Managing Money In A Crisis
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Should parents pay for college?
Is the lesson of financial responsibility worth the debt?
A college degree is increasingly necessary to find a job, and many families see it as an investment. Helping your child afford that investment might set them up for success. But too much help might be bad for both of you — especially if you have to borrow.
Why should I pay for my child’s college education?
The main reason to help pay for college is to set your child up for future success. Here are a few ways paying for college can give them a leg up.
Helps them avoid debt
Students graduated with an average debt load of $29,200 in 2018, according to a study by the The Institute for College Access and Success (TICAS). Paying for your child’s education can help them avoid starting off their adult life in debt.
Even if you don’t pay for the whole degree, having less debt can put them on the path to financial freedom. They’ll have more flexibility when it comes to choosing the right job to build their career. And they’ll have an easier time affording graduate school.
Lets them focus on grades
Chances are your child will have to work while they study if they have to pay for their degree on their own. Working during the school year can cut into their study time, which can hurt their grades.
Lower GPAs make it more difficult for them to qualify for merit-based financial aid like scholarships. And if their grades dip low enough, they could lose their eligibility for federal aid.
Helps them graduate earlier
Even if they’re able to keep their grades up, it’s possible working while studying could extend their time in school. This can make their loans more expensive, since more interest will add up while they’re in school. And if they take too long to graduate, they could also lose eligibility for other types of financial aid.
You might not need to help as much later
Another advantage of helping your child reach their financial freedom faster? They might not come to you asking for money as much in the future.
If they can’t find a job by the time loan repayments begin, they might ask you to cover the first few months. Or, if their repayments are too high, they might have no choice but to move back home.
Why shouldn’t I pay for college?
Paying for college might do your child less of a favor than you might think. And you might also experience some negative consequences.
They won’t learn about financial responsibility
If your child hasn’t earned money before, having them cover at least part of their college costs can help them learn about how to handle their personal expenses in a low-stakes environment. Developing healthy financial habits early on can help them stay on top of loan repayments and avoid taking on too much credit card debt down the road.
Too much help can hurt their grades
No help at all can make it difficult to find time for coursework. But covering the entire cost can also negatively affect their grades.
A study by sociologist Laura Hamilton found that while students were more likely to graduate if their parents paid their entire tuition, they were also more likely to have a lower GPA than their more independent counterparts. Having something at stake can act as a motivator for students to get their money’s worth.
You might have to put your own plans on hold
Paying for college might mean you can’t take care of your needs first, such as buying that house, replacing the clunker sitting in your garage or even booking that trip you’ve been waiting 18 years to take.
It can strain your relationship
Chances are, your child will make at least one decision you don’t approve of in college — like switching majors three times. Situations like these can be particularly uncomfortable when you’re paying for their mistakes. But letting them take financial responsibility can encourage them to be more thoughtful in their decision making — and help you avoid conflict.
How much should I contribute?
How much you contribute should depend on your financial situation and your personal preferences. Around 62% of parents plan on covering the majority of college costs themselves, according to a 2018 survey by Fidelity. But slightly less than half feel like it’s their responsibility to cover the entire bill.
Typically, you won’t know how much you’ll have to pay out of pocket — or with loans — until your child receives their financial aid package. That’s where the school will tell you how much you’re expected to contribute, after grants and scholarships.
8 ways to split the cost of college with your kids
4 steps to take before paying for your kid’s college
Before you take the plunge and offer to cover your kid’s cost of college, take these steps to ensure it’s the right financial move for you:
- Review your finances. Look at your retirement savings, debt payments and emergency fund to make sure you have enough space in your budget to afford a contribution or loan repayments.
- Fill out your part of the FAFSA. Help your child complete the Free Application for Federal Student Aid (FAFSA) to ensure they’re considered for all forms of federal aid.
- Research scholarships and grants together. Maximize your child’s chance at getting free aid by helping them find scholarships and grants they can qualify for. The less either of you have to pay, the better.
- Discuss your expectations. Tell your child how much you’re willing to pay, how much debt they might have to take on and what that would mean for them.
What are my options to pay for my child’s school?
So you’ve decided to cover your kid’s cost of attendance. Here are a few ways how:
- Pay up front. The easiest way to cover your kid’s college costs is to give them money up front and pay the bursar yourself each semester.
- Sign up for an installment plan. Most schools offer parents the option to pay tuition and fees in installments, typically over around six months. Generally, this is less expensive than a loan.
- Take out a loan. As a parent, you can take out a federal student loan in your name — though you might be able to find a more competitive deal with a private lender if you have excellent credit.
- Cosign a loan. If your child can’t qualify for a federal loan, cosigning a private loan lets you share the responsibility. Once they’ve established their career, you can ask them to refinance or apply for cosigner release.
Compare private student loan offers
Bottom line
Helping your child pay for at least part of college can help them take the steps they need to start a career. Graduating with minimal debt means they can take that unpaid internship or accept a low-paying entry position that’s necessary to succeed in their field. However, too much help can actually hurt their grades and set them up for a rude awakening when they have to start paying for themselves.
You can find out about more options to pay for school by reading our guide to student loans.
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