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How Will You Help Your Kids Pay for College?

Published November 12, 2020

5 minute read

David Ning

By David Ning

Every parent wants to help their children establish the best possible future. One of the ways to do this is to encourage them to get a good education. While this doesn’t always have to mean getting a college degree, many families do take this route. While there are other post-secondary education options, this is a relatively straightforward path to follow. There’s a big obstacle with this approach though.. College tuition costs are through the roof. We are talking about six figures easily, once you factor in the fact that most students have to live away from home for those four years.

Still, helping your children pay for college is a goal that many of you will have. If you’re interested in funding their education, then it’s important to think through some possible strategies.

Do You Want to Cover the Entire Cost?

First of all, you have to ask yourself whether it’s really beneficial to cover the entire cost of your child’s college education. Raising children is already expensive. College is especially costly. It’s not just your retirement you should think about when deciding how much you want to contribute to their education. It’s your day-to-day budget too.

You should also consider what lessons you want your child to learn. Will your child value the education more if he or she has to help pay for it. Will they be a more disciplined student if they are spending some of their own money? Maybe your child has to earn a scholarship to help pay for school. Or they have to get a job to help with the costs. Or maybe they need a student loan to contribute a share of the fees. Don’t you think there’s a good chance that they will valued that degree more if they had to help pay for it?

I know that every one of my friends who’ve worked through college to pay for their education are extremely proud of having done so. If they weren’t, I probably wouldn’t even know that they had to work to pay for the classes. If you decide to pay for all of your kid’s college expenses, you may inadvertently rob them of this proud accomplishment. You may also accidently damage their personal work ethic, by creating a scenario where financial issues merely disappear for them.

Even if you want to help pay, you don’t need to cover everything.

Pay for Part of Your Child’s Education

One of my good friend’s parents did just this. They made some compromises and agreed to pay for her living costs during her college years. She was then responsible for her own tuition. Her parents paid for housing and board, as well as her auto insurance. She was also responsible for her own entertainment costs. Her full-tuition scholarship helped her pay her tuition. Then she got a part-time job to help pay for the fun stuff.

She is very proud that she had to work to pay for her classes. Like I said, I wouldn’t know any of this if she wasn’t. She likely would have never mentioned it.

Helping your child pay for college doesn’t have to be an all-or-nothing proposition. It’s possible to help your child financially, without putting your retirement at risk. Think about what you can realistically do for your child. Then teach them how to make the money decisions that fill the gap. Whether it’s working hard for a scholarship, taking out student loans, or juggling classes with a job, your child will learn to take charge of their own education.

Paying for Everything Isn’t Necessarily Bad

On the other hand, my parents paid for my sister and my education is full. We went to college in Canada, where citizens have their tuition somewhat subsidized. Still, those four years (times two) were extremely expensive for our parents. They had to sacrifice to make ends meet. However, saying that my parent’s efforts helped my sister and I out tremendously is an understatement.

Since my sister graduated debt free and worked during her college years, she was able to put a solid down payment to buy an apartment in Hong Kong (where she worked just a couple years after she graduated). And boy did that pay off! She was able to ride the entire 15+ year (and counting!) bull market in Hong Kong real estate.

She’s moved since, and lives in another apartment now. But to give you an idea of how much she’s benefited from price appreciation, her original property is worth at least ten-to-fifteen times what she paid back in 2003.

Unintended Benefits

I wasn’t as lucky with property investment as she’s been. However, graduating debt free still gave me a significant leg up in life. I worked for a few years after I graduated, but then quit my job to work on MoneyNing.com full time before I turned 30. Now I get to enjoy the flexibility of being a business owner, making more money than when I was working for someone else, all while helping others better their financial future. If I graduated with loads of student debt (a common issue among graduates these days), then it’s unlikely I would have had the courage to leave the comforts of a salaried position to give entrepreneurship a go.

My sister and I would likely have turned out just fine either way. However, our parents paying for our college expenses indirectly elevated our financial standing way beyond how much those few years of college expenses cost them.

Start Saving Now

No matter how much you decide to put toward your child’s college education, it’s important to start saving as soon as possible. I contribute monthly to my both of my kid’s 529 plan. There’s a healthy amount of money in there already. It could pay for an entire four years of college, depending on how the trajectory of tuition increases go in the next decade. In any case, whatever is in the account will provide some serious financial help for them. Plus, by making the contributions while they are still young, that money has a chance to grow. Remember, it’s being invested in low cost index funds.

You should also encourage your child to start saving right now. Teach them to begin setting aside money for the future. Even small amounts are beneficial, because they can provide valuable financial lessons. Set up a bank account and have your child put 10% of their birthday or Christmas money into savings. It will help your child learn good saving habits.

It’s certainly possible to help your child pay for college. It will help them get a good start in life. However, you don’t have to pay for it all. In fact, it might actually be better to make them bear some of the financial burden themselves (within reason). There are several strategies you can employ to spread out the impact. Whichever way your family decides to go, always try to keep the bigger financial picture in mind.

Graduation Cap With Cash

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David Ning

Experienced Finance Writer

David is a published author, entrepreneur and a proud dad. He firmly believes that anyone can build a solid financial foundation as long as they are willing to learn. He runs MoneyNing.com, where he discusses every day money issues to encourage the masses to think about their finances more often.

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