I will admit that I made the critical mistake of not thinking about how to pay for college until my oldest son entered high school. I don’t know if I was burying my head in the sand, hoping some magic genie would appear to pay for everything, or secretly hoped my son would sail to the head of his class and be showered with scholarships. Unfortunately, neither of those scenarios transpired. Instead, my son waited until the middle of his junior year to decide grades were important, which put him out of the running for many of the larger merit-based awards offered by colleges. When senior year arrived, I had to make the tough decision to either dig into my retirement fund to help finance his degree or consider some alternatives, such as asking him to foot the bill.
At first, I considered dipping into my 401(k) plan, but most experts agree that using your retirement fund to pay for your child’s education is not a wise decision. Let’s say you borrow from your 401(k) and end up leaving, or worse, losing your job. You would need to pay back that loan in 60 days or it would be taxed as ordinary income. If you’re under 59 1/2 years of age, tack on a 10 percent penalty as well. It’s also much more difficult to replace that income if you are getting close to retirement, have had your hours cut, or end up losing your job. I honestly couldn’t see taking the risk, especially when I wasn’t sure my son would put forth the effort to complete his college degree.
So, like any concerned parent, I did a little research to decide what amount, if any, I should contribute to his post-secondary education. Here’s what I found.
1. Nearly 60 percent of students who drop out of college had no financial help from their families. The strain of working one or more jobs, while trying to maintain satisfactory grades in college, was often too much, or they simply couldn’t cover the rising costs of college.
2. Students whose parents paid for the entire bill were more likely to graduate, but with much lower grade point averages (GPA). This is fine for students who come from wealthier families and attend prestigious colleges, as they often have the connections to move directly into a career after college. Lower-income and middle-income students, however, may not have the same networking opportunities and find it difficult to find employment.
3. Many financial experts suggest that students should have some ‘skin’ in the game and not rely on their parents to foot the entire bill. Making students financially responsible for some or most of their college expenses may increase their focus on studying and help them to graduate on time. For example, parents might cover the cost of tuition, housing and meal plans, and let their children tackle any extras, like books and transportation expenses. Some parents might opt to cover expenses of an in-state college, but make their children pay the difference for an out-of-state institution.
Armed with this information, I decided on a happy medium. I agreed to cover housing, books and meal plans for my son’s junior and senior year, if he paid for his associate’s degree and earned a GPA of 3.0 or higher. During his stint at community college, he paid for his expenses through grants, student loans, and the money he earned through tutoring other students. When it came time to transfer, his college GPA was finally high enough to earn a few scholarships, as well. He also worked full time during his summer breaks and saved that money to cover expenses such as vehicle maintenance and clothing for his internship. At first he wasn’t very happy with the idea of having to take out student loans, but he was smart enough to only borrow what he needed. When he graduated, he had less than $15,000 in student loan debt. To help him start off on the right foot, and pay back his loans quickly, I agreed to let him live at home for two years after college. He worked full time as a math teacher at the local high school (5 minutes from our home) and also worked part time for a tutoring service on the weekends. When he was finally ready to leave the nest this year, he did so without any debt and enough money in the bank to furnish his apartment.
As for some of his friends who got a free ride, most are still trying to figure out what they want to be when they grow up. I guess it might be nice to spend six or seven years hanging out with friends and attending parties, but what are those students really learning? As their parents bank accounts dwindle, these students are simply trying to avoid the inevitable. One day, we all have to grow up and get a job. Do yourself a favor and make your child invests in his future. I promise, one day he’ll thank you for it.