I pretty much made every mistake you can when I was getting my degrees. I have said it before, but it is worth repeating, don’t use your student loan money to fund your lifestyle. Student Loans are not for beer, food, clothing or the countless other everyday expenses you will encounter when you are living on your own. They are for school. Period.
Please pass that note onto anyone you know who is in school, going to school or even their parents so they know it’s not a good idea.
Anyways, these pesky loans are affecting Millennials all the way up to people collecting social security checks.
Let’s take a look at some Student Loan facts:
Nationally, about seven in 10 (68%) college seniors who graduated from public and private nonprofit colleges in 2015 had student loan debt, a similar share as in 2014. These borrowers owed an average of $30,100, up four percent from the 2014 average of $28,950 – The institute for college access and success
In 2015, the government reduced Social Security checks for a total of 173,000 Americans, up 380% from 36,000 in 2002. – CNN Money
In a survey of 61,762 individuals, respondents reported an average length of repayment period of 21.1 years – One Wisconsin Institute Survey
So, we are accumulating record debt, taking a ridiculously long time to pay it off and some people are carrying it way too close to their graves.
Should you pay for your child’s college education?
Soooooooo….. Should you pay for your child’s college education and save them from being one of those statistics?
When we found out we were having a child, it was a natural jump for us to start thinking about it.
The short answer for us, probably some of it. That being said, it’s is not the most important financial question we should be focusing on.
Paying for College is Negotiable
I listen to a lot of financial podcasts and paying for college is a consistent listener call in question. To me, it sounds like they feel obligated to help with this cost. To that I say:
You don’t have to pay their way through school to help them out.
You are not obligated to save for your kid’s education and I don’t think any less of a parent that decides not to.
There have been plenty of people that have paid their own way and come out the other end totally fine.
The decision is very personal and emotionally charged. If it were purely math based, the no-brainer answer would be to invest for your own retirement – but it’s not.
I understand you want what is best for your offspring, but give them something that goes further……
A Financial Education is Mandatory
Building and promoting solid money habits is way more important than cutting checks. I heard this saying a few years ago “give a man a fish and he eats for a day, teach a man to be debt free and he won’t need your money.”
Fine. I made that up, but I think we can all agree that it’s a sweet saying.
Focus on building a base of financial knowledge so your child(ren) can make informed decisions. Money will not be an”off limits” topic in our household. We will start laying the foundation early and groom them into little money nerds that know how to control their money instead of letting it control them.
Who should do the teaching?
It would be great if our education system worked in some Personal Finance topics between Power Volleyball 1, 2, 3 and 4. Which were actual classes at my High School. Teaching kids that can’t reach the top of the net is more important that teaching about something that can ruin their lives. Terrible.
Since we can’t count on the education system to teach people about money, Financial Education needs to be tackled at home. It is too important of a topic to say “well they should learn about this in school.” Take the reins. Own it.
See my Grade School Money Lesson post if you want to see my personal finance experiences from grade school, not pretty…
You are responsible for teaching your kids about money, let’s not pretend someone else is going to adequately solve this problem.
How we paid for college
Full transparency, we were both fortunate to get some help from our parents.
My parents paid for one year of my education, which makes my $85,000 debt accrual even more impressively terrible. Especially since I went to a state school that had reciprocity with Minnesota. We have just over 15K left as I write this post and are hammering them down $1,026 every month.
Mrs. AE’s 2 sets of parents picked up the bulk of her education, using some left over service grants and making payments on her loans after graduation. It was a huge help, we would have had another 25K to pay down ourselves.
While it was extremely helpful and we are thankful they sacrificed their own time and money to pay. If we knew what we know now, we would have made a lot of different decisions. Decisions that would have saved us tens of thousands of dollars in debt later.
Paying for college won’t come at the expense of our retirement
This may seem callous, but we will not sacrifice our financial goals to send Little AE off to school. I wish my parents would have saved the money for themselves instead of having me waste a portion of it. Especially since they had 4 more children after me and are still in the process of getting them out of the house – one more year for them!
We will help pay for some portion (maybe all) of our kid’s college expense, but we wouldn’t even consider it if we weren’t confident in our own retirement saving plan. We also won’t start saving anything until our (my) student loans are gone.
Do you want to take care of yourself now or potentially have your kid taking care of you in the future?
Some ideas to fund your child’s education
I have been coming up with a few ideas on how we can fund part of our child’s education, we haven’t decided exactly what we are going to do and I will post an update when we do!
Ask for monetary instead of traditional gifts
Not a new concept, we already have more toys and stuffed animals from all the showers than we know what to do with. For the first few years we are going ask for monetary gifts that will be thrown into VTSAX.
When we do get a contribution from a family member (or even Little AE down the road when she starts earning some cash) we can match ourselves. Think mini family 401K plan. Might motivate the grandparents to stick to the plan and teach her how to save and take advantage of a match.
Each sacrifice 1 thing a month
I expect we will do some sort of automatic transfer every paycheck or month (after my loans are paid in full). To fund that transfer we are thinking about sacrificing one thing we spend money on every month (lunch, maybe finally ax cable, etc) and putting it in a 529 plan (more on this in a later post).
Don’t feel obligated to pay for your child’s college, and think hard about sacrificing your retirement at the expense of their education. The last thing you want is for your kids to feel obligated to pay for your care down the road because you can’t afford it yourself. Cutting off the growth of the 10, 20, or 50,000 dollars you pony up early for school will make a huge difference at retirement age.
If you are planning on helping out, make sure you can check these boxes first:
- Your own student loans are paid for (even better would be being debt free)
- You are not sacrificing your own retirement or savings
- Prioritize a financial education so your kiddo doesn’t need your money
Are you paying for or planning on paying for your child’s college education? How do you teach your children about money?