Should your child have some "skin in the game".

Paying for College
41

I don’t know your kids. But there is a not trivial subset of HS kids out there who would take your message and conclude, “getting a college education isn’t important to my parents. They can afford to pay for it but they won’t. I guess I will follow my wannabee rockstar boyfriend when he takes off for the road next year. I can pay my way by selling plasma or something when we run out of cash”. Or- “My parents care more about the big screen tv and new SUV in the driveway than they do about me broadening my horizons and learning about history and literature and science. What I dope I am for working so hard in HS”.

Incent your kids to want what you want for them. If you want them to become educated citizens who can participate in our democracy, get a good job and pay taxes while keeping a roof over their heads, develop some intellectual and academic prowess and interests, then give them incentives to do just that. Help them in any way you can to get an education.

if you don’t want this for your kids- then it’s your money and you decide how to spend it. But don’t be surprised by the 40 year old who hasn’t quite launched professionally, or the 35 year old who cannot break through the managerial ceiling at his or her job because without a college degree those paths are closed.

42

My brother took a different approach with his girls. They attended a fairly decent state school (but not the two top flag-ships). He had them take out the basic loans with the agreement that he would pay them off after graduation, BUT – if they left school before graduation, the debt was in their name and was their problem. Turned out to be a great idea when the older one decided she hated her major in the middle of fall of junior year and withdrew. She got a job and paid for her own apartment and expenses, but went back the next semester to start her new major because she couldn’t afford the loan payments. She might have stayed out much longer if she hadn’t had the looming “skin in the game.” Both girls are very successful in their fields now and raising families of their own.

For me, I only have one kid and his skin in the game will be summer jobs for spending money. Even that is negotiable if he gets an unpaid internship that will increase his future opportunities. He plans to major in engineering and I don’t want him to have a job during the school year unless it’s related to his major. He really wants a program that offers coops, which also would cover spending money when he is not working. He’s very practical and focused on his future employment, which is his motivation for not slacking off after high school.

43

Our family’s view is that there is a budget and that budget includes some shared ‘skin’ in the form of the basic student loans that are available for college. We cover indirect expenses other than extra spending cash which needs to come from jobs, but books, travel to and from, health insurance/health fees, etc, Mom and Dad will cover in full. For direct costs, tuition, room & board, DC matches dollar for dollar with us up to the amount of the guaranteed student loan (so they pay half of the first $11K as freshman and so forth). Above that there is a budget of what we can afford to contribute above and beyond that.

Those parameters give the kids choices, options, accountability and limits to find the school situation that fits them best both financially and academically. We will not co-sign any loans nor take any parent Plus loans for them. The $27K max that they can borrow is not that much different from the GSL’s we were able to take for our educations, adjusted for cost of living increases. We do and will help them search, visit and do all that is necessary to find the places that fit and to maximize their chances at merit awards, with their skin in that part to join into the research and do their best to earn those awards.

Our D who is a senior this year has a true full-ride, total COA offer as an NMF that she is weighing against a full tuition offer that would require her to take loans and/or work more to reduce her loans up front. One offer will leave her with no UG debt, while the other will leave her with a very manageable amount if she chooses that school. She has great choices and understands the pros and cons associated with them, including the financial ones.

Our S is only in 7th grade, is very bright, but also high functioning ASD. It is far too early to know what his grade and stats will be until he puts in the work and times passes, but at whatever level he reaches and amount of effort he puts in he will have commensurate choices and no greater max debt load than his sister might. His situation may end up being very different from hers, but our parameters for financial choice are hopefully flexible enough to work for both of them.

44

Our d will have some “skin in the game” and we will show her if she goes to this school - we will contribute X amount and your merit has earned you this with the stipulation of maintaining X GPA and FAFSA will provide this (which sadly is nothing) - we are going to show her the numbers so she is not ignorant. So that she has an understanding of cost. We will show her the financial benefits of staying in state as well. We have told her - that she is an adult and needs to understand the cost of higher education. We will help her pay back whatever loan she may have to take out but we are not telling her that right now. Of course, we will not let her get in over her head - we are her financial advisors - laying the best in state school on the table as well as the best out of state school on the table. She has some very good offers on the table, worth considering. She is a good student. Certainly she can understand what it takes to pay for a college education and how blessed she is to be able to go. So go forth and work hard! We won’t stress her out, but she will be able to understand how it all works.

45

I think this has a lot to do with how we are raised. Did your parents pay for your college or did they ask you to pay? Was it because they couldn’t afford it or just didn’t think they should?

