Question of the Weekend - Paying for College

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Question of the Weekend - Paying for College

By JLP | January 5, 2008

I was perusing my blogroll tonight (I have nothing else to do as my wife and I have 10, yes TEN, boys in our house playing Guitar Hero) when I came across Grace’s post highlighting a story she read in the Kansas City Star. The woman in the article owes $76,000 in parental loans for her son’s college education (and she only makes $34,100 per year).

Wow!

Anyway, this leads me to the following question:

Should parents go into debt to pay for their kids’ college educations?

My opinion: No, not if they can avoid it. I don’t think there’s anything wrong with helping your kids with college but I don’t think it is wise to go into debt to do it - especially if the parent’s retirement account is small. I think the priority should be the parent’s retirement plan and security first and the kids’ second. I’m far from an expert on financial aid, but I know there’s lots of opportunities for kids to get aid. And, although it’s not optimal, there’s nothing wrong with a kid working through college or going to a cheaper school.

Those are my thoughts. What’s your opinion?

Topics: Kids and Money, Question of the Day |

Comments to “Question of the Weekend - Paying for College”

Brooke Says:
January 5th, 2008 at 5:45 am

I think it really depends upon the family and what their goals are. I wish everyone in this world were financially stacked, but they’re not, and I cannot imagine going into debt to send my son through college. I certainly will not, but I’m planning it out. I hope that lady finds a way out!

Welmoed Says:
January 5th, 2008 at 8:50 am

Somewhere I read a great comment, to the effect of “There are a zillion plans in place to give loans and grants for college. However, there are no loans or grants to fund retirement.” Our college freshman is doing his first year at the local community college, getting the stupid requirements out of the way, while he decides what direction he wants to go in. He agreed with hubby and me that it made absolutely no sense to blow mega bucks on a “real” college yet, since he really doesn’t have a “life purpose” yet. When he discovers what his is, he will be in a better position to choose a traditional college or university.

Single Ma Says:
January 5th, 2008 at 9:28 am

I agree 100%. I intend to “help” my daughter with some of her college expenses, but my own retirement comes first. When a child has to pay their own way (i.e. earn good grades/scholarships, work part time or summer jobs, and balance life), I think it builds character and shows true dedication.

db Says:
January 5th, 2008 at 11:11 am

Yes, it certainly builds character and shows true dedication. However, the flip side is it sets them up to be deeply indebted themselves.

I’m not saying this means the parent should sacrifice THEM being in debt so their child will come out of college debt free. I’m just saying — take care against the child coming out of school with that $76K debt too. It’ll be a huge burden on them too and it will influence every aspect of their own adult lives.

I’m speaking from experience on this.

Lily Says:
January 5th, 2008 at 12:01 pm

I think the standard PF answer is that retirement comes before the kids’ educations. For the reasons mentioned above (scholarships, loans and grants exist for education, but not for retirement), but also because if you fund your kids’ education at the expense of your retirement, you may find yourself burdening your children for support when you don’t have enough money to live on in retirement.

I am grateful that my parents contributed a significant amount of money to my education so I was able to leave school debt-free, but I also worked throughout college to pay my own living expenses and to pay for my final year, and I worked diligently to find scholarships to help pay for college.

Starting my adult life debt-free was wonderful, but I don’t think I would have minded having some debt if it means my parents could have saved more for retirement.

Dylan Says:
January 5th, 2008 at 12:06 pm

I don’t know the details of how this lady ended up with that much debt relative to her income, but is it often the case where parents and students don’t take appropriate steps to reduce the cost of college first. Instead, they don’t fill out financial aid forms and borrow from private lenders to pay the full sticker price.

$76K is a lot, for someone earning $34K per year, to pay for college, let alone borrow. It is one thing for parents to take on some debt for their kids’ educations if that’s where their priorities are and they have a plan to pay it off and still fund the rest of their lives. However, it makes no sense to take on more debt that one can handle for anything, kids’ college included.

Minimum Wage Says:
January 5th, 2008 at 12:08 pm

I didn’t mind working my way through college, but I’m really sore that my dysfuntional family got in the way of my ability to get financial aid, which in turn adversely affected my ability to get a job.

glblguy Says:
January 5th, 2008 at 1:35 pm

I worked my way through college and went to a local instate school to keep the cost down. Graduated with no debt and my parents paying for none of it.

