Today’s topic will probably be a touchy one and it’s all about whether or not parents should start (or end) saving for children’s college expenses. Ever since I paid off my $38,000 worth of student loans last year, I have received many e-mails from parents who are interested in seeking help for their children.
These e-mails are all related to whether or not parents should risk or sometimes even ruin their retirement by helping their child pay for college.
There is usually one common theme in these e-mails – the parents are usually not on track for retirement, they have debt, or they cannot afford to help their child in college.
Here are some of the stories I have heard in these emails:
- The parents have over $100,000 in student loans that they took out in THEIR name so their child could go to school. These parents are not on track for retirement and they have a lot of other debt besides student loans.
- Their child is in medical school and the parents are paying for all of their college expenses plus food, car, rent, etc. These parents are not on track for retirement and they have debt.
- Their child is in law school and the child said that if his/her parents don’t continue paying for their expenses, that they would hate their parents. This child was even more mad when the parents printed out every single blog post of mine and gave it to them (I did not tell their parents to do that, it was entirely their idea). The child said I was ruining his/her life (yup, that actually happened). These parents are not on track for retirement and they are afraid of losing their child now as well.
I know I’m not a parent.
I’m not a parenting or child expert either.
I know I don’t know what it is like to have a child and the feelings that go along with that. However, I do know that I raised my younger sister after my father passed away and her attending college did make me want to help her so that she wouldn’t have to worry about money as much.
The other day I was talking to my sister and she was bringing up different ways she could possibly side hustle so that she could make extra money. It sort of made me feel bad, and for a moment I thought about helping her financially. Luckily, she snapped me out of it and told “You’ve helped me enough already. Do not worry.”
Her saying that really made me happy. I actually had tears in my eyes!
Instead of just giving her money, I helped her with her budget, I have supported her, I helped her find side hustles so that she could make extra money, I helped her make a plan, and more.
I know all of these other things I am doing have shaped her into an awesome young lady. Yes, she has to learn things the hard way but in the end she will be just fine.
@SenseofCents Good question! As a CFP, I say no. You can get a loan for college but you can’t get one for retirement!
— Shannah Game (@ProfShannah) September 27, 2014
@SenseofCents No. Akin to ‘put your oxygen mask on first before helping others’ on planes. — BidAskDividends (@BidAskDividends) September 27, 2014
@SenseofCents they shouldn’t risk their retirement but If they are in a position to help they should. I couldn’t have done it on my own. — Erica (@raerica) September 27, 2014
Alarming information about student loans.
According to the Federal Education Budget Project, around $100 billion was borrowed by students in fiscal 2014 alone. Also, the default rate on student loan debt averages around 13% to 14%. 90% of student loans in recent years are co-signed by others (mostly parents), and that is a big burden falling on parents.
That’s a lot of debt, and that’s a lot of debt that isn’t being paid for. If you are a parent cosigning on student loan debt, I hope you understand the consequences that can come from it.
Should parents help their children go to college?
Okay, before anyone thinks this is a post bashing all parents who help their children, I should say that I have no problem with parents helping their children pay to go to college. However, that’s AS LONG AS THE PARENTS CAN AFFORD IT.
I have plenty of friends who went to college where a lot of it was paid for by their parents. These parents could afford it, and that is key. If you are on track for retirement, you are not struggling, and so on, and you want to help your children attend college, then by all means go for it.
I also have plenty of friends who went to college where everything was paid for yet their parents clearly could not afford it. Some of these parents took on a second or even a third job so that their child could go to school. They racked up credit card debt and student loan debt as well. Some of these students never paid a cent towards their student loans and their parents were forced to in the end. They risked their retirements, their happiness and more. While I understand that these parents care for their children, they need to realize they are putting their retirements at risk.
Like Shannah said above in the tweet, you can take out loans for student loans, but you can’t for retirement.
When we have children, as long as we are on track for retirement then we will most likely help our children attend and afford college.
I know that my story is not the average story, but I went to college with no help at all. I paid for all three of my degrees on my own, lived on my own, worked full-time, paid for all of my food, and more, all starting just days after I turned 18 and graduated from high school.
It was tough, but I do think it is possible.
For other students, it may take longer to graduate, or it may take less, they may take on more debt, or they may take on less. Everyone’s story is different, but it does not mean it is not possible.
