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 studentsand 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.
Child Support And College Expenses Faq
By FindLaw Staff | Reviewed by Hal Armstrong, Esq | Last updated December 24, 2021
When parents get divorced or legally separate, the noncustodial parent is obligated to help with the financial needs of the child by paying child support. But what about children who are legally adults and in college? Are noncustodial parents obligated to help pay for tuition and other related costs?
Below you’ll find answers to the most frequently asked questions pertaining to college expenses and child support.
Take Out A Federal Student Loan For Parents
You can borrow money for your kids college with a federal direct PLUS loan. To apply, submit the Free Application for Federal Student Aid, or FAFSA. The form will also make your child eligible for grants, scholarships, work study and federal student loans.
Private lenders also offer parent loans. Going the private route may be best if you have excellent credit. A high credit score may qualify you for a lower interest rate than youd get with a federal parent loan.
However, private loans dont offer all of the benefits that federal loans do. Families should turn to private loans only if theyre in a strong financial position and have a large emergency fund, says Betsy Mayotte, president and founder of The Institute of Student Loan Advisors
» MORE:How to refinance or transfer parent PLUS loans
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How Do Parents Pay For College
Have you ever heard people talk about market bubbles? They occur when people are willing to pay far more for an asset that its intrinsic value, or when they validate asset prices based on implausible, or unrealistic, views of the future. They happen repeatedly throughout financial history there was a tulip bubble in Denmark in the 1600s, and more recent bubbles have included the Dot Com bubble of the late 1990s, and the US housing bubble of the early 2000s. They happen when people believe they cant afford to miss out, even when the price is irrational and they cant afford it at all.
For years, the cost of college has grown at rates far outpacing the growth in wages, making the cost of a college degree, the asset, so high, parents are left wondering how they will ever pay for their childs college. But it leaves me asking a more important question is college still worth paying for?
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Learn As Much As You Can About The Cost Of College
Peterson found that online resources were a wealth of information on:
- the cost of public vs. private universities,
- costs for in state vs. out of state,
- costs for community college/trade school vs. four-year schools, and
- how to qualify for financial aid and merit scholarships.
Some schools may also offer how to pay for college meetings for parents and teens.
Going The Grant Route
Grants look a lot like scholarships, but they tend to serve different purposes. You’re much more likely to receive a grant if you have demonstrated financial need, and those who have financial resources to help them pay for college will find it more difficult to meet the qualifications to get grants to help them with their educational expenses.
Grants often come either directly from schools or from federal or state government programs. In some cases, grants are targeted to students who fall into specified groups, such as low-income households and minorities, while others are more general in their application.
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What’s A Parent To Do
Theres much a parent can do to support their childs college experience without digging into their wallet. Help them search for scholarships and fill out the FAFSA. Encourage your child to get a part-time job during high school and college. And, help them make smart financial choices during their college search.
Most importantly, start the conversation about college expenses early and have it often, says Jessica Velasco from JLV College Counseling.
Financial aid is not created equal, and two colleges with identical costs could offer much different financial aid awards, explains Velasco. Therefore, as students and parents are going through the college search, financial fit is an important aspect to consider when adding colleges to the interest list. Research financial aid options at colleges by reviewing the financial aid pages as well as filling out the net price calculators to get a good idea about the amount of financial aid that may be offered if the student is admitted to the college.
Finally, explore the option of taking out loans along with your student, as long as thats manageable for you. And, together, look for tips to fill tuition gaps. There just may be more resources available for students and parents than you realize.
How Do Parents Save For College
If you have the means to save for your childs future college education, you absolutely should. Given the numbers above, if you hope to save enough to pay for your childs education in full, just for their undergraduate studies, you will need $130,000 to upwards of $300,000 or more.
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There are tax-advantaged ways to do this 529 plans that allow the earnings on your savings to compound tax-free, and remain that way so long as you withdraw the funds to pay for school. You can learn more about college savings plans here, how specific 529 plans in your state may offer state tax benefits here, and a whole new type of 529 Plan, the Private College 529 Plan, that allows you to pay tuition at todays rates.
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Take Advantage Of The Aotc
The American Opportunity Tax Credit allows you to knock up to $2,500 off your tax bill, per student, per year. It can be applied to you, your spouse, or your dependents. The first $2,000 of your college expenses earn you a dollar-for-dollar tax credit, after which you get a credit of $0.25 for every dollar you spend on tuition, up to another $500 in tax credits.
Keep in mind that a tax credit is far more beneficial than a tax deduction. Deductions come off your taxable income credits come off your actual tax bill. You can find more details about the American Opportunity Tax Credit and other college tax deductions and credits here.
Q: If My Child Enters College How Long Might I Be Required To Pay For College Expenses
A: In states where college expenses are considered a form of child support under the law, or if your decree specifically treats them as child support, they are subject to enforcement, modification, and termination. Other times when payment of college expenses is ordered as part of a divorce decree, it may not be in the nature of child support.
Typically, when a child is attending college, they are not “emancipated,” or self-supporting. Your obligation to pay for educational expenses officially ends when the child is emancipated, or by the time your child earns a degree. Minor emancipation laws vary by state.
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Start Saving For Your Childs College Early
Ideally, the best time to start a college fund is when your child is born. With compound interest and regular investments made monthly or yearly, the funds have an opportunity to grow over a longer period of time, and you dont need to put aside as much each month or year to reach your savings goal.
