Getting a college education carries a huge price tag and, for most students, affording the cost of college without a lot of help simply isn’t possible. This help could come in the form of family contributions, or it could come from student loans.
As a parent, you probably don’t want your child saddled with a whole bunch of educational debt. At the same time, you also have to consider your own financial stability when deciding how much you can afford to contribute to your child’s educational costs.
Ultimately, the amount of tuition you can cover should be based on a few key factors, including how much you’re able to save while your child is growing up, whether you’re taking care of your other financial goals, and whether you want your child to have a financial stake in his or her schooling.
The earlier you start saving, the more tuition you can cover
If you want to pay for all of the tuition for your child’s schooling -- or at least a big portion of it -- you should start saving early. If you begin setting aside money when your child is born, it won’t be as much of a financial hardship to make a big contribution to educational costs. Accounts such as a 529 plan can provide you with tax advantages for college savings, so you can more easily save the amount you need.
If you’ve waited until your child is in high school to begin saving, chances are good you won’t be able to set aside much and will only be able to fund a small part of tuition costs. While many parents end up borrowing to help pay for school, this isn’t always a wise financial move. You should try to avoid getting into a situation where you have to choose between taking out a loan and not helping at all.
Can you help with tuition without compromising your finances?
Parents have only a finite amount of money, and if it comes down to a choice between investing in a college savings account or investing for retirement, you need to choose investing for retirement every time -- even if this means you won’t be able to help your kids at all.
Social Security alone isn’t enough to live on and most people don’t have guaranteed pensions from employers to provide supplementary income, so you must have retirement savings. Your children can borrow for college costs, but you cannot borrow to fund your retirement when you get into your 70s and have no money. And don’t assume you can just keep working longer to save, as many people end up having to leave work before they planned because of health issues or challenges finding a job in their 60s.
If you’re thinking about borrowing to help your kids, you’ll also need to consider what that will do to your finances. Will you be able to keep saving for retirement while paying on the loan? Could you afford to pay off the loan if you had to retire early? And don’t forget, the student loan shows up on your credit report and affects your debt-to-income ratio. So if you borrow, you might not be able to qualify for a mortgage if you must downsize or may not be able to get approved for a loan for your second child if you borrow too much for your first one.
Unless you can comfortably afford to set aside money in a college fund or to make loan payments without jeopardizing your finances, you simply can’t afford to contribute to tuition costs. If you can afford to borrow or to save in a college fund, contribute or borrow only as much as you can comfortably pay while still saving for your own future.
Do you want your child to take some responsibility?
Sometimes parents can afford to pay for a child’s entire tuition but decide they don’t want to do so because they want their child to work for their degree. While it’s unrealistic to expect that your child can fund college with a part-time job, you could make clear your son or daughter will be responsible for a certain percentage of expenses.
If you want your child to have some financial responsibility, you could offer a low-interest loan -- but get the details in writing. Some parents will also have their kids take out the actual loans, but the parents will agree to pay them back if the child graduates on time with a certain GPA. Only you can decide what works for your family and how comfortable you are with giving your child a fully paid for education if you can afford to do so.
How much of your kid’s college tuition should you cover?
Ultimately, there’s no one right answer to how much of your child’s college tuition you should pay. When your child fills out the free application for federal student aid, you’ll be provided with an expected family contribution amount and any financial aid will be reduced based on the amount you’re expected to pay. However, if you can’t make this contribution, your child could still get an education by choosing a school that offers more financial aid or by borrowing more in private student loans.
The important thing is, you need to consider the big picture of your finances. If you can save and pay schooling costs or borrow to help out without compromising your retirement or financial security, then you may decide to do that. But if you can’t, don’t get yourself into financial trouble when there are other options out there for your kids to get an education.