Should Parents Pay for College?

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Whether or not to pay for a child's education is a tough decision for many parents. On the one hand, offering the gift of debt freedom after graduation can take a significant amount of stress off your child's shoulders as they enter adulthood.

But you also have to consider your future and what impact paying for college could have on your plans and finances. If you're trying to figure out whether or not to pay for your child's college education—or how much of it you can cover—here are factors to consider.

What to Consider Before Paying for College

If you're like many parents, you may have some money set aside for your child's education. According to Sallie Mae, parents have $18,135 socked away for their child's college on average. While this is a sizable sum, the average published public school tuition is $10,560 a year for in-state students and $27,020 for out-of-state students—and that doesn't include room and board.

To bridge the gap, you could consider tapping into other savings or borrowing money. Before doing so, here are some questions to ask yourself:

Am I saving enough for retirement? If you're behind on saving for the golden years, prioritizing your child's education during your highest-earning years could mean you have to delay retirement. Paying for college can set your child up to succeed, but consider whether providing total financial support will jeopardize your own financial stability.

Do I have enough saved for emergencies? Ideally, you want to have three to six months of expenses stashed away in savings in case you lose a job or face a financial emergency. Before dipping into savings to pay for college, think about the potential risk of not having a financial cushion to fall back on if the unexpected happens.

Can I afford an additional debt payment? If you're considering borrowing money to pay for your child's education, know how those payments may affect your budget. Perhaps you want to travel more or work less as the kids leave the nest. Consider whether having an extra debt payment can fit into your plans.

Do I want my student to have some skin in the game? Even if you can afford to pay your child's tuition bills, having the student invest some of their hard-earned cash into their education could motivate them to take school more seriously. Consider whether you want your children to have some financial stake in their education, even if it's just paying for books or miscellaneous expenses.

How to Pay for College

Many parents choose to pay for at least a portion of their child's education. If you still have some time before your child goes off to college, start planning now for the costs ahead. Here are a few strategies to save money on college costs and ways to pay for school:

1. Stay Local

In-state tuition at a public school could cost as much as 40% less than the cost of out-of-state tuition. Talk to your student about in-state options and show them the difference in price. They could also consider attending a junior college for a year or two before transferring to save money.

2. Apply for Scholarships

Scholarship applications can take time to complete, but investing the time can pay off. There are thousands of scholarships available that your student can apply for, and scholarship money is free money they don't have to worry about paying back.

3. Utilize 529 Plans

There are two types of 529 college savings plans: prepaid tuition plans and education savings plans. The prepaid tuition plans let you purchase college credits today for future attendance at a specific school, while 529 education savings plans are investment accounts for education expenses.

Savings in 529 plans grow tax-free as long as you use funds for qualifying expenses, such as tuition, books, room and board, and other education costs. If time is on your side, putting away money each month into a 529 plan could help you cover most (if not all) of your child's college costs when it's time to send them off.

4. Apply for Student Loans and Parent PLUS Loans

If your student is getting ready to begin college and you need assistance paying for tuition and other costs, you could consider borrowing money. Typically, federal student loans offer the best rates and terms, especially those your child takes out in their name. Students may qualify for subsidized or unsubsidized federal student loans, and you may be eligible for federal parent PLUS loans. Private student loans may also be an option.

If you and your student decide taking out loans is necessary to help pay for their education, you may be best off getting federal student loans in their name and helping them pay as loan payments become due (typically six months after they leave school). This will give them access to potential benefits down the road, such as income-based repayment or student loan forgiveness.

5. Take a Hybrid Approach

Paying for education expenses doesn't have to be all or nothing. If you look at the numbers and determine that footing the entire college bill would put you in a financial bind, you and your student could each cover a portion of their education expenses. Here are some hybrid scenarios:

  • Give your student a stipend. Figure out a dollar amount that you can afford to give your student for college each semester. Then the student could use student loans or income from a job to pay for costs the stipend doesn't cover.
  • Pay tuition and have the student cover the rest. If your student goes to an affordable in-state school or junior college, you may be able to pay the tuition each semester out of pocket. Then you can have them pay for room, board and other living costs.
  • Use college savings and have the student pay for what it can't cover. Develop a budget for the college savings you have. If you don't have enough to cover all expenses for all four years, help your student come up with a plan to pay for the rest, which could include a combination of student loans and income earned from a part-time job.
  • Split up the student loans. If you need to borrow money to pay for education costs, you could take out some loans in your name and have the student take out some loans in their name. With this approach, neither one of you is shouldering all of the debt.

If you decide to borrow money for school, it's important to be mindful of the debt load you and your student take on. The average student loan debt in 2020 was $38,792, according to Experian data. Debt balances that are high compared to your income can be challenging to pay off. Keeping up with debt payments can also make it hard to meet other financial goals as you look toward retirement and your student looks toward starting a life post-college. Making money-saving decisions early on, such as attending a less expensive school or finding ways to avoid student loans, can make a big difference financially down the road.

Review Your Credit

Most federal student loans don't require a credit check, but parent PLUS loans do, and having adverse credit history could affect your ability to get approved. StudentAid.gov defines adverse credit history as "a record of poor repayment history on one or more loans or credit cards."

If you're not sure where your credit stands, you can pull your Experian credit score and report for free. Taking steps to improve your credit could help you get approved for federal student loans and get the best rate possible on private student loans.

Putting aside money (even late in the game) can help you pay some of the bills and avoid borrowing more than you can easily afford to pay back. Scholarships can also offset the cost of school, and staying in-state can help you save on tuition. Whether college is around the corner or several years from now, it's worth discussing with your student now how much of their education cost, if anything, you plan to cover. Let them know what you can afford to pay and what you feel comfortable borrowing so you can come up with a plan together.

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