk about student loans and work study in a moment.

The third source of payment is your 529 College Savings Plan. This money can only be spent on education, so you want to spend this money before dipping into other personal savings. After this, I recommend that the child contribute part of their savings. However much is up to you. Even if you as a parent are able to pay for all of their education, incentivize what you contribute. Say you’ll pay the cost of tuition for every semester as long as their grade point average (GPA) remains above 3.0 on a 4.0 scale. Or, you can offer to match any scholarship winnings. My parents offered me an annual “scholarship” in which they contributed $3000 per year for up to four years as long as my GPA remained above a 3.0 and I attended Mass weekly. This enabled me to keep some of my savings to pay for groceries, supplies, and textbooks. If you are still coming up short, have your child take advantage of a work study (if it’s offered in the financial aid package) or get a part-time job. This can amount to a couple thousand dollars each semester,which can help cover any shortfall.

If you have already taken advantage of scholarships, financial aid grants, work study, and personal savings, and still find that you need more help to cover expenses, then you can consider student loans that come from either the financial aid offer (these are often subsidized, meaning they are interest free as long as your child remains in school) or from other lenders. However, if you do take out student loans, make sure it won’t become bad debt. As a parent, you will probably have to co-sign these loans, so ask yourself if the degree your child is pursuing will lead to a substantial increase in earning potential. If not, don’t take out student loans. Degrees like engineering, computer programming, business, and finance are good examples of degrees that substantially increase earning potential. Degrees like theater and art history do not increase earning potential, except in rare circumstances. That’s not to say you can’t pursue these degrees, just don’t take on debt to do it (if your child has an interest in these areas, they can always take courses as electives). If your child is undecided (which shouldn’t be an issue if they have a well-rounded skill set), they should seriously consider attending classes at a community college or work a job to save money until they figure it out. There’s also nothing wrong with your child taking time away from school to work until they have enough money to pay for the next semester. A lot of hardworking and ultimately successful people paid their way through college this way.

A Final Note

Parents, by the time your child reaches college, they are already 18 years old. They are an adult. You, as a parent, are under no moral obligation to continue to support them. If you have raised them to be a successful adult, then you have fulfilled your responsibility. However, if you decide to generously help them out, there are a couple of things to keep in mind. As a parent, before you even start contributing to your child's college education, make sure you already have an emergency fund, are debt-free (except for a mortgage), are on track to pay off the mortgage before retirement, and are on track to have sufficient savings for retirement. Only then should you start contributing to you kids' college fund.

Do not, for any reason, dip into retirement savings, take out a second mortgage, or accumulate credit card debt to pay for college for your child. Believe it or not, a college administrator actually suggested these options to my parents during one of my campus visits! Don’t fall for it. Using your retirement savings to help pay for their education may seem like the compassionate thing to do, but it’s not. It’s your child’s degree, not yours. They have a whole career to pay off student loans (or work their way through college), whereas you will likely be retiring within 10-15 years. If you don’t have enough money for your retirement, they’ll be on the hook to support you along with their wife and kids while making an entry level salary, so all of you will be living in poverty. Don’t do it!

What have you done to pay for college? Let us know in the comments!

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