One great story I recently read was How I Graduated College With $100k… in Savings on Budgets Are Sexy. Many say my story is impossible, but just wait until you read this great story. You will be amazed at how awesome Will is! I’m jealous but I know he worked hard for his accomplishments.
How can parents help but not risk their retirement?
Instead of risking your retirement, you can do other things to help your child go to college. Below are some of my tips if you have children who are about to attend college:
You don’t need to help in every way possible. For some reason, there is this myth out there that helping your child go to college means you need to pay for everything for them. Instead of paying for their tuition, textbooks, food, dorm, car, and everything else, set limits. You might help by giving them emotional support, letting them stay in your home while they are in college, helping them find ways to save money for college, helping them cut their college expenses, and more.
Help them get a job. If you don’t have the money to help your child, you may want to help them find a job. This way they can pay for their own expenses. Just a little bit can go a long way.
Help them create a budget. If your child doesn’t have a budget, help them create one now. Read Does your budget suck? – Budget Categories. A budget can go a long way and help someone overcome many financial difficulties.
There are quite a few questions for you today, because I think this topic is an interesting one. I know that not everyone will have the same opinion so I want everyone to chime in! 🙂
Do you think parents should risk their retirement and pay for college? What if the parents are on track for retirement? How much should they help, if anything at all? Will you help your children go to college?
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oh my word! I couldn’t fathom my parents taking out loans for ME. That is crazy.
Yeah I thought that was definitely crazy too!
My parents paid for me and I am glad that they did, but I sure wish that they’d taught me more about finance at that age because I was woefully ignorant about everything. It’s not a skill they teach you in college either so I really think parents should involve their children in finances around that age. If not wishing to disclose everything then at least teach basic money skills like budgeting and what to do with savings.
Yes, I think teaching kids about finance is definitely important.
I don’t think parents should risk their retirement or taking out loans for their kids to pay for college. I do believe that parents make a decision to have children and that they should help them financially as much as possible. Not every parent is in a position to give their kids handouts to avoid college loans but by planning ahead they can offer some assistance. I’m a new parent, my son is five months old, and he already has a bank account which I will contribute around $10 a week plus anything he gets for birthdays, Christmas or at any other occasion. By the time he’s 18 there will be a nice sum in there that he’ll be able to use for college if he decides to go. I hope that I will be in a financial position to help out but life isn’t certain so a little bit now will go along way later.
I think that’s a wonderful idea. Good job!
That is a great idea, and I know this comment is from about 6 months ago, but you would be doing your son a much bigger favor if you opened an investment account in his name and invested the money for 18 years instead of just putting cash into a bank account.
$40 a month in a bank account will be $8,640. But value is about $5,075 in in today’s dollars (18 years of 3% inflation)
$40 a month growing at (a very small rate) of 5% is $13,505 ($7,932 after inflation).
$40 a month at a more normal rate of about 8% is $17,976. ($10,559 after inflation).
At that point your son may decide to simply keep that money growing until he retires at age 65 (or blow it all haha). That $17,976 will grow to about $669,282 which has a value in today’s dollars of about $97,991 (after 65 years of 3% inflation.)
Good luck!
As a parent myself, I can understand why the parents in this story would do this. But from an outsider’s perspective its just not a smart move. Part of the whole college experience is getting a big dose of reality, and part of that comes financially when you realize that mom and dad aren’t there to be your walking ATM machine anymore. The parents have already sacrificed enough to help their child, not its up to the student to figure out the rest of the way to make it to the finish line.
I agree! In many of the emails I receive, these “children” are almost 30 years old and still getting everything paid for by their parents. It’s just a disaster.
This was timely Michelle, because I just finished debating whether or not I wanted to even encourage our children to GO to college. By to answer your question, no way. My wife and I both decided if they really want to go……and we can afford it…..we’ll help some, but paying for our kids college IS NOT a priority.
Thanks for starting the discussion
-Bryan
Yes, I don’t think it needs to be a priority as well.
Look I’m not judging, but if a child is saying they’ll hate their parents if they don’t get financed, well, the problems are not merely financial ones.
