Today MD from Studenomics and I are debating a hot button personal finance topic: Should you pay for your kids’ college education. He takes the stand that you shouldn’t while I am stepping up to the plate for those that believe you should. Be sure to check out his article HERE and let us know what you think.
I make no qualms about it. I was incredibly fortunate and walked away with a private school education and a master’s degree from a top-10 program in its field with only $18,000 in student loans. The majority of my college was paid for my father with his Amex (if you weren’t aware, if you pay for a college education on your credit card, you are likely to earn enough reward points to get a 50 inch flat panel when all is said and done).
Now, contrary to what you are going to read, I actually believe with MD over at Studenomics on why a kid should pay for his or her own college expenses. But, where is the fun in a debate without at least one-person playing devil’s advocate. Read on to see why parents, kids and both parties benefit from paying for a child’s college expenses.
Why – For Parents
There is some incredible savings that can be had by setting up a 529 plan for your kids’ education. While there may be some state deductions you can take for contributing to a 529, there are no federal deductions. However, that doesn’t mean this plan isn’t the shiz. If you put money into a 529, it will grow tax-deferred. When you go to withdraw funds, it will be free of federal taxes. That is some serious savings. Considering there are no income limits in order to contribute and the contribution limit in most states greatly exceeds $300,000, this is one of the best vehicles to invest. Oh, and for the control freak parents out there (read the next paragraph too), the money inside of a 529 doesn’t ever leave the donor’s control. If for some reason you would rather not give the contents of the 529 to your kid, you don’t have to. It’s not their money, it’s yours.
To go along with the money remaining under your control, the obvious benefit of paying for your kids college is that you now have a say in their decision. I am not suggesting you hold this over your kids’ head. But if you feel they need to work hard for grades in high school or they need to apply for scholarships to help offset some of the costs, you have the means to persuade them. However, I do urge you not to limit their school choice or their choice of study (being a Jewish kid, the old joke was, “what’s your major? Law or medicine?”). Let them be an individual, but you do have some say in how they reach the end goal by using your means.
Why – For Kids
The benefits for paying for your kids’ education greatly favor the children, but that shouldn’t be a surprise. There are two major benefits that will make a difference in your children’s life if you pay for their education. The first benefit is that they will be able to focus on more things than just making money while in college. That means they will be able to spend more time studying, more time looking for quality internships (even if they are unpaid) and more time partying. Yes, partying – on your dime! The relationships that people foster in college last a lifetime and help to build a social network and framework for their careers. You should be proud to have your kids be partying with your money, as these types of relationships will make them far more successful than the average college course.
The second benefit is giving your kids a fresh start upon completion of college. Instead of feeling weighed down by a mountain of debt they will be free to go after their dreams. There are enough examples of personal finance bloggers that feel bogged down by student loans and end up taking a 9-5 job they can’t stand because they feel the pressure to pay down their debt. Us readers can empathize with them. If you have the means to aid your kids, this may be the greatest benefit of all.
Why – For Both Parties
There are some additional benefits to paying for your kids’ college for both parties. Primarily, after college you can get rid of your kids and they can get rid of you. You paid for college, therefore if they hold up to their end of the bargain, they should be able to find work at go out and start their lives.
Economically speaking it makes sense as well. Making best use of your money and your kids’ money, using a 529 saves you from capital gains tax as well as saving your kids from having to pay interest on loans they would otherwise have to take out.
Thanks for reading my side of this debate. Be sure to check out the flipside over at Studenomics and let us know what you think by leaving a comment.
So when are you starting to save for your child’s college eduction… ya know… since you don’t have any kids?
Good points and I agree with a combination of both yours and MD’s points of view. I plan on saving as much as I can for my children, while still ensuring that I can save plenty for myself. However, I will also be sure to make sure my kids have part time jobs while in school. I’ve been working since I was 15 (13 technically), and have developed a strong work habit due to it. This means working through school as well as during summers.
My hope is to pay for college for my kids. Chad’s parents took care of his, and it put him in a great place when he graduated.
That said, if I somehow get into a situation when I have to make a choice between their college and my own retirement, I’d probably have them take out at least some loans. My loans were part of what got me interested in PF anyway.
My parents paid for my college education and I’ll always be grateful. If I have kids, I’d want to give them as much help as I can afford.
I’m divided on this. I would probably want my kids to pay for at least the tuition themselves. (My parents agreed to pay for my living expenses while I was in school. I thought that was a good compromise.) On the other hand, I wouldn’t be averse to making them save up all that money and then, at graduation, tell them I’m paying off their debt. That way, they’ve learned valuable financial lessons, but also don’t struggle under the weight of the debt.
I think the real decider here should be whether the parents are still able to save for retirement. That should be their number one priority. If they have money leftover, then it’s great if they want to throw some their kids’ way.
Good debate Brian. What about allowing your parents to pay, and then promise to pay them back after getting a job?
That way, one can really focus on grades and other experiences, even though work in college can often times be a good experience.
Best, Sam
For my kids,
I think we will evaluate each of them and see. I went to a private college, traveled during the summer with a group, had an internship and worked at a camp another summer, and had some awesome experiences along the way. If I had to work all summer long every summer in order to pay for my college, I would not have had as great of an experience.
What I might do is pay for the books, education, living etc. But let them get a job to pay for any extra amenities. You want a pizza and some DVD’s? Get a J-O-B. If not , I heard the cafeteria is nice this time of year. That way they get the experience of working for what they need yet we ensure they get an education debt free. Nice trade -off for us.
Employers, especially executive level managers, tend to respect and value people more if and when they learn that a particular person:
a) paid their own way through college and/or grad school and got high marks, and/or
b) worked full-time (i.e., 40 hours a week) as a professional while doing so, and/or
c) were responsible for raising a sibling or caring for a sick family member while doing so.
We can’t be sure why this is the truth, but it does seem to be.
I like financial samuries response in theory. You could do a “student loan” to your kids at a lower interest rate than standard, it would be win/win. However I’ll give my standard speach about not lending to friends and family unless you’re prepared to loose either the money or the money and the relationship.
Personally i think you pay for your kids education because your buying your progeny and income. Like lords used to buy their kids high places in the military and the church. There for you make sure your grandkids and your kids kids will have a higher standard of living
Glad you addressed such a hot button issue in personal finance – great job presenting the case for and against. I’m firmly in the – paying for your kids college education is a ‘nice to have’ expense at best. My mind can’t wrap itself around the concept that parents should fund a college account when many are simultaneously taking 30 years to pay off their home, have underfinanced retirement accounts, and are likely carrying some type of consumer credit balance. Kids going to college have alternative solutions to cover the cost – students loans, scholarships, jobs, public universities, taking 5 years, etc. How many alternative funding options do parents have when it comes to their “must have” expenses: again, mortgage, retirement, etc?