Whether your child is 5 or 15, you’ve probably spent some time thinking about how you are (or are not) going to be able to help them with their future education. Afterall, college graduates still make more than their high-school graduate counterparts, and the comparison isn’t even close.
What is difficult is knowing what a college education will look like 15 years down the road, and how much it will cost. It’s also difficult to know whether your child will even want to pursue a degree, what they might major in, and where they might want to go to school.
However, I would like to share some dos and don’ts that apply even in the face of all of that uncertainty. The more you know now, and start to think about early, the better off you will be! One thing IS certain – ignoring it will not make it go away.
- Do start thinking about this topic early – the earlier you plan, the more options you will have. Savings invested for 15 years have a much better chance of growing than those invested for 5 years.
- Do start talking to your children early in life about money, savings, careers, and education – I don’t mean during their sophomore year of high-school. I mean that as soon as they are capable of grasping the concept of money and what it’s for (my five year old gets it). Talk with them about school, how important education is, and how much colleges can cost. Also understand if they might want to learn a trade instead and what the path to that career could be.
- Do set realistic expectations with them as to how much you can or will help – if you can (or want to) only contribute a set amount, let them know. If you will pay the equivalent of state school tuition but not private school, let them know. Let your child make tough choices as to where to attend and how much they can spend.
- Do expect them to contribute – many parents think of student loans as the main way a child can pay for their own education. Provided you start early enough, children should be expected to earn scholarships, use savings from part-time/summer jobs, or work while they go to school. Them having some skin in the game will change how they view the entire equation.
- Do consider if you can use extra cash flow while they are in college to help – will your household have more income when the kids leave home because both spouses are working or have reached their prime earning years? Will there be extra money then because you’re not paying for activities, you’ve downsized your house, or you don’t need that extra car?
- Don’t risk your retirement to pay for your child’s college education – it has become a cliché that you can borrow for college but not for retirement, but that’s because it’s true. Your child will thank you when you aren’t coming to them for money when they’re trying to buy a house or start a family. They will thank you when you’re financially stable in case they need help after they graduate while they get their career going.
- Don’t co-sign their student loans – you may think you are doing them a favor, but what this does is give them an out if they don’t feel like paying. You may never think that will happen, but it could. Just don’t do it.
- Don’t take out PLUS loans – the last thing you want to be doing is paying loan payments for your child’s education when you enter retirement. What if they don’t even finish college? What if they decide they want to be an entrepreneur, or travel around the world?
- Don’t borrow against your 401(k), your house, or anything else to fund college education – see a pattern here? Just don’t do it.
- Don’t ignore the student loan debt crisis – help your child understand what is a reasonable amount to borrow on their own – usually the equivalent of one year’s salary after graduation. This means that a computer science graduate can probably afford to borrow more than an english major. That’s just the way it is.
One final don’t. Don’t despair. There are many great resources to help you get there. A couple of them are:
Please reach out if I can help answer questions or provide more information. Planning for college is one part of a comprehensive financial plan that can help your family get from where you are today, to where you want to be tomorrow.