Sharing College Costs with Children

Parents Forum
21

Thanks for all the responses. Many of you have identified a third strategy, namely that the parents pay for everything except for some small amount (books or spending money for example). Others have identified concerns with the first two strategies. Based on your responses, some follow up thoughts on each of the strategies:

Strategy 1 – Cost Sharing (by a defined percentage)
This is the strategy we’ve been using, in our case 2/3 parents and 1/3 student. So far, no one else has said they use this strategy. That surprises me. Has anyone else used it and, if so, do you think it was successful?

One concern about this strategy that was mentioned is that it can burden a student with debt after graduation. In our case, we ran the numbers in advance to determine that even if S17 went to the most expensive college with no merit aid, his total loan amount after four years would likely be in the range of the loans both of his parents started off with after four years (inflation adjusted), provided the student worked over the summer. In the case of S17, merit aid has helped reduce that loan amount.

Another consideration is what field the student is going into and what salary can be reasonably anticipated. In the case of S17, judging by the starting salaries of recent grads from his college in his major, he could quite possibly start straight out of college at a higher salary than either of his parents have ever made. That eases any guilt we might have about burdening him with debt. And, if S17 suddenly changes course and goes into a low paying field, we can always consider reducing the loan. I agree with @roethlisburger , you should never loan money to a student that you can’t afford not to have paid back.

Strategy 2 – Capping the Parent Contribution (tied to public flagship costs or based on what one can afford)
This seems to be the most common approach among replies whether full pay or not. If a family is not full pay, there is really no choice. One concern raised is that Strategy 2 strongly incentivizes the student to pick a lower cost college. It sounds like many of the kids of respondents that used that strategy did in fact pick colleges at the cost point of the cap or below. The two people I know that used this approach (both full pay) also had kids that picked colleges at or below the cost point of the cap. I was worried about providing that incentive for S17 since I am biased toward smaller, private LACs.

One could argue that Strategy 1 also incentivizes lower cost schools. I suppose it does, but in a greatly reduced fashion compared to Strategy 2. Plus, we wanted our kids not to be oblivious to costs. Interestingly, S17 had an unanticipated perspective. How could he maximize the parental contribution? By going to the most expensive school. I agree that parents should think about the incentives they are setting up in selecting a strategy and make sure those incentives align with their values.

Strategy 3 – Parents Pay For Almost Everything (except for small things in some cases like books or spending money)
Many of you are using this strategy and make compelling arguments for it. It allows a student to focus on their studies and not worry so much about working during the school year or selecting a summer job based money. A lot of you are very proud your children are graduating without debt.

I see a lot of merit with this strategy. I also see merit in more student financial participation. People place higher value on things they personally help pay for. There is also a big difference among full pay families. If a family’s EFC is twice or more the cost of all their kids in school, the full pay strategy is easier to select than if the family’s EFC is exactly the cost of all their kids in school.

Are there any other strategies that fall outside these three?

22

We have a budget that equates to the cost of a Cal State school for our S20 and his younger sister when her turn comes. Luckily that suits him fine. He is looking at a few OOS publics also, but those either have WUE rates or decent merit. The only LAC he is considering would give considerable merit and he can live at home which would bring it into the same range as the Cal State schools. We will probably have him take out the subsidized loans and we will cover the rest from current income. We will also help pay off the loans so that he can be as debt free as possible. Same goes for my daughter who is a rising 8th grader.

My parents were able to pay for my 4 years of undergrad at UCSD and I was so very grateful. They made it clear though, that I was on my own for grad school. And so, I worked full time and went to an evening MBA program where I could live at home. And I paid for my MBA as I went and graduated debt free in 2 years with that degree.

I wish we had amassed some college savings over the years, but I worked for a string of start ups in the Bay Area and went through 7 different layoffs in my career. Then, our middle child was diagnosed with autism, and I eventually quit the corporate world to be home with my kids. I have built up my own online retail business in the past 8 years, but college savings obviously suffered along the way.

Bottom line, we want to help our 2 kids that will go to college as much as possible for their undergrad degrees. Our middle child will have his own financial needs (not related to college), as he will likely never work full time and be fully independent.