I have made it clear to my kids that I can NOT pay for their college. I will not go into debt for them to go. My junior has a clear idea of that but also wants to live away from home. I’m not sure that will work out for her. But I’ve made it clear that she is welcome to live here while she goes to one of the many, many excellent schools within commuting distance. She doesn’t want that ideally, however we’re early in the process and we’ll see how it goes 🙂
I will gladly help her as much as I can. I will gladly pay off anything I can later on. But my oxygen mask goes on first, and she has two siblings who deserve equal opportunities – so we’ll all do the best that we can – together, but honestly and with foreknowledge of the situation.
I agree. Some of the children in the emails I receive are just plain spoiled.
That student loan is so much. I am happy that you paid it off. On the other hand, I think it’s fine to have debt when the money goes to student’s education. Later on, when kids are doctors and lawyers, it becomes easy to pay that off.
But couldn’t they pay that off themselves?
Parents should absolutely not risk their retirement! Their child will have greater earning potential once they graduate, but the parents will have aged even more, and their ability to earn will enough for retirement will be jeopardized. I say this because I know quite a few parents who lost jobs during the recession and have been struggling ever since. Plus, health is always a risk, so there’s no guarantee that a parent will be able to continue working if health issues arise.
I agree Lauren!
If parents are struggling financially and/or not on track for retirement, it seems unwise to help their kids extensively with college costs. I would suggest going to the root of the issue–how expensive is the college? Is there a cheaper, in-state option? Could the student take courses at community college and transfer to a 4-year program? Have they applied for all possible scholarships?
Yes I agree! There are cheaper options and parents could help their children find more affordable ways to get a degree.
You hit on the key point. The way the parent could help is to provide good solid financial advice and practical life advice.
2 year community college then going to college would save a TON of money. And I would contend make a WAY better learning experience and expose their child to the real world. The reason it doesn’t happen is 95% pride and negative stereotypes that middle-class families have about sending kids to “community college”. I don’t want to make that comment sound snarky, there are pre-conceived notions that most people have, and while I contend they are wrong, their is no doubt that SOME will judge that “oh your kid is in community college?”
Who cares. The answer is most people do. If we can get people over that hump, then the rest is easy from there.
Yes, I think too many people decide not to go to community college because of pride. It is sad.
No they shouldn’t take out the loan for their kids. There are tons of cheaper ways to send kids to college. Parents do not “owe” college tuition to their children. Instead, teach them about how not to take our more loans than they need, make sure they go to an inexpensive state school or a community college to start, etc. It’s not “glamorous” or the perfect idea of a 4 year college “experience” but it’s still an education!
I agree Cat! One situation that I did not mention was in an email I received. The child told their parents that all colleges have a $100K and up price tag. The parents asked me if that is true!
I agree with you- parents should help if and only if they can afford it. I also think parents should set realistic financial expectations with their kids when choosing a school. Where I grew up, it was all about “name brand” colleges, instead of which schools provided the best value and return on investment.
I think too many people care about the name. It should be about what they teach you and if that applies to what you want to do in life.
We plan on helping our kids with college because we can afford to. In fact, we’re already saving for them. Since we save plenty of money, I can’t think of a single reason not to save for their future education.
I don’t think there’s anything wrong with that. If you can afford to, why not?
While I wouldn’t risk my retirement for it, I do want to help my daughter go to college. My parents helped me, but I also worked all through college, went to a cheaper state school, and got scholarships. So I feel like we all worked for it. If my child does the same kind of things, I will absolutely help her out if we are financially able.
Yes, I think that’s a great system. This way the child has some sweat in the game!
I’ve seen those stats of parents taking out loans to help fund their childrens’ educations and its terrifying. It just shows that you’re combating financial irresponsibility (the failure to save) with more financial irresponsibility.
Your suggests of ways to help without giving cold hard cash are good — it is legit terrifying that parents with adult children are gambling their retirement this late in the game. They don’t have time to recovery from this idiocy.
I agree. It’s also sad that some of these kids are making their parents feel bad. Just grow up!
No way jose! 🙂 You have to take care of yourself first, then your kids. I know this is a tough one for parents to swallow, but it’s the right financial decision. I’m saying that as I’m digging my way out of $206,000 of student loan debt ($50k down by the way!). My opinion is that you pay for your kid’s college after you’ve taken care of yourself.
I agree. Thanks Natalie!