Don’t Pay for your Child’s College Education

Does it strike anybody else as strange that there is an unspoken assumption that parents ought to pay (in part or in full) for their children’s college education? And not only are parents expected to pay for this cost, they are apparently expected to start saving for it the day after conception! As parents we are sold on a variety of financial tools and products designed to help us fulfill this mandate: 529 College Savings Plans, Coverdell ESA, UGMA/UTMA, IRA’s, Savings Bonds, a second job, or selling a kidney.

Where did this expectation that our children are entitled to a fully funded college education begin? Is this financial expectation an appropriate addition to our parental obligation to train up our children to the best of our ability? And let me be clear, by no means am I calling into question the importance/necessity of a college education or pointing a disapproving finger at parents that have made the decision to provide their children with this opportunity.

But I do have difficulty understanding the fact that a fully funded college education for our children has become an EXPECTATION of parents. One need only to review any Personal Finance guru’s latest book or chat with a financial advisor to get the message loud and clear: your children’s college education fund has made it onto the same page as your mortgage, retirement, and savings efforts. In fact, there is a whole industry – departments of financial companies, sales personnel, marketing efforts – designed to perpetuate the expectation that parents commit to this huge financial expense. And I struggle with this expectation; the expectation that the financial well being of the whole (your ability to retire comfortably, pay off your mortgage early, establish an effective emergency fund, etc) should be weakened by any of its individual parts.

It’s for the children Daniel! And the children are the future! You sound like an anti-education zealot! Shouldn’t we try to provide are children with every advantage?!

Okay … I’m glad some of you got that out of your system.

But just follow me for a few more thoughts.

Now for those of you just starting your families I want you to consider the financial logistics of saving and additional $130,000 – $320,000 (please remember that this is per child) over the next decade. This saving is in addition to your monthly living expenses, your mortgage/auto payments, insurance premiums, emergency fund contributions, and investment/retirement funding.

And what would it take over the next decade to save up $260,000 to pay for your two children’s four year public college education?

$1,500 a month!!

That works out to $18,000 per year over the next decade and assumes an 8% annual rate of return (which might be a bit optimistic given the current and forecasted economic climate).

And while I’ve used a ten year time frame to coincide with the chart above projecting 2021 college costs, let us also look at what it would take to save up $260,000 over 18 years (we’ll be generous and assume costs don’t increase from their 2021 projections).

$583 a month!

Or an additional $7,000 per year over the next 18 years (assuming the same 8% annuala rate of return).

Now certainly we can see the advantages of saving early and the power of compounding interest, but does the average American family have an additional $583-$1500 a month to contribute to their children’s future college education fund? And is it fair to assume, much less expect, that a family ought to direct this type of monthly payment to a college fund when they are likely facing credit card debt, a mortgage that will take thirty years to pay off, and a retirement account that is likely under funded?

I would suggest that contributing to a college fund is only sensible if you currently have no consumer debt, a plan in place to pay off your home quicker, and a retirement fund that you are certain will provide you with the peace of mind you and your spouse feel is necessary. In my opinion, to sacrifice financial security in these key areas at the expense of a “nice to have” expense (see my post “Five Steps to a Monthly Budget“) is irresponsible.

And why am I comfortable in classifying a child’s college fund as a “nice to have” instead of a “must have”? Because there are other a number of other options available when it comes to your child funding his or her education. These options include working during summers/the school year, federal student loans, and scholarships. How many alternative financing options do you have when it comes to paying your mortgage, investing in your retirement, building your emergency fund, and contributing to all the other financial ‘must haves’ in your monthly budget?

My intention with this post is to get you thinking about the origin of the now seemingly excepted expectation that parents are obligated to save for and fund their child’s college education. To be able to provide your child with such an opportunity is a wonderful accomplishment and ought to be a top line item on an family’s “nice to have” list. But at what cost to the rest of your family’s financial needs and goals?

I only intend to suggest that we develop an alternative expectation – an expectation that says you are NOT doing your child a disservice if you choose to focus on other ‘must have’ financial obligations. Children that are in a position of needing to fund their own college education through work/loans/scholarships will learn many valuable lessons: balancing priorities, financial management, the importance of hard work and education, and the skills necessary to become self reliant