Family Financial Planning: Is Parents Paying for College a Good Idea?
Is parents paying for college a good idea, or are we teaching the wrong lessons?
It should come as no surprise that most millennials will say parents paying for college is the way things should be. In contrast, three out of every five parental units believe children should share the burden. So who's right? The answer is no one and everyone. Here's why.
Tuition by the Numbers
Current tuition statistics according to Sallie Mae back the parents' position on this issue. Over 41 percent of college tuition is currently paid for by the parents with their own savings, taking out loans, and/or hitting up grandma and grandpa for some help.
Nothing wrong with that. But that still leaves 59 percent of the bill. Roughly 34 percent of tuition is met through scholarships and grants. That's good news for the students, who pick up the remaining 25 percent through student loans, savings, and their own income.
Is Parents Paying for College Really a Good Idea?
Parents must answer this question for themselves. Every family's finances are different.
Some have the money to pay for the entire college experience without upsetting their long-term/retirement plans and some don't. The affordability isn't the question though.
Many parents believe that paying for everything does your child a disservice, and studies support this theory. Researchers have found that those students whose parents pay for college tend to get worse grades. This is because they partake in more leisure activities, i.e. partying.
Those students who are paying at least a portion of their expenses tend to take their education more seriously. They know the value of the money they earned, and are more likely to get the most from their savings.
Both parents and students believe going in that taking away the financial burden from the student they will be free to focus on learning. The truth is, those that get a free ride tend to take it for granted and become lazy and less focused.
Surprisingly, the percentage of students that graduate is higher in those whose parents paid for everything versus those students footing the bill on their own. Most experts agree this is because most students leave school for financial reasons.
Tips for Teaching You and Your Child How To Save for College
Parents should focus on what you can afford. A good rule is don't pay for anything that will hurt your long-term retirement goals.
Starting to save early is important, and a good tip is to re-allocate expenses like daycare or preschool fees once they are no longer necessary. You've had them in the budget already, so instead of taking more extravagant vacations try saving that money in a 529 Savings Plan.
Another good tip is to get your children involved, and the younger the better. Figure out a fair amount of their paycheck to set aside each week. This teaches them the value of hard work along with some basic financial planning skills.
What's Your Plan?
Parents paying for college, even a portion of this expense, need to have a plan. And it's never too early to start. Talk to an agent today and get your family's future started.
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