After many years of helping families with their student loans, I’ve had the privilege of working with people from all walks of life. I’ve seen parents struggle with weighing their retirement needs against their desire to help their children pay for school. I’ve seen kids overwhelmed with debt and I’ve seen parents trying to understand their massive Parent PLUS loan debt.
Whether or not parents have a duty to help their children pay for school isn’t really a legal question… they don’t.
As for the moral and ethical considerations, everybody looks at these issues differently, so it would be a challenge to find any sort of consensus.
Instead, I’d like to look at things from a practical perspective. Before we can make a decision about parent responsibility, we must first answer a couple of other important questions: When can a parent afford to help their child pay for school? What forms of help can a parent provide? What about families that are struggling to get by?
Many Parents Can’t Afford to Help Pay for College
Before we can even discuss whether or not a parent should help their child pay for school, we must first decide whether or not a parent can pay for school.
Parents who are drowning in debt of their own, and barely able to get by obviously are not in a position to help pay for a college education.
Things get complicated for the families who are on a more solid financial footing. The ability to help with school quickly becomes a retirement question for most parents. Before you can help a child pay for college, you first need to take steps to ensure you have a secure retirement.
Retirement for the Parents vs. College for the Kids
One of the biggest mistakes a parent can make is digging into their retirement account early in order to help pay for school. However, the retirement risks go far beyond expensive early withdrawals. Any financial decision that can impact retirement, such as skipping retirement contributions for four years, needs to be carefully considered.
On the surface, worrying about retirement ahead of your child’s college education might feel a bit selfish. After all, aren’t parents supposed to make sacrifices for their children?
The reality is that retirement needs to be a bigger financial priority for mom and dad. Kids can borrow money to pay for college, but parents can’t borrow the money they will need in retirement. Parents who fail to secure a viable retirement can quickly become a financial and emotional burden on their children. This burden is arguably worse than student debt.
Delaying retirement or being a bit more frugal in retirement are reasonable options for parents who want to help their children pay for school. The unreasonable choice is the decision to help a child pay for school with no understanding of the retirement implications. Sitting down with a fee-based financial planner might be a bit pricey, but such a step could be money well spent for families unsure of their financial outlook.
Plus, helping with school doesn’t necessarily mean writing a big check…
What does it mean to help pay for school?
Footing the bill is the obvious way to help pay for school, but there are a number of other steps that a parent might take in order to help their child pay for college.
Borrowing Money to Pay for School – Many parents elect to borrow money in the form of a federal Parent PLUS loan to help their child pay for college. These loans offer more flexibility than private student loans, but the federal perks are limited compared to what students get on their federal loans. The advantage of the Parent PLUS loan is that they have much higher borrowing limits than undergraduate student loans.
Cosigning Loans – Many college students are unable to qualify for a private student loan due to a lack of credit history and income. As a result, many parents cosign their kid’s loans. The immediate impact on the parent cosigner is that the loan will appear on their credit report and potentially hurt their debt-to-income ratio on mortgage and other credit applications. The big risk is that if the child is unable to pay the loan, the parent is legally responsible to pay back the debt. Based upon graduation statistics, parents should be prepared for the possibility that they might have to repay the loan.
Help in Repayment – One of the most underrated ways a parent can help their child pay for school is to assist with student loan repayment after college. This help may be more appreciated and make a bigger difference than writing a check at the beginning. Additionally, with the passage of time, a parent may be in a much better position to comfortably assist without endangering their retirement.
However, the most important thing a parent can do for their child as they prepare for college goes far beyond writing a check.
Financial Lessons are More Valuable than Financial Assistance
Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime.
The old proverb about giving a man a fish has special relevance when it comes to financial habits. The sad reality for many American high school students is that they are not taught basic personal finance in high school. Compounding the issue is the fact that discussing money is often considered to be inappropriate or rude.
As a result, far too many people are ignorant about topics like compounding interest, credit scores, and debt-to-income ratios.
Teaching your child lessons on personal finance doesn’t require an economics degree. In fact, it doesn’t even require a parent who is good with their finances.
Suppose a parent is facing huge credit card debt and is unable to assist their child with paying for college. Though it might be difficult, that parent could sit their child down and explain the mistakes that brought them to their present situation. That parent could explain how a large portion of their income goes to credit card companies as interest… not reducing their debt, but supplying corporate profits. A discussion on the dangers of borrowing money and an explanation of terms like principal balance, interest, and interest rates could be life-changing for the child.
Parents who have solid personal finance habits should focus on passing those financial habits on to their kids. Applying these lessons when making decisions about paying for school is a great way to put them into practice.
It is hard to place a value on teaching lessons about responsibly managing money, but there is no doubt that it is incredibly useful.
A college student with these lessons instilled can avoid many of the expensive pitfalls that trap other students and result in decades of hardship and regret.
Ultimately, these habits are more important than any financial assistance that a parent might provide for college. This is the help that all parents can provide… no matter what their bank account looks like.
