college costs

Should You Save For Your Grandkids College?

January 16, 2020 By Tamila McDonald Leave a Comment

With the rising cost of college, many grandparents feel that helping their grandkids over the cost is a good idea. After all, the average tuition price public institutions rose by 4 percent in the 2019-2020 school year alone, and private colleges went up by 3 percent. In-state public tuition hit $10,116 while private colleges cost $36,801 annually. But, even with the cost rising, should grandparents contribute to their grandchild’s college? If you want to figure out if it’s a good idea, here’s what you need to know.

Can You Afford to Contribute?

First and foremost, grandparents shouldn’t save money for a grandchild’s education if they will end up in a financial bind. Unless you are maximizing your retirement savings (or, if you’re retired, have more than enough to sustain you), it’s better to focus on your needs. Otherwise, a financial gift for your grandkid could create a hardship in your end.

The Impact of Your Gift

How a grandparent saves for a grandchild’s college costs can come with certain financial implications. If you stash the money in a regular savings account, you’ll have to pay taxes on the interest. Plus, it won’t grow as quickly.

But it does give you a ton of flexibility, as you aren’t limited on how the money is used. You can also use that money to pay your grandchild’s tuition costs directly to the school. No matter the size of that payment, it won’t be subject to the gift tax for your grandchild, thanks to an IRS exception for qualifying educational costs. However, it might qualify as income for your grandkid, and that might not be ideal.

If you are considering opening a 529 plan, then there are potential drawbacks that you need to examine. While the money can grow tax-free, your gift can impact your grandchild’s FAFSA.

As with a direct tuition payment, the money can count as direct income for your grandkid. That comes penalty when it comes to financial aid. Up to 50 percent of a student’s income is considered available for college costs on the FAFSA, impacting their degree of need.

As a result, they might receive less in free financial aid, essentially undermining the value of your contribution. In some cases, this is a benefit, as it reduces a need for student loans. But, in others, it could also limit their eligibility for need-based grants or scholarships.

You can get around this income issue a bit. Instead of opening a 529 on your own or paying tuition directly, consider contributing to one owned by your grandchild’s parents. The aid eligibility reduction tends to be smaller with parent-owned accounts.

Is Saving for Your Grandkid’s College a Good Idea?

While your heart may be in the right place, you need to make sure that saving for your grandchild’s college makes financial sense for both of you. Consider whether you can actually afford it and examine the potential implications of your gift. That way, you can make a smart choice that doesn’t come with unforeseen consequences.

Do you plan to save for your grandkids’ college? Why or why not? Share your thoughts in the comments below.

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Is College Really Necessary?

March 24, 2017 By Jennifer Derrick 19 Comments

It’s no secret that college costs are rising to ridiculous levels. Kids are graduating with huge debt loads. Even if their parents have saved for their schooling since birth, costs are rising so fast they’re still likely to have to take on debt or work during school. In the last twenty years or so we’ve come to believe that college is a non-negotiable necessity. We’ve started thinking that college is the end-all-be-all of education and a guarantee of success. But is it really?

Obviously some fields require college. If you want to be a doctor, lawyer, scientist, engineer, teacher, or architect, for example, college is the only way to go. Other fields value skills that can be taught in college, but not exclusively. Many tech jobs are more about programming skills, for example, that can be mastered in your garage just as well as in a college classroom. The same holds true for many trades, design fields, communication fields, or even sales and marketing. College can teach these things, but they can also be learned in many other ways.

Our world is changing and in a lot of ways it’s going in reverse. In days gone by, it was your skills that mattered. If you could turn out a product, grow a crop, or repair something, you would never have trouble finding work. Then things changed and we began to value the cerebral. When you went job hunting, the hunt was less about concrete skills and more about whether you could be taught and molded to fit what a company needed. The company could teach you the skills; what they wanted to know was could you be taught and could you apply yourself to a goal. Getting a college degree became a barometer of your ability to be educated, rather than a path toward acquiring a specific skill set. The field of your degree didn’t even have to be in the field you were working in. A degree in philosophy could land you a sales job at a tech company. All the company needed to know was: Can we educate this person in our ways?

Now things are changing. Many employers value the skill set more than the demonstrated ability to be taught. They want to know: Can you make this product? Can you create this design? Can you program this application? Can you write this copy? Employers no longer have the time or the money to invest in taking an intelligent kid and teaching them the specific skills they need. Employers want people who can come in, hit the ground running, and start churning out products from the first day on the job. College degrees may carry a certain cachet, but beyond a few specific fields, they don’t teach the concrete skills needed by employers.