23

We are full pay and are able to be full pay without assistance from S. However, we require him to contribute because we think he and it will help him appreciate the value of the overall experience. Skin in the game is a good thing I feel (I know many who disagree and that’s fine). Our thinking was S had several choices at varying price points. All would have been great. Price points ranged from essentially free to full pay. We got him to eliminate some choices (as I wouldn’t have agreed to pay X for certain places as I didn’t see the point). At the end, we told him you can choose among his remaining options but here’s what that will look like:

  1. Free - no debt, we'll pay for spending money and extras, no need to have a job during the school yr. Travel more over the summer, etc.
  2. Full pay - S contributes 10k per yr (loans, summer work, savings, school yr part time job, etc.) He'll have a manageable amount of debt (27.5 - I'm paying the interest in real time so no accrual) and he has to earn a bunch over the summer.

We truly would have been fine with either, He chose Full pay and is living up to his end of the bargain. He absolutely feels he made the right choice as it’s a great fit for him and he is thriving.

I know some will think the 10k requirement is harsh. That’s fine. Not a popularity contest. We feel that makes him understand the value of his decision, puts a certain perspective on things (like college is supposed to be a lot of fun but it’s also pretty darn serious if you want a certain outcome), and will not harm him as he’ll graduate with a great job and easily pay off the debt.

24

I think it depends on the kid, and the family. One of my parents was an immigrant, from a culture that highly valued education. Despite living on a midwestern state school’s salary, my parents saved their whole lives. They sent my brother and I to college, paying for everything (I did have summer jobs). They also paid for one year of graduate school for my brother and I.

They expect us to pay it forward, for our kids (and we expect to as well). Therefore, we are full pay and are not requiring our kids to pay anything.

It works for our family. I went to a top law school, my brother is a doctor and my oldest is working hard at a well known investment bank. None of us goofed off, or were lazy, and we all understood the parental sacrifice needed to pay for college.

Taking care of other generations works both ways – elderly parents were/are expected to move in with their kids when they needed more help.

Which brings me to my number one life rule: if it works for you, do it. (The corollary: if it’s not working, change it).

So – figure out which payment strategy works for your family, and do it :slight_smile: There is no one right way.

25

Just a few thoughts:

I have actually seen many cases where it has worked quite well.
Two key things to making it work are:

  • communication of expectations, and
  • a realistic assessment of your child’s abilities and their future aspirations.

I agree. That is why I said we told our kids we “might” give them the difference in COA with our state flagship. They need to know you won’t be manipulated and they should be planning for that future (post-graduation) where you expect them to be self-supporting.

However the cheapest school doesn’t automatically mean an inferior school. As a parent with more life experience sometimes guidance toward the practical path (while still technically giving the young person a choice) is beneficial. Adult decisions require not only weighing immediate pros/cons, but also thoughts of long term consequences/benefits

On the flip side I have also seen kids of full pay parents who place no or loose restrictions on undergrad COA. As a result the kids pick fun, warm weather schools or accessible snowboarding schools for their ideal “college experience”. Sorry, but that wouldn’t fly with us.

^^ A big yes to that!! However, if the “share the savings” scheme is discussed as a conscious strategy, seeking work IS a part of the plan. It’s in the delivery and the execution of the plan, where the parent can drive productive discussions while still controlling the checkbook.

26

“This is the strategy we’ve been using, in our case 2/3 parents and 1/3 student. So far, no one else has said they use this strategy. That surprises me. Has anyone else used it and, if so, do you think it was successful?”

What’s behind your reason for using this strategy? Are you doing it out of financial necessity? What’s the driver?

" They need to know you won’t be manipulated and they should be planning for that future (post-graduation) where you expect them to be self-supporting."

Do you think your kids are likely to manipulate you? Or kids to their parents in general?

IMO, there are ways to raise responsible, appreciative, hardworking kids without strapping them with student loan debt (assuming a family can afford it, of course).

There’s been another thread recently about recent grads and 401K/IRA/Roth investing. Kids without debt can jump into savings - both retirement and non-retirement - more quickly, more extensively. Just another way avoiding student loans will help young adults be financial secure throughout their lifetime.

27

We are figuring this out right now. We plan to pay all the necessities and figure S can pay for eating out and entertainment. This is what my parents did.