You ask, “Why should I?” I’ll tell you why–because you want to give them the best chance to be successful in life. It’s so hard to come up with tuition for many parents. If you can do it, why in the world would you put that kind of burden on them?

I think their skin in the game should be a commitment to find a job, if not on campus then at least during summers and Christmas breaks. We pay more than 62K a year for our daughter to attend college, and it’s a strain. However, she earns several thousand dollars every summer working as a camp counselor and babysitter, and she managed to pocket more than $500 over Xmas break by working in an art studio and doing even more babysitting. She can use some of that for grocery runs, show tickets, fancy shampoo–anything that she likes. But we wouldn’t dream of asking her to put it toward such a hefty tuition bill.

46

My kid’s “skin in the game” was maintaining an acceptable GPA in college. They took out the Direct Loans as well…but that really was to help imorove our cash flow,for,the seven years they were in undergrad school. As. Graduation gift, we gave them repayment of those loans.

BU both had merit awards that required a 3.0 GPA…and we expected them to get that…and they did. That was plenty of skin in the game.

47

Fulltime working adults w college degrees would find it very challenging to save up on short notice the typical cost of college tuition nowadays. Dunno how a teenager w only a HS diploma can realistically be expected to come up w that kind of money on short notice without resorting to robbery, drug dealing, prostitution.

48

I think I’m probably in the minority here but I do not think any parent “owes” their kid a college education. Plenty of people are not able or willing.

I’ve told my kid he better look at it like a winning lottery ticket. We are able and willing. His cap is $25 a year. He knows his savings will need to cover his extras at school (like eating out and games)
I think the last 3 years we will probably have him take $5000 a yr in loans and reduce the amt we pay by that much. I do like the idea of him having skin in the game. If he graduates with only $15,000 in debt - he is luckier than most. We did also buy him a brand new Toyota that should last him well through college. I told him if he drives that a few yrs past graduation and skips a new car payment he can pay off his student loans in just a few years.

Every family is different - I do find it interesting to hear different viewpoints.

49

I think the main thing is that the child understand. If they are expected to take on debt, they should understand what it means. Real world. You are taking out X. It will cost you X for the next however many years.

My mother initially told me I could not go to college because we were poor. I applied anyway. She did the paperwork. I got some state aid and federal grants but I also got a lot of debt without having any idea what that meant. Sign here and you can go to college. Awesome!

No. Not really. 3/4 of a political science degree and then I got married. And our first child was profoundly disabled. Turns out I would never work again. The loan debt I’d never once thought about was still very, very real.

Go over with you child their intended career. Their backup career. Their if everything else fails career. Make sure they understand how loans work with the realistic options that they may face. And even the unrealistic ones you hope they won’t.

I have told my son that if he would go into engineering instead of education, loans might be realistic. He wants to teach. So we have run the numbers and seen how hard loans would be on a Physics teacher. For him, loans are a terrible choice and seeking out merit aid, even if it means a less prestigious university, is best.

That doesn’t mean that loans are always bad. For many, they are completely reasonable. The important part is to make certain there is a conversation as to whether or not loans are a reasonable expense or an unreasonable burden.

But please, no matter what, make certain your children truly understand what a loan is. I wish my parents had.

50

@daddyoffour
<<<
My son is going to a state school. He made that decision because of the costs. I just feel that every college student should have some financial interest in their college education. It is a life lesson.
<<<

That’s all good and fine. Did he explore all of his merit options? Or did he feel hog-tied and just gave up and chose what he thought was his only option?

Also…depending on how close in age your four kids are…Child #2 and #3 could end up with the best situations for need-based aid They could be attending school when 2-3 kids are in school and qualify for more/most aid.

51

@delilahxc I totally understand your point about taking loans depending on the major your son chooses. I chose to take out loans and attend a school that after financial aid and grants were applied was roughly 15k a year more than my top instate public school’s deal. As for skin in the game, I work part time and pay for my housing,dining, and textbooks so that my parents can minimize compounded interest on the tuition loans. In addition, I’ve planned out my schedule to graduate a semester or two early with an engineering degree that should yield a higher starting salary to pay off the loans I’ve taken.

52

Lots of good comments. As the OP I want people to know that I am trying to decide what is best with my kids. I will not sign any loans for them unless they can truly justify it to me that it is worth it. My original post of tuition they pay and I pay room and board was just an example. Money is money and it doesn’t matter where it goes. The point was that the child is in a better position to control the tuition portion since that amount varies widely. I would never allow my child to take out 100K in college loans (which would be $27 on them and $73 on me). I just wanted to know if people felt it was important for a child to have some financial responsibility in this whole process.

