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An AskMetafilter user has questions about saving for college education:
I have two kids (4 and 5), and I don’t think I’m going to set up college funds for them. I nor my brother had any support from family through college, and we both made it though (grants, loans, scholarships, jobs!). I’m just interested in other people’s experiences and whether people think that if a college fund can be set up it should. At this point, I think it’s more character building and teaches children about ‘real-life’ more to have to do it themselves. Don’t get me wrong, I love my children and will always be there for them, but I just don’t think giving them 100K to go college when they turn 18 is the best way, or is it?
If you have the option to invest in a college fund now, the yields could be substantial thirteen years down the road. Surely it’s possible to encourage thrift and resourcefulness in children while simultaneously providing support.
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July 6th, 2006 at 12:30 pm
One thing to keep in mind is that the cost of a university education in most areas has increased over the past decade far more than the rate of inflation. While it may have been possible in the 1980s and 1990s to “work your way through school”, it’s far more difficult to do that now, and is likely to be even more difficult when today’s children are entering university.
July 6th, 2006 at 1:00 pm
I agree with George, but I also agree that it is not a parent’s absolute duty to pay their kid’s way through school. If the choice eventually boils down to the parent’s financial well-being or funding the kid’s college, I think the former wins.
(I think it’s reasonable to plan for a paid-for in-state education at a reasonable college–if Jr. just has to go to an out-of-state college, that can be on their dime.)
I have no problem with parents paying for kids schooling, it just shouldn’t be at the expense of their own financial security.
July 6th, 2006 at 1:06 pm
Can you afford to set aside a couple thousand dollars a year for your kids for a few years? It will make an enormous difference if you do this now. The money will have a chance to grow. The sooner you start the better.
If you really want to teach your kids a lesson about the value of money, have them reimburse your for whatever your cost-basis is once they come of age. (In other words, if you invest $10,000 and it grows to $50,000, give them $5 for every dollar they pay you.) Or something.
But please consider the advantages of starting to save now. Compound returns favor the young.
Something else: Who says you have to tell your kids that you’re saving for them? Just do it. If they deserve the money when they’re older, give it to them. If not, don’t.
July 6th, 2006 at 2:07 pm
I was very lucky to have my entire college funded by bonds. The incredible bond market in the early 80s enabled my grandparents and child-less uncle to give me savings bonds as gifts throughout my childhood. Since I went to a public school at the turn of the century (graduated in 2004), I was able to fund all but about $100 of my college with the proceeds from the bonds.
So, I didn’t have a college fund, per se– but the money was there when and if I needed it. And if I didn’t go to college, it was there for a house, or a car, or whatever I would need to get myself started on my own.
July 6th, 2006 at 2:37 pm
Speaking as a third year college student, I feel it really depends on the child. Since my parents did not set aside any funds to finance my college education, I had to rely on my grades to earn scholarships and financial aid in order to afford it. Also, I have held a steady part time job to pay for any additional expenses. I feel that this has helped me really learn the value of a dollar more so than some of my peers who have had their college education completely financed by mom and dad. (it has also helped that we are lower income, allowing me to receive more financial aid than if we were higher income). But if I had wanted to pursue a double major (rather than just majoring in accounting) I would not have been able to, because that requires much more coursework than i could complete in four years while holding a part time job. And what kind of grades would you expect from your child during college? If you want them making A’s, then working through college might not be their best option. If I could devote more time to school rather than having to go to work as well, my grades would be much better.
So in short, whether or not you should finance your childs education really depends on what kind of student they are and what you expect out of them. Or something like that.
July 6th, 2006 at 2:54 pm
In my household, we’ve seen both sides of this equation. My parents paid for my education in full. I was told that I had a four-year, non-renewable scholarship. If it took more than four years, I was on my own. That was hands-down the greaatest gift my parents ever gave me (though, admittedly, I didn’t fully appreciate it until I was out of school.
On the other hand, my wife’s family didn’t pay a dime. Taking on close to $700/mo. of student loan payments was a serious burder for her/us in those early post-college years.
Now, as a parent myself, I’m more inclined to follow my parents’ lead than hers. However, I’ve chosen to do so in an account that I have some degree of control over (529).
One caveat though, if it ever comes down to funding college or our retirement plans, I will choose retirement every time. There are alternatives for education funding. There’s no such thing as financial aid for retirement.
Also, keep in mind that non-loan financial aid is likely much harder to come by than when you were in school. If your household income is above about $50K, the gov’t thinks you should be able to pull your own weight (meaning forget about grants and subsidized loans).
July 6th, 2006 at 3:48 pm
One note of caution: keep in mind that more of the grants / work-study jobs / scholarships / good interest rate loans currently handed out are based on “need” than ever before, and that your child’s estimated “need” will be figured based on your income and resources. So, just because you were able to make it on your own doesn’t mean that your kid (especially if every time he applies for a grant he’s told “um, but your family has tons of money - we’re reserving this for people who really need it”) will be able to do the same.
That said, I was lucky enough to live in a state with an excellent public university and to make it through pretty much on my own based on merit based scholarships, and I think I’m better off for it….