Your funding can be modest, and many parents find they can afford $25$100 from each paycheck, automatically deposited into the college savings plan of their choice. If you get a raise or bonus, that money can also be allocated toward college savings.
Family members can contribute to a child’s college savings by opening their own 529 plan accounts. They can also make contributions to an established 529 account under the child’s parents’ name, if the plan that the parents use accepts third-party contributions.
Some plans don’t accept these contributions, in which case it’s best to create a new account or gift the parents cash intended for deposit into the 529 plan. Regardless of how the plan is set up, its important to maintain contribution levels that will ensure you can afford tuition and other costs. Such discipline can be particularly useful if you face additional financial obligations later.
No matter what plan you choose, starting a college savings fund for your child is a big investment. Let a Nationwide financial professional help guide the process.
Getting On The Same Page
Conversations about college costs need to start early In 2017, students had enough income and savings to cover 11 percent of their college costs, or around $2,600, according to Sallie Mae. Additionally, nearly half of all students received some kind of scholarship in 2017. But both of those efforts require a head start, on either earning money or on finding and filling out scholarship applications. Parents are the ones who need to initiate those conversations, Wright says. Paying for college is a team effort, and everyone has to be on the same page.
A few ways to get there include:
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Take Advantage Of Rotc
Each branch of the armed services offers ROTC scholarships, which stands for Reserve Officer Training Corps. The premise is simple: The military pays for some or all of your childs college tuition, and in exchange, your child commits to a certain number of years of service upon graduation.
When students graduate and begin their military service, they enter as officers, receive additional training, and specialize. In many ways, its a win-win the student gets a free or deeply discounted college education, a guaranteed job upon graduation, and additional career and leadership training. They also receive some structure and personal value instruction to boot which some young adults need more than others.
Beware, though, that ROTC scholarships are far from guaranteed students must apply for them and be accepted into the program. And like all scholarships, theyre contingent on performance. If your child slacks off and earns Ds, dont expect the military to keep paying their tuition.
As a parent, you can sweeten the pot for your kid by offering to invest some of the money you and they are saving on tuition. You could put it aside for a down payment on their first house or invest it in an IRA for them. For that matter, you can invest it in your own retirement so your kids arent stuck supporting you when youre old and broke!
What Are Examples Of Education Savings Accounts That Will Help People Plan For College Expenses
A 529 plan is one of the best tax-advantaged ways to save for higher education. They come as either savings or prepaid tuition plans. Coverdell ESAs are another popular way to save. A plan can be set up at a bank or brokerage firm to help pay the qualified education expenses of your child or grandchild. Like 529 plans, Coverdell ESAs allow money to grow tax-deferred and withdrawals are tax-free at the federal level when used for qualifying education expenses
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Ask Your Teen To Help
That doesnt always come in the form of paying a bill for college, but it might. Here are some considerations.
- Good grades and test scores might equal merit aid. Starting freshman year, high school teachers for Petersons son emphasized the importance of GPA.
- Advanced placement and dual enrollment courses might offer college credit.
- Federal student loans are in your childs name so the investment should be worth it in terms of return . Just because you can take out a loan for a big dollar amount, doesnt mean you should, Winston says. That goes for co-signing a loan , too you can generally only be released as a co-signer after certain requirements are fulfilled.2
- Parent PLUS loans and private loans can affect your debt-income ratio.
- Financial aid and merit scholarships may change from year to year and full rides are hard to come by.
- Attending community college for a year or two may cost less, enabling your child to possibly save and then transfer to a four-year school.
Long shots and dream schools are good to discuss, but ultimately need to be balanced with real-world college costs. I used to tell our son that the best fit isnt just a school thats a good fit academically, but also financially. He heard me say many times, Love the school that loves you back, Peterson says.
I used to tell our son that the best fit isnt just a school thats a good fit academically, but also financially.
Francie Peterson
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What If I Cant Pay For My Childs College
Not every parent can afford to send their child to college. And thousands of students go to college every year without parental assistance thanks to student loans. I was one of them. I had no college fund, and I paid for my entire 4 years at Notre Dame through scholarships, work-study programs and student loans.
The Federal government is one of the primary providers of student loans in the United States. When looking to obtain student loans, you should exhaust ALL federal options first, before taking on private loans. Federal loans offer flexible repayment options, loan forgiveness porgrams for some future careers, as well as subsidized loans, none of which are available via private sources.
Stafford loans offered by the government come in two types: subsidized and unsubsidized. Subsidized Stafford loans have no payments until after you graduate and the government pays interest while you are in school. You must have demonstrated financial hardship with family income less than $50,000 annually to obtain a subsidized Stafford loan. There are annual loan limits and total debt caps for undergraduate studies.
Unsubsidized Stafford loans also defer payments until after you graduate, but you are responsible for all accrued interest. These are available to all students, and also carry annual limits and total debt limits for undergraduate studies.
What Do You Think
Ive always steered in the direction that it was best that parents do not help pay their childrens education. Ive had to take care of myself starting at a pretty young age and I think Im a better person because of that.
At the same time, I now have two young children. I want them to succeed. I want them to get an education and I dont want them to start their young adult lives buried in debt. Which is why Im thinking meeting in the middle is a better choice.
What do you think? Should parents pay for their childrens college educations?
Alexa Mason is a freelance writer and wanna be internet entrepreneur. She is also a newly single mom to two beautiful little girls. She chronicles her journey as a single mom trying to make it big at www.singlemomsincome.com.
Editorial Disclaimer:
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