Here is our actual scenario. I will only deal with my first child since he is currently a senior in HS.

He is going to an in state school. His choice. He made that decision before we really got down to the numbers. He knew it was the cheaper option. It is down to three schools, all in state public schools.

Tuition and fees approx. $9,000.
Room and board $ 13,000
Total projected costs for four years $91,000 (this includes it all…tuition, room , food , books, some personal expenses)

He received a merit scholarship for approx. 50% of the tuition and fees at one of the colleges and nothing from another one. Still waiting on one.

So If I paid for everything except tuition and fees he would owe $4,500 a year at one school and $9,000 at the other.
So he has to decide if the extra $4,500 a year is worth it.
At the college that he is not getting merit he would take out a $5,500 Federal loan and $3,500 is still owed.
At the merit school he takes out $4,500 loan per year and that’s it.

So in this scenario the choices are:

  1. Goes to merit school takes out a loan for $4,500 each year ($18,000 after four years)
  2. Goes to non merit school takes out $5,500 loan and still owes $3,500 which will have to come from us ($27,000 total after four years to him and $9,000 extra from us).
  3. We pay for it all merit school $70,000 ($18,000 tuition and $52,000 room and board)
  4. We pay for it al non merit school approx. $90,000

In any scenario we will pay atleast $52,000.

What do you think.

53

It really depends. What does he plan on studying at each school? Has he visited all of them, and if so, where does he feel the most comfortable? If he has no idea where he wants to be in four years I would suggest choosing the cheapest possible option where he’ll be able to study without the huge stress of repaying loans, secure the highest grades possible and best personal development that way he’ll be in a better spot for grad school school and have less debt to worry about then. In addition, the return on investment for specific programs varies greatly, and there’s always an option his merit may be taken away after a year. Go over the pros/cons of each school with him and really weigh if the extra money is worth it.

54

I can not speak to the non merit school. That isn’t really an option my family is looking at. However, I do not think 1 and 3 are your only options for the merit school. Why does it have to be either all on you or all on loan? Can not a compromise be found? Could a combination of small additional family contribution, student employment and loan give the child the best ability to enter the workforce owning their education but not unduly burdened?

My youngest child is a wannabe actress (we’ll cross that bridge long before she gets to college) but her favorite musical is “Into the Woods” There is a song where the Baker’s Wife asks “Must it be all either less or more, either plain or grand is it always or is it never and?” If you and your child can find an “and” that’s the best scenario.

55

So my question is…

What do you think? In this scenario should a child have some skin in the game by being responsible for some of the finances of going to college.there will be no FA in his first year of college.

56

Almost 25 years ago, l had a full merit ride through college. Graduating from college with no debt either on my head or my parents’ was, in retrospect, more liberating than I appreciated back then. I had no idea my experience was unique and assumed the world was full of merit scholarships etc.

Ever since I have had to focus on preparing for the my daughter to go through college, I have been unable to understand how the costs of going to college are so high. If you look at the full pay cost of college and compare it to inflation or wage growth over the past 20 years, something has gone wrong. The reason why the OP and other parents having to do these calculations is because the cost/benefit analysis of college is becoming very questionable. 4 x 65k/year = 260k of post tax money = 400-425k of pre-tax money… = how many years of savings/foregone expenditure ?

Let me offer you 3 scenarios:

a. You go to college, graduate with a liberal arts major (non STEM) - the degree costs you 260,000 in a combination of parents’ savings expended and/or incurred debt. To keep things simple lets assume it is all parent financed. They spend 260k on you - that they could have gifted to you in other ways (buying you a house for example). You get a job paying 35k/year on graduation, and your earnings increase at a magnificent 10% rate per year. Adjusting for taxation, cost of living inflation, factoring in your getting a mortgage, getting married to your college sweetheart (who also used up 260k of her parents’ savings and has the same income and wage growth) and having kids of your own and so on, how long do you think it will take for you to recover back the 260k (or 520k between you and your lovely wife) that you spent? Oh and by the way the money you decided to invest in a college degree would have been compounding at 5% / year so your goalpost keeps moving away from you. The answer is a very long time.

b. You decide that the only way you will make real money is by going to Business/Law/Med school. So you spend even more money - 130k to 260k additional to put yourself through either of these - with loans that have to be paid from post tax savings. How much time will it take for you to be even? Does no one do these calculations or does everyone think they will be at Goldman making millions?

c. You tell your parents to put the money into buying a house in your name and you go to community college, graduate, get a job 2 years earlier paying you 25k/year with wages increasing at 8% per year. Oh and you have a house and no mortgage (thank you pops). You get married to your community college sweetheart whose parents have given her the 260k in the form of muni-bonds (or mutual funds or whatever) and she also has a similar job and income growth rate as you.