July 6th, 2006 at 4:07 pm
I’d like to reinforce what others said about the differences between then and now — unless your child is going to a bargain state school (which will likely be terrible academically), it’s not possible for them to work their way through. They would need to make $30-40k a year plus get good grades.
Leaving college with almost zero debt was a huge, huge thing for me. I can’t imagine anyone wanting to saddle their kids with five figures of debt just as they’re entering the work world, especially since undergraduate degrees mean a lot less on the job market. Lots of debt may also impact their ability to go to grad school or a professional school, which these days can be one of the best roads to a stable, fulfilling career.
July 6th, 2006 at 4:47 pm
I have to take exception to Chris T.’s comment about bargain state schools. Take, say, the University of Michigan or the University of Texas, to name a couple extremely good state schools. Those will run you $8-11k in-state tuition for a year (not counting summer school). Room and board pushes that upwards of $20k (significantly less for a very frugal student). One can go out and earn $6-8k during the summer, and could possibly supplement it by a few thousand with minimal part time (weekend) work during the eight months of school.
That’s still an appreciable debt, one that may be a huge burden on a recent grad trying to start a new life and accrue wealth, but it’s a far cry from $100k or more in debt.
July 6th, 2006 at 8:25 pm
Do what my parents did. They saved up money, but never told me about it. When it came time to get the grants, scholarships, etc, I worked hard on my own to try and make the money. After I was in school for two years, my parents let me know about the fund, and I was allowed to take out certain amounts. I still had to fund my own education, but I could then use the fund’s money for loan payments while still in school, and for travelling abroad my last two years.
July 7th, 2006 at 8:57 am
I graduated two years ago, zero help from parents. I was able to snag a few scholarships for grades and on-campus leadership, but otherwise my education was largely self-financed, through loans and some part-time work (though I wasn’t working to the point where I was sacrificing the my collegiate experience).
I’m actually pretty grateful it worked out that way, simply because it forced me to do common-sense things like using a budget that has helped me teach me the value of saving and financial planning. I’m able to make monthly loan payments (more than the minimum typically) as well as stay cash-flow positive at all times, paying credit cards off every month, etc.
I’m married now, and kids are still a-ways off, but I don’t think we’ll sock away too much money on our kids’ education. My wife and I live in Indiana, so our kids have two really great state schools in Purdue and Indiana to attend (though we’d obviously prefer if they attended Purdue).
What we had talked about doing was take any gifts around the time of the kids’ birth and invest that into a interest-yielding account instead of buying brand-new baby clothes or insanely expensive bassinets that they’ll use for just a couple of months anyway. Will that be enough to pay for four years at Purdue? Probably not, but it might pay for one year of it.
July 7th, 2006 at 12:17 pm
[...] This young woman is making money from her hobby. She’s also helping her parents to know whether they should provide financial support for college. (My guess: seeing how industrious this girl is, they’ll be happy to help with what they can.) [...]
July 7th, 2006 at 8:18 pm
My husband and I each paid our own way through college, and both our parents made too much for us to qualify for grants until we were old enough to not have to report what they made (read: it took us both longer than 4 yrs. immedaitely after high school). We both had to go to inexpensive state colleges (though we could have been accepted to more prestigious ones) and take extra time off to work. I had VERY good scholarships, but only for the first two years, and then had to pay out-of-state tuition to study what I wanted. Both of us highly value that we had to work our way through -
That said, we just paid off my husband’s student loans last year (at age 31 for him) and mine are still there (age 27). Not an easy way to start out life. (If we could only be putting that money toward our retirement!) And the trend for the cost of college is toward ever higher costs, with higher interest rates on student loans, less federal student aid available (meaning much less scholarship money), and less overall state funding to schools themselves (less options for particular programs).
We’ve waffled on the idea of helping our son or not - but the benefits of compound interest for the young, along with the tax benefits of a 529 plan are just too good too ignore. Best of all, should one of us decide to go back to school, we can use the money for ourselves! It’s totally flexible WHO the money goes to. It *could* end up as money to fund education for fun during our retirement - should our little one not want to go to college.
So, for us, whether or not we’ll pay for any of our kids college is still undecided - but saving for education is certain. Our current income is very meager - so we started the college fund with only $100, and are steadfastly adding $25/month - the minimum allowed in the 529 plan we chose. For our son, at the very least we’ll teach him about wise money management, and encourage him to develop whatever skills he can to be competitive for scholarships.
See my posts on our choices:
http://yellowsgreen.blogspot.com/2006/05/529-plans.html
http://yellowsgreen.blogspot.com/2006/06/ocsp-529-plan.html
July 8th, 2006 at 11:29 am
Jeff — I did say “likely,” not “certainly.” Not every state is Michigan or Illinois, and even in Illinois, a number of the state universities are fairly bad. The bottom line is, it’s not smart to just assume that a bargain school (good or not — what if you kid is driven in a particular field and the strongest schools are not the excellent bargain state school near you?) will be best for his/her education.
