Who should pay for college? Financial advisers weigh in
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Decades ago, it was feasible for students to work while getting a higher education and graduate with few debts, if any. After all, the national average of tuition and fees at public four-year institutions for the 1987-88 school year was equal to only $3,190 (in 2017 dollars), which is significantly less than the $9,970 for 2017-18's average tuition.
The rising costs of college tuition have made it harder to afford school — so much so that the average 2016 college graduate walked away with a diploma and more than $37,000 in student loan debt — up 6% from the previous year.
With that in mind, parents often step in and take on some of the financial burden.
“Unfortunately, this has become the new norm,” said Joseph Carbone, financial advisor at Focus Planning Group in Long Island, NY.
Carbone said that one of the biggest problems that comes from this is parents don't know how to draw the line between helping their kids and hurting their retirement.
Parents who put aside money for their children's education do so with the best of intentions. However, there may be reason not to save for save for school and instead put that money aside for your own future. At least that's according to several of the financial advisors we spoke with. Here's why.
It teaches responsibility: Michael Dinich, a financial advisor in Sayre, PA, said he isn’t saving for his children’s college education because they “need an ownership interest in their own futures.”
Dinich says his parents didn't help fund his college education — and that this was the greatest gift he received because it forced him to get creative to get his own school bills covered. He joined the National Guard and used the GI Bill to pay for school. He also picked up telemarketing jobs, sealed driveways and cut grass to cover other bills.
“I have found people will find the money for the things they want,” Dinich said. “Children will find the money for college — maybe that means they will get jobs and work part-time.”
You can’t borrow for retirement: If parents prioritize saving for college over saving for retirement, they could regret it once they’re ready to retire. Of course, by then it will be too late.
"Parents or the student can borrow to fund education," said Jim Benedict, CFP, senior wealth strategist and senior vice president at PNC Wealth Management. "Retirement is funded with savings."
There are other ways to pay: While student loans can help families afford college, there are other ways to fund tuition.
"Work-Study programs are sometimes available to fund college," Benedict said. There are also scholarships (like this one from Policygenius), grants, tuition benefits for joining the armed services and career-specific programs.
Consider less expensive options: Financial advisor Neal Frankle, who blogs at Wealth Pilgrim, said that one of the best gifts a parent can give isn’t saving the money for them — it’s helping them spend less on their education.
“If you want your kids to understand the value of money, don't just write a big check to an expensive school just because you can,” he says. “Think about costs and benefits.”
Frankle says parents should try to nudge their kids toward an affordable college or university that offers the degree they want without exorbitant costs or the need for tens of thousands of dollars in debt.
If you are a parent who can foot the bill — and want to — most financial advisors seem to agree that doing this is fine — with some caveats, of course.
"It truly depends on each family’s unique situation,” said Clint Haynes, a financial advisor in Kansas City. “If the parent’s financial house is in order and money can still be budgeted for college savings, then the conversation can be had.”
Still, Haynes says it should be a family effort. Parents can take care of some (or all) college expenses, but the one going to school should be strategic about their choices to help keep costs down. This could mean comparing schools and choosing a college with a budget in mind, taking some college courses in high school and perhaps even attending community college for a few years to get generals out of the way for less.
And no matter how much you want to help your child pay for school, you should only do it if your finances allow it, both now and in the future.
“With only 39% of Americans able to come up with $1,000 for an emergency, and the average American saving only 3.8% of their income, savings for college is a luxury many shouldn’t afford,” Brian Hanks, a financial planner in Salt Lake City, said.
Benedict says it boils down to making sure your ducks are in a row before you assist your children with theirs.
“Only if parents are on track for retirement should they set aside funds for college expenses,” he says. “The only way to know if you are on track is to have a financial plan in place that forecasts your income, expenses and savings through your life expectancy so you understand the amount required to fund your life.”
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