Paying for our kid’s college has been near the top of our personal finance goals list for a long time. There are a number of reasons I personally feel strongly about this goal:
- I know what it's like to have school loans (both my wife and I had them).
- I have a Biblical perspective on debt and I want my kids to have a debt free start when they graduate.
- My wife and I want our kids to focus on school when they're in school. I don't have any problems with them having a part-time job, but my preference would be for them to go to school full-time and not have to work full-time.
- I' m not interested in going into school debt again. I would prefer to pay cash for their school.
I recently came across a Forbes article on the subject of paying for your kid's college which sparked my interest. As you probably know, many students graduate college with a lot of debt. According to Forbes, some have debt up to 6 figures (for private schools). They also say the average undergraduate debt runs $20,000, but variable interest on loans can make that figure rise until the payments are impossible to make on an entry-level salary.
Having all this debt puts college graduates in a difficult position. Once they graduate they should be focusing on saving and investing and not paying on debt. Furthermore, they should be able to focus on building a career and learn more about the value of earning.
What is more concerning is many parents are sacrificing their retirement savings to send the kids to school. According to the article, they’re cosigning loans for their children who end up not being able to pay. It then becomes the parent’s responsibility to pay the lender. I would imagine many moms and dads work hard to get their financial house in order, become debt free and then end up being stuck with student loans all over again. It's all quite disheartening to me.
What Not to Do
So, what are you to do? First, we need to look at what not to do. There are a couple of big issues that must be avoided. First, don’t sacrifice your own retirement to pay for your kids’ education. Doing so will result in a retirement savings shortfall and prolong the years in which you have to work. There would be nothing worse than not having retirement savings on-hand and having to then turn to your children to support you.
Second (and I feel strongly about this), don’t ever cosign a loan for any family member, or your child. First, it's Biblical and I'm all about sticking to Christian financial principles. If your child chooses to get a student loan it must be their responsibility to pay. Of course there are alternatives to student loans and considering debt, and you need to help coach your child through those decisions.
Now that we know what not to do, there are really just two answers left. First, let's take a look at minimizing college costs.
Minimize College Costs
Forbes mentioned a number of alternatives to help minimize college costs:
- Community college classes
- In-state public tuition
- College students continue to live at home
- Look for grants, jobs, work study programs and other ways to help pay for college
All of these are excellent ways to save on college expenses. Yes, I believe when the day comes we're going to have to be at the top of our game researching and knowing college costs inside and out. And yes, there will be emotions at play to overcome.
If you're struggling with college savings, community college is an excellent option. A 2- year college is cheaper and many of the prerequisite courses can be taken while Billy or Sally are still at home with mom and dad (minimizing costs further). After community college, hopefully there is further savings in place, and your child can move onto a 4-year school working on their chosen major.
Minimizing costs is one thing, but you have to save a lot of money. The only way to save that kind of money is to knock out these three important goals as fast as you can:
Accomplishing these three goals will get you to a point where you're able to save for your kids college education. For most people, these goals are not achieved without serious focus and sacrifice. They are definitely achievable as I know many of you readers have already accomplished them. I believe putting college before any of these other goals will put your short-term and long-term financial situation at risk.
There are many ways and tips to save more money. You have to be creative about saving, so I'll leave you with what I think is a good tip. Get Billy and Sally involved in saving for their own college education! As they get older and start working, have them start contributing some of their pay to savings. It may not make a huge difference, but it can definitely help teach them the value of saving and helping them earn their way.
In my opinion there is no question that you should pay for your child's college education. It will, however, require a lot of work and you need to make sure to avoid the no-no's mentioned in this post.
What are your thoughts on college savings? How do you plan to accomplish this savings goal? Do you agree that it's a good idea to pay for you child's education?
For another viewpoint on this topic, check out Pete's post from last year: College Expenses: Should Parents Pay For Their Children's Tuition?