Also, Amberlynn’s point about retirement is a good one. There’s a lot of talk here about how compound returns favor the young — isn’t putting your kids in a position to start investing young, rather than dumping money into loan repayment, a better lesson to teach? Assuming you’re in a financial position to get them through school with low or no debt, of course.
July 9th, 2006 at 12:55 am
I’m in college now, and my parents pay for it. I can’t tell you how grateful I am to them. On the other hand, I also budget my finances well, work a part time job and get good grades. My point here is that if you teach your kids about personal finance and set a good example (even more important), they will value money whether they pay for their college or you do.
I also agree with the point that by paying for your kids’ college, you enable them to take better advantage of compound interest. At 20, $40000 means a lot more money for them than it is for you at 50.
July 11th, 2006 at 7:11 pm
What happened with me - I went on the loans and grants route. Whenever I was in a bind, my parents were able to help me, but I never asked for more then I needed (and generally they only gave enough to cover the expenses I had from school).
I’m still not the best financially, but my fiance on the other hand…
Her parents paid for every dime. EVERYTHING. She worked because she was bored, not because she needed to. She still managed to save up a few thousand dollars in the six months after I proposed to her (being a volunteer and working a low-paying campus job). She’s a frugal QUEEN.
November 5th, 2007 at 12:44 pm
I also had not a penny from anyone to go to school, and I started college at age 16. I graduated in 4 years with a double major, then worked my way through graduate school in 3 more years while working fulltime.
I too managed with scholarships, grants, loans, and part-time jobs. I didn’t get all A’s but graduated in the top 15% of my class — and no employer EVER asked me what my college GPA was. Unless you are headed for graduate school, grades are not a big factor in future success. In fact, I’d recommend taking a bigger class load, settle for B’s and C’s, and graduate in 3 years.
I remember many of my classmates whose parents funded their college years fully. Most took 5 or even 6 years to graduate, and took their studies far less seriously than I did.
I don’t have kids so I can’t comment on what I would do, but my college experience was great and my maturity and degree of self-reliance would not have been there if mommy and daddy had paid for everything.
November 25th, 2007 at 4:32 pm
As a 48 year old mother of two (8 & 12), I am both worried about my retirement as well as funding college for my kids. I hope to be able to pay for my kids to go to college. It was expected of me, and I expect it of my kids. My parents paid for me to go and to that, I say THANKS MOM AND DAD! My husband and I are socking away the maximum in our 401Ks, and are contemplating our next step. We are thinking about the ROTH IRA with the understanding that we may be able to draw that money out for our kid’s education. Meanwhile, if our kids pursue financial aid, the retirement accounts, including the ROTH IRA, will not be considered amongst our assets. Don’t know if that is true; we are in the process of investigating. WE are not sure that the 529 has that much value vs. just saving funds ourselves (in North Carolina). So we are still investigating that option. Any thoughts?
December 26th, 2007 at 11:07 am
As a current TA and future (hopefully) professor at a university, I feel compelled to comment here. Several previous commenters have noted that their state schools will be good enough for their children and such, but as an educator and someone who attended a small liberal arts college, I can tell you many students are not a good fit for a large state school. If your child will fail at a large school, but succeed at a smaller (more expensive) school, wouldn’t you want to give them that opportunity? This is not the case for all students, but I have seen many of my own students not finish at the large state school where I currently teach, and I am positive they would have been able to finish at a smaller school where they were comforable and received support from the school. In addition, if your child got into MIT or Stanford, that would be impossible for them to work their way through, but if you could give them that opportunity, wouldn’t you want to? I have seen too many students who simply are unable to work to their full potential because of their outside work responsibilities to require my own kids to do that. Earning their own spending money or living expenses is one thing, but students who have to work long hours to pay extensive bills are almost always at a disadvantage. Also consider that your child may go into a field that requires hours that other students might work. If your child goes into a performing art, they may need to spend their evening hours in rehearsal. Or they may need to get a 4.0 in order to get into graduate school for their degree. There are so many variables that really make paying for a college education these days extremely difficult without savings, especially for middle- income parents like myself. My son is nearly two, and I am still in graduate school making very little, but my husband and I have already started saving for my son’s education. If you can do it without sacrificing your retirement savings or other things, then there is really no downside.
December 26th, 2007 at 1:15 pm
Education is always the key. I have 2 kids and started saving from they day they were born in a 529 plan.
The deal is simple. They get a 4 year scholarship from my wife and I - we’ll figure out a way to pay for it they just have to get into the school. They’re on their own for any years after that.
If they get any grants, scholarships, or other funds that mean we don’t have to pay for it - they get a graduation gift of half what we didn’t have to pay. So if they get $10k in grants, we’ll give them $5k out of the 529 when they graduate (or use that to pay for graduate school if they want to avoid that 10% penalty)
Of course, I’m not about to tell them they’re getting that money until after they graduate, and as likely as not it will be set up in some sort of trust for them to pull interest but not invade the principle until they retire, just because I know how disasterous large monetary windfalls can be for kids when you try to teach them the value of a dollar. But I also know how nice it is to have an extra $200 a month when you’re just out of college.