I really don’t understand why more parents/kids can’t do the same. I developed character in me, made me appreciate things a little more, and since I was paying for my own education it made me get better grades and work harder…which allowed me to have my last 2 years of college paid for with a scholarship.

eR0CK Says:
January 5th, 2008 at 1:41 pm

I’m fairly young relatively speaking so I can relate to the other side of this mess (graduated less than 2 years ago). I, too, have around $80k in debt and accompanying that is a ~$400 a month student loan payment.

My parents really never said anything about helping me out. We took out the loans in my name with them as cosigners (I believe). Turns out after graduation they decided to pay half of all my total college expenses (I was a commuter and did County College first). Had I went to a cheaper state school I would have probably graduated debt free as my parents would have covered the whole cost.

Although I value the extra “perks” I received from going to a private University I think if I known my parents plans beforehand I may have considered a state school.

The biggest thing I keep hearing amongst my buddies is that I missed out on the “experience” of going to a 4-year school to begin with and living on-campus. Many of these friends of mine have $110K+ in debt for student loans and majored in art, liberal arts, photography, media, or some other degree that doesn’t come with a high-paying salary.

I’ve made out very well. Went into Consulting (IT) and I also have a job on the side fixing computers. Not sure how someone making less than $40K and living on their own might fare, however.

Tim Says:
January 5th, 2008 at 2:19 pm

I do believe that it depends on what you value, whether you choose to pay for your children(s) college. However, I also think people are operating under an antiquated notion of college. I’m not sure how important pedigree is these days. When I entered college in 1988, I was repeatedly told all these great things about what my pedigree would get me. 16 career years post college, I nor any of the people I knew haven’t seen it yet. The notion that you should go into serious debt to earn a college degree is based on the idea that you should get into a “good” school that will open doors. I’m not so sure what a “good” school means these days. I do know that a “good” school doesn’t mean one that cost $20k-$30k/year.

If someone is going to go to college for a career field that won’t cover the cost of their education at a particular school, then why would you do it when you can go to some other school for far less? For the name? I can’t remember the last time someone asked me where I went to college. I’m not a big alumni person either, because all you get from these “good” schools are requests to donate money.

MossySF Says:
January 5th, 2008 at 2:43 pm

People suck at staying out of debt. People suck at saving. People suck at investing. Shrug … it’s not surprising people suck also with their education decisions.

JLP Says:
January 5th, 2008 at 2:51 pm

MossySF,

LOL! So true, so true…

Mrs. Micah Says:
January 5th, 2008 at 5:21 pm

Not debt. If they want to use a bunch of their savings to support their kid in college that might be a wise choice but definitely not debt. Sure, it’s sucky if kids take on debt, but the kids have years and years to pay it off. Parents have fewer years, especially fewer working ones.

Alex Says:
January 5th, 2008 at 5:46 pm

When I went to college I knew I would end up with debt, but it was manageable and it was an ok type of debt as college is certainly an investment. The question today is whether it is worth the investment. State schools are still a good deal, but the upper tier privates are insane (40K+ per year). I don’t know when it became the expectation that parents would foot that bill, but I’ll not be participating in that trend. Help out, sure.

I’d also add that college, while expensive, was one of the greatest experiences in my life. Definitely made me a better person and at its core liberal arts is really about knowledge for the sake of knowledge. Having great professors walk you through history and philosophy might not help you earn much more, but it certainly adds to life. So I think you have to weigh the whole happiness factor in addition to how much it will increase your earning power.

PT from Prime Time Money Says:
January 5th, 2008 at 7:43 pm

First: $76,000??? What kind of school was this? I tried finding the original article about the woman but had no luck. That’s way too much for a degree for anyone.

Second: Education debt is the BEST debt you can be in. Personally, I love my student loan debt (18K). I love paying my $100 a month at 3% interest. That measly 3% has allowed me so much in life.

Third: The recipient of this education should apply for and pay off the loan. No questions!

PT from Prime Time Money Says:
January 5th, 2008 at 7:45 pm

I’ll add that I think helping your kids with college costs should come after you have your own retirement squared away.

Chief Family Officer Says:
January 5th, 2008 at 9:56 pm

My parents took out a loan to pay for my college. I have no idea how much or how long it took them to pay it back. They felt that paying for college was their responsibility. I certainly appreciate their generosity and am grateful for the top-notch education that I received.

But I wish they’d been more forthright and more educational about paying for college. I wish they’d discussed the difference in cost between the very expensive private school I went to and a state school. I know they didn’t want me to pay for any of it, fair enough, but I wish they’d discussed the finances of it more. I would have been able to make a better-informed decision, and I would have been better-equipped to face the world financially when I graduated.

Minimum Wage Says:
January 5th, 2008 at 11:27 pm

PT said:

Second: Education debt is the BEST debt you can be in.

