Who’s Paying For College? Part One: The Case Against Paying Your Child’s College Costs

Paying for College Part One

On the surface, paying for your child’s college seems like a no-brainer. We all know that a college degree is practically a requirement these days to make it into the middle class and that a lack of a degree may bar your child from most careers that don’t include a fast food uniform. As a parent, you may also feel it is your duty to shoulder the cost of college to give your child the brightest path forward…however, when you actually see that bill, you may have second thoughts!

According to CollegeData.com, you may have to shell out an average of $24,061 a year for in-state tuition at a public school. If you child should be so “lucky” to get into a private university, be prepared to pay an average of $47,831 a year for the privilege. It’s also important to recognize that you may be writing checks for longer than four years. The non-profit college research group, CompleteCollege.org looked at some of the most prestigious universities in the United States and found that only 36% of students graduated in four years!

if you plan on paying for your child’s college, you could very realistically drain your savings in the process. Is this really the right financial decision for yourself? In this three-part series, we are asking the questions that every parent of a college-bound child faces – Should I pay for my child’s college, should it be their responsibility, or is there a middle path? There are some very real reasons why paying for your child’s schooling could dramatically hurt your own financial standing. In this article, we’re going to take a slightly heretical view and make the case for why you shouldn’t pay for your kid’s college.

You May Have to Sacrifice Your Savings and Retirement

Most parents recognize that college is something they must prepare and save for throughout their child’s life, but few of us have any reasonable means of saving up enough even with 18 years of notice. If your child is heading off to college this year, you may be facing an overall bill topping $200,000 for an undergraduate degree at an out-of-state private university. That means you would have had to put away around $11,000 into a savings account each year of your child’s life to fully foot the bill! Even if your child goes to a state school and you invested your money at six percent interest instead of just sticking it into a savings account, you would still need to tuck $3,000 away each year of your child’s life to cover the cost, assuming your child graduates in four years. Now, double that savings amount for each child you have. This is real, serious money that you may need to pay your mortgage, or, better yet, put away for retirement!

If you saved $250 a month for 18 years at six percent return, you would have roughly $98,500 by the time your child was ready to go to college. That amount could likely cover an undergraduate degree at a public, in-state school. If you were to instead keep that money in a retirement account for 45 years without adding a single penny, you’d end up with $475,300 to help fund your retirement! It is important for your child to get a college education, but you also want to retire someday, right?

You May Have to Go into Serious Debt

Not every well-meaning parent can put money away each month for their child’s college fund. Maybe you are a single parent trying to make ends meet, or maybe one parent lost a job or decided to stay home to help raise the children. MarketWatch reports that 62% of Americans have less than $1,000 in their savings accounts! If you find that you don’t have $200,000 lying around when your child is ready to head to her Ivy League school, you may be forced to take out a loan, such as a Parent PLUS loan. Just like any other loan, you will be required to pay back the loan over a certain pre-determined length of time with interest on top! For example, a $100,000 loan paid over 15 years at 4.5% interest will land you with a $764 loan payment each month. You’ll also pay over $37,000 in interest over the life of the loan! Think about how hard it will be to save for retirement when you have a new loan payment to make each month.

You Can Teach Your Children Financial Responsibility

It may be difficult for you as a parent to tell your child that he is responsible for his own college costs, but another way of thinking about this is that you are teaching your child a really important lesson regarding financial responsibility. College is that first big opportunity for your child to explore what being an independent adult really means. That includes all the good (choosing their major, living away from home) and the bad (dealing with bills and taking out student loans). Asking your child to pay for college will give him an important reality check that higher education is not free. When your child’s money is on the line, he may take studying more seriously and may even be more motivated to graduate in four years rather than five or six!

As a parent, your natural inclination likely is to sacrifice your own financial security for your child, but you must play the college game smart. Paying entirely for college may prevent you from saving for you own retirement, load you with a loan that you’ll be paying off for the next decade, or prevent your child from growing into a financially mature adult. However, that doesn’t mean you should completely throw your original plans out the window. Are there good reasons to pay for college, or is there some sort of middle ground that you can find? Read the next two articles in this series to find out! We also recommend this useful article on Four Tips to Slay the Monster Cost of College.

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