From my personal graduate school experience, I will say that the occasional financial boost can be very meaningful. My parents did not pay anything for grad school. As a result, it took me a longer time to graduate and I missed out on opportunities to gain valuable experience. I am an archeologist so paid internships and coops are not easily found but you can often get on really amazing projects if you can get yourself to the project area and work unpaid. So, in the future I would be willing to provide financial help if I thought the long term gains would be significant and it wouldn’t imperial parent financial security. I’m not making any promises because this would be based on particular circumstances.

I’m not sure if this is generational, but my son is very frugal. We had to pull out his first choice for colleges because he assumed he would go to the least expensive option. However, we think the more expensive option will be better for him so we’re willing to fund it. With a different kid who had different expectations and spending habits, we may be making different decisions.

28

We have been saving for years with the intention of paying for undergrad knowing that we would be full pay. Our kids buy their books and work summers to save for their spending money. S14 was mostly accepted at T20 schools that were needs only and he chose an OOS public where we were full pay. He turned down a pretty substantial scholarship (3/4 tuition/R and board) at another school knowing that we would have given him some of the difference. It was not meant as an incentive…just a part of the decision process. …win for him and win for us. We didn’t push it and really let him choose.

Our D18 is at another OOS school where they gave her some merit money. She was choosing between that school and a higher ranked private full pay school…again it was her decision and she chose the OOS school…not because of the $ but because of the curriculum. We will give her some money each year towards future savings,nowhere near the difference but a benefit that she will have when she graduates.

People say that kids need to have “skin in the game” and we know many people who have their kids take out loans for just this reason (truly to make a point and not because they needed the loan). We are confident that both of our kids already feel that they “have skin in the game” as they understand that they need to take school seriously and they appreciate that we pay for it. They understand that success in school will pay off. We are fortunate that they are both hard workers and pretty self motivated…they didn’t need a loan to make them take college seriously. I am really not saying this to brag but just to make the point that kids can have “skin in the game” even if their parents are paying for college. My son has graduated and has been working for 10 months. He tells us how much he appreciates that he doesn’t have loans and loves to update us as to how much he is saving. He lives OOS and is completely self sufficient. Other than keeping him on our health insurance (there would have been no savings to take him off) he is on his own and being responsible with his money.

I realize that we are very fortunate (but not “mega rich”…we both work very hard and have lived below our means to be able to save for college and for retirement). But I hate it when people say that if kids aren’t helping to pay for college or taking out loans they “have no skin in the game”. I hear that all of the time…here in CC and elsewhere as well as from people I know. Just our experience.

29

I think you already know what strategy you like, and wanted to talk about that more than you want genuine advice.

30

@doschicos I don’t think my kids, or most kids, would manipulate their parents with bad intentions. I just think it’s natural to tend toward doing things that are self-serving…and sometimes young people can only see a few years ahead. We wanted to communicate that we had given thought to many scenarios…again, we used extended family members as examples, and our kids got it.

Living in a high SES community it is easy to get used to nice/expensive things, but we’ve tried to instill in them that there is no free ride. We have provided nice things for them out of love. But they need to decide what’s important to them and figure out a way to support that way of life. And yes, we’ve also expressed our expectation that we paid for their education and we hope they do the same if they choose to have children.

Lastly, I think this is a good point by ultimom:

I’ve seen too many well-intentioned full pay parents extend themselves financially where it negatively impacts the entire family. These young adults can benefit from being a part of the conversation.

31

Of course, in any situation parents - full pay or otherwise should not extend themselves where it negatively impacts the entire family. And likewise, retirement needs should come first.

However, in a situation where a family can afford to help, I personally would feel guilty living the high life while having my kids incur student loan debt. As mentioned before, I feel it is my obligation as a parent and a way to pay it forward for the good turn my own parents did by me.

32

I don’t know why a parent would want to have their kid pay interest to a bank for a loan, if the parent can easily afford it? Why give the bank the money and why make it more expensive than it already is?

33

I don’t understand this last bit. If there are gaps and you’re loaning your kid the money, aren’t they paying more than 1/3 of the costs? That seems like a large share for someone with no work experience or education. If you can afford the college why do you want your child to start their adult life in debt?