This reminds me of something a more famous PT said, but seriously, education debt CAN be the BEST debt you can be in, and it can also be the worst debt you can be in.

I have student loan debt, a minimum wage job, $30 annual principal reduction, and even bankruptcy won’t make it go away.

glblguy Says:
January 6th, 2008 at 3:04 pm

@PT - Best Debt? There is no good debt…it’s a myth.

» Roundup: Help JD @ Get Rich Slowly Win An Award! on Blueprint for Financial Prosperity Says:
January 6th, 2008 at 3:52 pm

[...] JLP wants to know if parents should pay for college? [...]

Daria Says:
January 6th, 2008 at 4:12 pm

My husband and I were both fortunate enough to have our college education costs paid by our parents (or by going to school where our parents worked) and we know it has helped us long-term.

As for graduate school, we were on our own. His was a questionable investment, mine paid off very well. I will note that I ran the numbers substantially and did lots of research before going (considering opportunity costs of not working full-time while in school, projected salaries, understanding where I needed to place in my class, etc.) In my case, educational loans were a great investment, but I would urge anyone going to do similar research.

Daria Says:
January 6th, 2008 at 4:16 pm

Oh, I didn’t finish my thought. Because we are grateful for our parents help, we do plan to save for our children. But our retirement savings is in good shape, so no, I wouldn’t go into debt for it.

Kitty Says:
January 6th, 2008 at 9:34 pm

I think it is also depends on parents’ income. If it is relatively high, the children will not be able to qualify for any kind of financial aid or even subsidized student loans unless they can prove they are totally independent. Private student loans can charge pretty high interest.

Certainly parents shouldn’t go into debt, but if their income is upper middle class or above, yet they failed to save for their childrens’ education, they are pretty irresponsible.

Miguel Says:
January 7th, 2008 at 9:40 am

I came from a low-income, single-parent household, but my mom viewed a college education as the way out for her kids. She was the 1st in her family to graduate from college (she put her self thru local community college and later got a masters degree). We had no savings and I got into one of the best (or at least most prestigious) colleges on the planet. She wasn’t going to let me pass up on that oppty, so she went heavily into debt, and so did I to pay for it. I don’t know how much debt she took on, but it took me +10 years of indentured servitude to repay my loans (probably same for her).

Fast forward 20 years, she still doesn’t have much savings though thankfully she has a govt pension. I know I will likely have to provide financial support for her in the future and I’m happy to do it. I even have a trust set up to take care of her, just in case anything happens to me. The sacrifices she made for me in my youth have helped to make me a pretty well-off adult. You might say that her bet paid off and we’re both the better off for it.

I have to admit, that when parents look at education from a practical dollars and sense perspective, it is puzzling for me. But, then in some respects, I think most of this readership can “afford” to look at it this way - your kids will be getting help from you in so many ways, college is only one part of the package. My in-laws are a case in point. Since they are well-to-do, they’ve been able to provide little boosts for their kids along the way (paying for college, placing phone calls to get them that 1st job, helping with down-payment on a house, bridging short-term cash flow problems, gifts for the grandkids, inheritance down the road, etc.). Studies have shown that this kind of parental support adds up more than people think it does. My sibling in-laws didn’t need Ivy educations to become affluent adults because they already started out that way - it was theirs to begin with so long as they didn’t screw it up. I did not have that luxury - which is why my mom intelligently saw fit to provide the one economic gift that she could by sending me to the best school I could get into.

Beth Says:
January 7th, 2008 at 3:32 pm

I have already told my daughter, currently 10 yrs. old, that I will only pay for her 1st 2 years of college…the rest is up to her. I want her to take responsibility for her own education. I appreciated my college years a lot more once I had to pay for it! Also, I’m a single mom and can only do so much. If her investments will cover the rest, great! I’m still hoping for a scholarship by that point, though!

7 Things to Discuss Before the Marriage License | The Wisdom Journal Says:
February 29th, 2008 at 12:02 am

[...] Despite what anyone claims, nothing can prepare you for children. I know, I have three! Children are a wonderful addition to a marriage, but they should never be allowed to divide a husband and wife. If you both decide that, yes, we want children at some point, then you should both agree under what circumstances (financial and emotional) you will bring them into this world. You should both agree on how you want them educated and raised, day care, public or private school, discipline, will you pay for their college, all should be discussed and a general consensus reached. What you decide is a matter of personal choice. I’m not here to advocate one way or another. What is important is that you both agree and feel comfortable with the other’s level of support and commitment to your agreement. [...]

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Question of the Weekend - Paying for College