So is college really worth 65,000 a year? I contend that the only degrees that justify such high total costs are all engineering majors. It is quite easy to get a job for 60k/year on graduation. However, it is extremely hard to justify sending a kid to college to study something psychology. You will never make enough after graduating from some majors unless you do something vey unique.

http://www.businessinsider.com/college-majors-with-highest-starting-salaries-2015-1?op=1

http://www.salary.com/8-college-degrees-with-the-worst-return-on-investment/slide/9/

If you do not get merit or financial aid, most college degrees are mathematically not worth it. We have not yet realized that income and savings growth are unable to justify the astronomically crazy costs. This is why we are now discussing this. I wish someone can prove me wrong mathematically, but based on my calculations, going to college to become a teacher is a pointless exercise.

57

I think most people agree that it is reasonable to expect a teen ager to get some kind of job and contribute to their college educstion. I think you need to pay as much as you possibly can. Hopefully you will get a fair amount of financial aid because you have four kids. I think your kid needs to go to college and you need to make sure it happens, and not at an unreasonable cost to your child. It is pretty clear you expect all of your children to go to college. You need to do all you can to be sure that happens. What if one of your younger kids gets freaked out, worrying about how he/she will pay for college, and thinks “forget it, I will just work when I get out of high school. At least I won’t have expensive loans to pay back.” You keep asking what we all think, and it seems clear that most people think you need to ensure your kids go through college without being saddled with enormous debt. You have had many responses and I have only seen one other person who thinks “yeah, let the kid go into debt, it’s a good life lesson.” You have stated that you can pay for your kids’ college costs. If you couldn’t, we might have all given you different opinions.

58

I definitely agree that kids should have some skin in the game. The college years are a transition from childhood to adulthood, and financial responsibility and independence are very much a part of adult life that they need to be educated in as much as any academic course of study. But as people here have said, what constitutes the ‘skin’ will vary depending on the situation.

I’ve had the conversation with my D and she knows that at a baseline we’re willing to cover the cost of instate public unless she manages to get herself into a school we feel is worth stretching a bit for. If she wants to go to a garden variety “nice” school that is not a state school, she’s going to have to earn the difference with scholarships/grants. Fortunately for her, she’s already done the work - school work - to probably have herself some nice options.

My D is also in perhaps a bit of a unique situation in that once she turns 19 she can make a quite significant chunk of money at her summer job (she’s a deckhand on a boat now, but can get her uscg captain’s license at 19 and make 3x as much) but unfortunately that won’t happen until the summer after her sophomore year. She expects to contribute what she can, and even if we don’t ask her to reimburse us for any of our costs, she’ll probably just stuff it in a mattress. :slight_smile:

59

The OP has been pretty well covered to consensus, but @khanam 's post deserves its own thread frankly. I’m not sure if I fully agree with the conclusion, though. Interesting premise.

Here are the flaws I see:

  1. You assume in Scenario's 1 and 2 that you have to pay back debt, but not in Scenario 3. Who and how would that $260k (let's throw out the other $260k since it would be immediately loaned and returned) be paid? Certainly not with those low salaries.
  2. If we assume that the money is loaned in every scenario, Scenario 3 makes the least sense: why take the loan but also not increase your means of paying it back? That's a recipe for disaster.
  3. If we assume none of the money is loaned, then it gets interesting. I think Scenario 3 has a case then, but at the cost of education. Personally, I would take Scenario 1 all the way in this case - why not get a great education / lens to see the world through, and enough of a salary to make a decent living with?

Basically, your post only seems to clearly work out to Scenario 3 when you allocate which ones loan and which ones are gifts differently. If there’s do debt, $260k seems to me to be a small price for enabling the life I want, especially considering that retirement alone can cost 4x more than that, if not more. As a parent/relative, you are the one making the choice to invest the $260k - if that is intended to make the recipient have a better life, it seems well used on college to me versus Scenario 3. Of course, it depends on the person, and some would prefer S3 - so for them, this exercise may change their mind. For many, especially those on CC, that isn’t the case.

*All of this isn’t to say that college is overpriced (it is), but that it’s still worth it despite it being overpriced.

60

OP, I’d say you’re very lucky to be in a state where tuition and fees at the state school are only $9k. As for your son’s choice, it’s hard to know without knowing the schools. In my state, given a choice between the flagship and one of the directionals at a $4500 savings per year, I as the parent would pony up another $4500 for the flagship if I had it.