Parents contemplating contributing toward the cost of their children's college education should plan realistically and consider what's at stake personally.
While decisions are best tailored by individual families, key questions include:
• What percentage of the cost can a parent pay and what savings and investment tools will help achieve that goal?
• Will contributing mean diverting money from the nest egg that parents will need for a comfortable retirement?
So should parents feel obligated to help foot the college bill?
“The short answer is not necessarily,” said Matt Henry, certified financial adviser with STAR Financial Bank.
That's a tough question, said Nathan Shelton, financial adviser with Shelton Financial Group in Fort Wayne.
“Generally, I would say take care of yourself, and then your kids, as a rule of thumb,” Shelton said.
Financial adviser Christopher P. Moore poses another question: “How do you put a value on a college education?”
Parents who can help with a child's college education are helping them become “more well-rounded in the world around us,” said Moore, who owns Moore & Associates.
While Moore said helping a child go to college may require some sacrifice for the long-term value or good, that doesn't mean parents have to disregard their own potential livelihood, retirement or even travel goals.
“It's a balancing act,” he said.
And it's an expensive proposition.
The average published yearly tuition and fees for a public two-year college for students in the institution's district are $3,440, according to The College Board. The average for in-state students attending a public four-year college is $9,410.
The cost is substantially higher for students who want to cross state lines. The average published yearly tuition and fees for out-of-state students attending a public four-year college is $23,890, the College Board said. And a private four-year college can cost an average $32,410.
If trying to send a child to college sets a parent back financially, the child may later have to help cover long-term care or retirement living costs for the parent, Shelton said.
His clients have widely varying retirement goals and strategy, which affects how much they'll contribute to college costs.
Some parents reach a stage where they want to live off the interest from investments and leave the core to help their children. Others want their children to “have some skin in the game,” meaning they'll help, but the children have to pay some of the college costs.
“I would say a large majority pay a portion of their kids' college cost,” Shelton said. “Maybe 30% to 40% feel obligated to pay at least half.”
Indiana's CollegeChoice 529 plan, which provides tax credits and can be started with as little as $10, is one financing option Shelton often discusses with parents.
Henry, who is the senior investment officer at STAR Financial, knows many parents feel compelled to provide for their children in college and beyond.
“Some parents want to give their children whatever resources they can to ensure they have a smooth transition into adulthood,” he said through email. “How much support to provide, and until when, is a decision parents make individually.”
Having students bear responsibility for ensuring college costs are covered can also be a litmus test.
“By taking some or all of the financial burden on themselves, students may take college more seriously and understand the need to choose a career path that can help provide a financially secure future,” Henry said.
“Many teenagers pay for at least part of their own cars, gas, insurance, and discretionary items such as clothes or movie tickets. When teens pay for some items out of pocket,” he said, “it can help them learn to budget, and 'understand the value of a dollar.'”
The cost of a college degree can pale in comparison to what some young adults spend on their first vehicle, though. And Henry points out that if parents have average or above-average income, the amount of student loans a college-bound teen can qualify for may not be enough.
“Even students who select a lower-cost state school often need financial assistance from parents to meet annual tuition costs,” Henry said.
“Several decades ago, it was possible for a student to work enough during college to cover the costs,” he said. “With the high cost of education and the relatively low growth in wages, that is no longer feasible.”
The two ways parents can help meet those costs means borrowing and saving.
“Borrowing is often the only option for parents when their child is imminently bound for college,” Henry said, adding that both the U.S. government and private sector banks have loan options.
Moore said there are plenty of options for parents to help financially with college expenses, including the College Choice 529 plan, Pell Grants or investing through mutual funds.
The key, Moore said, is determining how much can be saved to reach the end financial goal, while keeping in mind investment risks.
“The nice thing about it is most times people get raises and their salaries increase,” Moore said, suggesting some of those increases – combined with a solid strategy –could be college seed money.
“We humans are not made to follow plans. We're made to follow our emotions,” Moore said. “Most people don't plan to fail, they fail to plan.”
About this project
The cost of college has continued to increase, taking those who earn a degree years to pay down the debt. The topic has even been a talking point for those campaigning for U.S. president, so the Journal Gazette staff decided to take an in-depth look at the financial realities of higher education with a three-week series of stories on “Diplomas & Debt.”
• Why getting a college degree has become such an expense, including the stories of some graduates with loans to repay.
• Should parents feel obligated to contribute to their children's college costs, even if it means saving less for their own retirement?
• Financing a college education and a look at one debt-forgiveness program.
• A look at proposals politicians and congressional lawmakers have offered to make higher education more economically reasonable.
• The debt repayment requirements for loans taken to finance college can affect the options graduates can consider when it's time to buy a home.
• Some students who bypass college and instead opt for trades training can find fulfilling jobs with decent salaries.
• Tuition assistance programs employers offer are popular.
At a glance
Tuition is the price colleges charge for classes. Students also pay other fees related to enrolling in and attending a college. The cost of tuition and fees varies by college. There is a wide range of prices, from an average published yearly tuition and fees of $3,440 for a public two-year college to $23,890 for a student to attend an out-of-state school and $32,410 for a private four-year school. But half of all full-time undergraduate students at public and private nonprofit four-year colleges attend institutions that charge tuition and fees of $11,814 or less.
Along with tuition and fees, students must pay for housing and food (known as "room and board") books and supplies. They also must cover any additional college fees and other living expenses, such as transportation costs whether they commute to campus or take an occasional trip home.
The best way to determine what a particular college may really cost is to find the estimated net price for that college. This is usually far lower than the published price. Your net price for a college is the published price of tuition and fees minus your gift aid and education tax benefits. Gift aid includes grants and scholarships but not loans or money earned through a work-study job. Source: The College Board, a not-for-profit organization designed to help students achieve college success.