Should You Pay For Your Kids’ College Education? Top 3 Considerations for Parents

Melissa A. Seamon, CFP®

Financial Advisor

You and your spouse have likely talked about college savings since you found out you were expecting. Unfortunately, the cost of sending your kid to college has skyrocketed since you had that conversation. According to the College Board, tuition, fees, room, and board for a four-year education averaged $50,770 in the 2020-21 school year at a private school and $22,180 at an in-state public university.

Most parents do help their kids pay for college. Data from Sallie Mae’s annual “How America Pays for College” report shows that family income and savings — that is the parents’ income and savings — covered 53% of college costs in 2021. But should you pay for your kids’ college education? Here are the top three considerations to help you make that decision:

1. Time Horizon

How old is your child? This will determine how long you have to save until they graduate high school. If they’re 16, this conversation will be very different than if they are six because of the time horizon, which is essentially how long you need to invest.

You hear about time horizon with retirement savings all the time. You know the sooner you get started the better off you will be. But it is even more essential with shorter-term financial goals like college savings. If you only have a couple years to save, you may be in a pickle unless you can afford to sock away larger chunks. With more time, you can get started with a smaller amount that will grow over the years.

2. Don’t Ruin Your Finances

If you simply Google “how to pay for kids’ college” you will see some articles about how to use your retirement accounts and home equity. This is terrible advice. Don’t follow it!

Paying for your child’s education is not worth throwing away decades of your hard work and saving. The tax implications alone of withdrawing retirement funds to pay for tuition would be killer. This is not even to mention that you also would be hurting yourself (and your spouse, if you are married) more than you would be helping your child if you put yourself in a bad financial situation to help them get through college.

Remember what we touched on above with time horizon? If you have a child about to head to college, you are likely in or near your 40s or 50s. You only have another 15- 25ish years until retirement. That isn’t a lot of time to play catch-up if you drain your accounts. Your kid, on the other hand, has their entire career to pay off loans (if they decide to take them out for college … another topic for another day) and save for retirement.

3. This is a Partnership

If the time horizon works out for you and you won’t be put in a bad financial place, something you should consider is that paying for your kid’s college education is a partnership.

This partnership should begin before college. When your child begins high school, talk to them about how grades and extracurricular activities can be good sources of scholarship money. Look for opportunities for your student to take AP classes or take advantage of dual enrollment courses to get college credit while still in high school. You can even have your child start saving and even working so that they have spending money once they get to college.

Once they get to college, remember that even though they are (presumably) 18 and considered an adult, you do get to attach stipulations such as expected grades, part-time jobs, scholarships, etc. to the financial help you are granting. If expectations aren’t met, the help can be withdrawn. Just make sure not to co-sign for loans if you want to be able to take yourself completely out of the equation.

Get Started

Choosing where your child will attend school and figuring out how to pay for it will be some of the most important decisions you’ll make as a family. It’s imperative to thoroughly evaluate how the cost and payment method will affect your overall cash flow and other long-term financial objectives. Let a financial advisor help you choose the right investment plan for you and your family to avoid derailing other plans you and your spouse may have for yourselves. We at Gardey Financial Advisors have experience helping clients make decisions about paying for pricey educations. Contact us today and let us see if we can help you! We best serve clients looking for exceptional client service, who value a long-term partnership, and have a minimum of $500,000 in investable assets.

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Resources

https://research.collegeboard.org/trends 25 March 2022