How to Afford a College Education for Your Kids
Planning for future spending is hard. For most people, making decisions just a week in advance creates a lot of stress, let alone a month or a year down the line. So planning to pay for your child’s education 10+ years ahead of time can be very stressful and overwhelming. It can become overwhelming and stressful to try and begin paying for college.
As you can imagine, or maybe you know from experience, saving up for costly tuition that’s 10+ years down the road pushes some people to the edge of their sanity. Parents have to work with an exceptionally broad timetable, which is difficult enough. Then on top of that, they force themselves to play fortune tellers, trying to predict what their kids want to do with their lives. That can put undue pressure on everyone, and extra pressure always makes financial conundrums more tedious.
None of this is to say a college savings account is a bad thing.
I’m usually a fan of anything that has the words “savings account” somewhere in the title. But, I’m even more concerned with young parents feeling burdened by the mere concept of paying for a child’s education. If you combine worrying about college expenses with covering the cost of preschool – which is not particularly cheap – you might go crazy. There’s a better way, but it all depends on your situation.
Whether or not you decide to start a college fund for your kids is up to you. Instead of telling you what to do, I just want to list a few things that I see as the pros and cons. You can decide where you fall on this particular ar spectrum. If you can come to a place where you understand why saving works for some people and doesn’t work for others, you’ll be much better equipped to decide for yourself.
The Cons of a College Savings Account
I’m starting with the cons to shake things up, and because I think a lot of people are less familiar with specific reasons why saving for college isn’t necessary. Again, saving money is almost exclusively a good thing… except when the effort to save keeps you from living your best life and making good financial decisions.
Remember, these cons aren’t about whether or not one should attend college. Simply ask yourself if worth saving for school over an extended period of time. Tuition at first-class universities runs very, very high, and you must accept that if these are the aspirations you have for your children. Not to rule our private universities, but simply scrounging for pennies will not be enough.
1. Alternative Ways To Pay
Even if your son or daughter enrolls in the most expensive school in the universe and you haven’t saved a dime, there are ways to cover the cost:
- University payment programs
These options don’t come with a guarantee, but they may provide the funding you need to get your kids in school. Are these alternatives better than having enough cash to pay for an education outright? No way. Would I prefer you look into scholarships and affordable student loans instead of working into your 90s because you saved for your kid’s education instead of your retirement? You betcha.
Scholarships come in all shapes and sizes. People often mistakenly assume only straight-A students and people with exceptional circumstances can have their tuition covered. Even people in the middle and upper-middle class can get partial tuition, provided you come from the right background, meet certain criteria and, of course, are deserving of the funding.
Counting on a college scholarship may seem crazy when your child is eight, but you should try looking at it as another form of goal setting. Just as you strive to meet savings goals, you can work to put your children in a good position to earn financial aid. Saving for retirement and college at the same time forces a lot of people into a dire financial position; it might be worth planning to work for financial aid instead of living on a shoestring budget throughout your kid’s childhood.
The loan option gives me pause, as it should you. 22-year-olds are leaving college with so much debt it becomes impossible to lead a normal life. However, the right loan and repayment plan can help the right person. If you have good credit, you can get loan terms under four percent; you’ll still pay plenty in interest, but not the same as you would with a variable-rate mortgage or credit card debt.
I won’t push the loan option very hard, but there’s a situation in which it could make a lot of sense. Let’s say you have a hefty mortgage on your house. If you plan to take a full 30 years to pay that down so you can save money for a college education, you might be putting yourself in an unnecessary hole. Why not work harder to pay off your mortgage, then take out a loan with a better rate to cover your child’s tuition? While you’re taking the time to plan for spending that won’t happen for more than a decade, make sure you look at all your expenses through that same lens.
2. Alternative Financial Needs
The importance of a good education has never been the question. Rather, the issue stems from what you have to sacrifice to save enough for pricey tuition. When you decide to create a college fund, you need to weigh the cost/benefit of what you’re saving for and what you’re giving up.
Retirement is often the biggest consideration. Not so long ago, people had pension plans and lower costs of living, so saving for a child’s education was more important than building a robust retirement account. Now, as Baby Boomers retire en masse, data keeps pouring in showing how little that generation has in savings. That leaves most people with two options: work forever, or pass the burden off to their kids.
Think of this in terms of your child’s future beyond college. If you save for an expensive education instead of putting money toward your retirement, you might just be rearranging the order of your child’s financial strain. Instead of paying back student loans, he or she will have to put in extra hours to help you stop working. That’s a bizarre transfer of wealth that you probably won’t be happy with.
Saving = Sacrifice
Planning ahead often involves sacrifices, but you should never give up on your overall quality of life. That applies to the present and the future, and putting yourself in a hole to send your child to a university might not prove to be a worthy sacrifice. Just as parents, we’ll do anything to make our kids happy; however, we need to remember that our lives affect the lives of our children. Their happiness, especially when they become adults themselves, is dependent on our well-being.
As you balance your spending and see what you’d have to give up to build a sizeable college account, try viewing those sacrifices as long versus short-term. If you skip a family vacation to Hawaii so you can put an extra $5K toward school, that sacrifice probably won’t haunt you later. When you don’t pay down your own student loans or stop contributing to your IRA, that’s a long-term handicap. A four-year degree doesn’t assure your kids will make six figures straight out of school, so it probably isn’t worth swapping your retirement savings for a tuition fund.
3. Value of a Degree
I want to expand on the point about college graduates not necessarily landing good jobs. If you read an article or two about salaries for recent graduates, you’ll see that wages have increased around three percent over the last year. That puts the average salary for a 2017 graduate at just under $50,000. When you think about the cost of living, student loans, etc., that number still doesn’t look so great.