34

@intparent
[ quote ] I think you already know what strategy you like, and wanted to talk about that more than you want genuine advice.[ /quote ]

No. I am interested in advice. I threw out a couple strategies as a discussion starter. I am also interested in hearing thoughts on pros/cons. Hopefully the discussion will help others select a strategy that works for them. It may or may not cause us to reevaluate or fine tune our strategy. I wish I had thought to post (or search for) a similar discussion three years ago when we were coming up with our strategy. Whatever strategy they choose, I would encourage parents first to wrestle with it a while before etching it in stone. Discuss it with each other, with grandparents and friends. Once solidified, make sure your student knows what the strategy is before they submit any applications (ideally before they visit any schools).

I like the @rickle1 advice (child is asked to contribute a reasonable fixed amount per year). I’ll call that:

Strategy 4 - Defined Student Contribution
This strategy addresses the desire for “skin in the game” while, depending on how structured, eliminating student financial incentives to make their selection from a cost perspective.

@austinmshauri
[ quote ] If there are gaps and you’re loaning your kid the money, aren’t they paying more than 1/3 of the costs? That seems like a large share for someone with no work experience or education. If you can afford the college why do you want your child to start their adult life in debt? [ /quote]

The gap I referred to is the difference between the student’s 1/3 share and what they can contribute through summer employment, work/study, savings etc. Depending on the amount of merit aid and the student’s summer earning prospects, there may or may not be a gap. I agree 1/3 could be too high in some cases (such as expensive school + no merit aid + limited summer earnings potential).

I doubt any parent would “want” their child to start their adult life in debt. The question is one of balancing competing interests. In our case, retirement savings/retirement timing vs. college contributions. The fact that our student is likely to outearn us makes it seem very reasonable to us that he would take on a typical student loan level during college (similar to non-full pay students at his college and similar to his parents inflation adjusted student loan levels).

35

If financing retirement is a concern there’s nothing wrong with taking advantage of the federal student loans or expecting students to work summers to contribute. Plenty of families do both.

36

We saved like mad from the time we got married so that we could tell our kids they could go to whatever college they wanted. No loans. We paid in full for everything. They are very appreciative. We were fortunate to be able to afford this by living significantly under our means. Many people can’t and for them I think many of the above strategies make sense.

37

In that case, I would go back to what I said about not loaning any money, you couldn’t write off as a gift. Decide what’s the maximum you could afford to pay for college, while meeting your retirement needs. Add to that, the $5500 in direct, federal loans and use that to set a ceiling on the most expensive college your kid can attend, net of aid. By 2023, nearly 40 percent of borrowers are expected to default on their student loans. That’s when a person has not made a payment toward their education debt in roughly a year, triggering it being sent to a third-party collection agency.

https://www.cnbc.com/2018/08/13/twenty-two-percent-of-student-loan-borrowers-fall-into-default.html

38

Full pay for 2 @ a no merit meets full need school. We pay tuition, room and board freshman year. For the next 3 years we pay tuition and the equivalent of on campus housing. Kids pay for books, personal expenses and 3 years of food. No loans necessary. Internships started freshman summer and semester lab, tutor or TA jobs are all great learning experiences. On campus jobs can be even more educational than classes. Very proud of them for managing their schedules and adding to their resumes.
Per university published costs, the expenses they are responsible for add up to 9k/year. As many have said, students can learn to live frugally. Learning to food shop and cook is step one. More than $5k for a meal plan with 32 weeks of food is very high.

39

I am a thrifty shopper and a reasonably good meal planner and cook, and I would NOT want my kid doing that as an undergrad 7 nights a week unless they absolutely had to. None of my kids had cars in college so just shopping for fresh produce was either time consuming (walk, bus) or expensive (zip car or Uber). The notion that they would pass up hearing the Dalai Lama debate Stephen Hawkings on the meaning of life (being hyperbolic) or any one of the other fantastic lecture, symposium, musical performances, etc. which take place on campus virtually every night of the semester, in order to soak lentils and make a healthy dinner seems crazy to me.

Meal plans are expensive, but reproducing a high quality and nutritious meal at home is ALSO expensive when you factor in time. Do you want your college kid experiencing life on campus, or waiting in line at Costco with a jumbo bag of romaine lettuce?

40

My D’s worked summers for spending money during the school year. We supplement their earnings with a smallish allowance during the school year.

They both took federal loans and we are helping with repayment.