Paying for a college education can be intimidating for both the college student and the parents, especially with rising costs. When deciding whether the parents or the child should take on this responsibility consider the compelling arguments for both sides. Ultimately, you need to determine what will work best for your family’s financial situation and that may include a combination of both.
Parents should pay:
College is very expensive these days and many will argue in favor of you shelling out your hard earned cash for your child’s higher education. Undergraduate study at a private university can easily top $30,000 per year and over $12,000 at public in-state schools. If your child decides to continue with an advanced degree or attend medical or law school they may rack up a bill that exceeds the cost of your home. Those in favor of this point of view are typically concerned with burdening the child with such a large amount of debt at a young age.
In addition, they feel that the child working to pay for college will take from studying and building friendships. Friendships built in college can generate a wealth of career opportunities in the future. By investing in tax-deferred 529 plans parents can withdraw funds when it’s time for college free from federal and some state income taxes.
The child should take some responsibility:
Some will argue that the responsibility should fall on the child. They contend that the child has a lifetime to pay back student loans and they will develop a positive credit history by making loan payments. They also argue that kids who have to pay for their own tuition, books, and living expenses value the investment that college represents and learn responsibility. Company tuition reimbursement plans or military service options may be available and provide a way to get a college education without as much of a financial burden.
Advocates on this side of the debate often argue that 529 plans are overrated as a savings vehicle because investment options can be limited and tax rules are likely to change making future tax benefits less favorable. Lastly, they argue that a parent’s own retirement savings should take precedence over higher education savings for a child.
Making the decision:
Personal financial priorities, your family’s dynamics and the importance you place on a college education are all factors in this decision-making process. Please feel free to contact our office if you need help reviewing the pros and cons of this important issue.
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