The number above also represents wages for those lucky enough to get a job, not the average amount every college graduate makes. Truth is, employment is too fierce for anyone to have high expectations for their degree. Markets are changing and new university programs keep sprouting up, making it difficult for young adults to know exactly what career to focus on while in school.
What about Skipping College altogether..?
That’s the bleak version. I think it’s important for everyone to have realistic expectations. I don’t believe that finding a job is an impossible task for college grads, it may simply be more difficult. And, you don’t have to look very hard to find outside-the-box thinkers who have launched excellent companies and careers in unique ways. One such way, you might have guessed, is to skip college altogether.
With the oversaturation of college-educated applicants, more and more hiring managers look for experience over certification. A college degree won’t hurt you, but it might not help as much as an apprenticeship. If your child shows a lot of promise in a certain field that’s ripe with opportunity, getting an entry-level position in that industry could prove far more useful than a degree. Unless the goal is becoming a doctor or lawyer, it’s not easy to predict what road will lead most quickly to a successful career.
You should also keep in mind that most people change careers several times before turning 35. All those jobs may be within the same field and hinge on the employee’s degree, but it’s just as common for people to realize they want to go into an entirely different line of work. At that point, the tuition money is long gone and the degree stops carrying much weight.
The Pros of Saving for College
While I think the argument against paying for an expensive education has a lot of merit. I also agree with many of the points made on the other side. So, let’s take a look at the pros platform.
The best reason to start a college fund has no counterpoint: time travel doesn’t exist. When your kid turns 18 and gets accepted to Yale, you can’t go back and do it all again with more savings. Just like with retirement, putting away for college has to be done over time, and there are no shortcuts if you start too late.
If you have the money to put some away for school while still covering the other necessary expenses and savings, you leave that opportunity open for your child. Whether they go to an expensive school or not, you’ll be able to present them with that choice. That can have a huge impact on high school students who are starting to find themselves and form ideas about who they want to be and where they want to go.
High school graduates have so many great options for what comes after their senior year. However, you can’t deny that college provides perhaps the best environment for those looking to gain experiences and learn about potential careers. The importance of this opportunity should factor into your decision when it comes to whether and how much you save.
A person can always go back to college, but the experience of transitioning from a high school student into a young professional alongside your peers only comes around once. That’s not the path for everyone, but you’ll at least want your kids to have that option. If you’re able to make the choice financially feasible, you won’t regret it.
2. Savings Are Savings
Did you put away $80,000 for your son’s college education and then he decided not to get a degree? Bummer! Too bad you can never get that 80 grand back. Oh, wait…
When you can afford to create a college fund without neglecting your retirement, it’s hard to think of a bad outcome. Either you send your kid to college, or you have money saved up to put toward something else, great either way. Those funds open doors to new opportunities, for you and your children.
Because of this, I tend to think people should save for a college education. If you put money away for a few years then discover cash shortages in other areas, you can reconfigure or stop contributing to the college fund for a few months. You don’t have to view this as an all-or-nothing situation; make the effort to save and remember to reevaluate every once-in-a-while. At the very least, you’ll have some money aside for your child’s education.
In the event you have money saved that doesn’t go toward tuition, it can move into your IRA or an account for your son or daughter. Also, consider the reality that your college fund may not cover the full cost of tuition when your child decides to go to school. Don’t let that discourage you; all of that money will still serve an important purpose, whether it’s lowering the cost of student loans or going toward some other certificate or diploma program.
You rarely hear someone lament the fact that they’d saved money. If your other needs are covered and you have a few extra bucks each month to put in the college account, do it. The money’s purpose might change over time, and there’s nothing wrong with that.
3. The Right Focus
This final point leans more on the act and less on the amount. However much you make, you want to help your kids live out their dreams and lead successful lives. College may or may not be part of that, but your efforts will prove worthwhile either way.
When you set aside money for a college education, you prioritize your children over yourself. While I want you to look out for your own future and save for retirement, you should otherwise be focused on improving life for the next generation. You can do this in a lot of different ways, but investing financially in the future makes as much sense as anything else.
Changing your fiscal strategy takes a lot of work. After decades of spending money on your own needs, children throw a massive wrench in your money management gears. That’s why the act of saving and adjusting your budget to benefit your kids is so important and consequential. It’s a little thankless at first, as you create a savings account that your kid won’t know about or appreciate for years, but nothing compares to the payoff of putting your children ahead of yourself and watching them succeed.
Whatever your financial standing and educational outlook for your child, it might be worth starting a fund designated for your kid’s future. Call it college savings account or name it anything you want, then see how much you can set aside. If you feel lost as to what the funds will go toward or worry it won’t cover tuition, just refer to pro #2: savings are savings.
How you spend your money is very personal, as is the path a person takes to their version of success. Whether or not your child should go to college and whether you need to start saving money for that expense depends on a million factors that are almost impossible to predict. Your feelings about graduate degrees and college expenses might evolve as your children get older, which is exactly how it should be.
Both sides of this discussion have merit. You should always try to save more and it’s wonderful to give your children the opportunity to go to a university. But you also need to make sure there’s a plan to cover your future expenses. In many cases, finding this balance takes a lot of effort.
What’s most important is that you do not feel pressured to spend money in a way that doesn’t make sense. You need to enjoy your life and save for your future, and if that means you hold off on starting a college fund, that’s OK. There are so many alternatives that can lead to incredible opportunities. If you act responsibly and think about the futures of everyone involved, you’ll end up making a decision you have no trouble standing behind.
Taylor & Megan Kovar
The Money Couple
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