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To that end, higher education is changing. No longer is a two year degree considered “settling.” A two year degree in web programming may be more valuable than a four year degree in liberal arts – and cost a lot less. An online degree that results in a useful skill may be more valuable than classroom learning. Higher education may not even be necessary, beyond rounding out some skill sets or just gaining a different perspective on the world. The kid who can create a video game in his garage at sixteen may be more valuable than the kid with a four year degree in “Communication.” There are places in today’s work force for the self taught and highly motivated kids. Some employers are even taking on skilled kids in directly out of high school and putting them into paid positions and giving them a mentor to flesh out the necessary skills.

College will always have a place, but before you plunk down hundreds of thousands of dollars, ask yourself whether it’s really necessary. Maybe your kid already has a marketable skill that he enjoys and is only in need of a two year degree to learn the finer points of that skill. Maybe your kid can develop a business idea into a full fledged venture without college. Maybe your kid can get hired on at a company as a highly paid intern. Maybe a combination of work experience and an online degree will get them further than four years in a classroom. And don’t pop for a private school unless you know the degree will earn more than you will pay. Chances are a private school won’t grant a better skill set than a state university and the state school will cost a lot less.

There are a lot more options today in education than ever before. College is no longer the ultimate prize. The ultimate prize is to develop a skill set that employers drool over and want to have in their organizations. That doesn’t automatically mean a college degree. It may mean a two-year degree, an online degree, practical work experience, self-teaching, or a combination of all of the above. These may end up costing a lot less than college and yet grant a better entrance to the work force. There’s no need to take on crushing debt loads for college if it isn’t necessary for the field you want to work in. Think before assuming that college is necessary.

Photo: The Odyssey Online

Are Parents Responsible for Paying for College? Teen Sues Parents Who Won’t Pay

March 5, 2014 By Jeffrey Strain 19 Comments

can teens sue their parents for the cost of college

You knew that it was just a matter of time before something like this happened, but it’s still a bit hard to believe. Rachel Canning, an 18 year-old girl from New Jersey is suing her parents saying that they kicked her out of the house at 18, and they are refusing to pay for her private high school and college education. She’s demanding the following:

Her parents pay the remaining tuition for her private high school
Her parents pay both her transportation and living expenses for the foreseeable future
Her parents turn over her existing college fund to pay for her college education
Her parents pay all of her legal bills

The judge has already denied the teen her request for high school tuition and her current living expenses. There is a court date hearing set for April that will take up the question of whether or not the parents must pay for the college costs. As would be expected, both sides have quite different views about what’s going on. These are the basic arguments from both sides in the case:

The Teen

Rachel Canning claims that she was kicked out of the house at 18 even though she is a cheerleader and honors student, in part because her parents didn’t like her boyfriend. She also alleges that they have been abusive toward her. Without the money from her parents, she won’t have the means to attend college where she hopes to study biomedical engineering.

The Parents

Sean and Elizabeth Canning claim that their daughter wasn’t kicked out of the house, but she chose to leave in October because she didn’t like to live by the rules that they had implemented. This included missing curfews and getting suspended from school.

Not surprisingly, this is how the judge reacted to the case:

So the question becomes, are children entitled to a college degree paid for by their parents? Is a college education the responsibility of the parents in this day and age? Or is this a situation where some kids continue to be self-indulgent when they become adults and refuse to take the responsibility that they need to take?

Another question that will surely be debated in this case is who is to blame? This can readily be seen in the video clip where the lawyer argues that it’s the parents who have created the atmosphere for all this to happen. Is the teen simply spoiled on her own accord in believing that she is deserving of this, or are the parents partially to blame since they played a part in instilling these feelings while she was growing up?

What is your opinion? Once teens hit 18 and become legal adults, are they on their own, or do parents still have some financial responsibilities even after their kids become legal adults? Since the family set up a college fund for her, does that money have to be spent on her college, or can the parents decide to not give it if they change their mind? If the child was told that she would have this college money and it still exists, does she have a reasonable expectation that she should get it?

Save Money: It Doesn’t Matter Where You Go To College

November 29, 2012 By Guest Writer 2 Comments

By Mitchell Pauly

The notion that going to a “good” college is a ticket to a brighter future should be taken on a case by case basis, but this isn’t what American society would have you believe. I want you to think about this example, which is all too common: an extremely high academically performing high school senior goes to talk to a guidance counselor, who promptly trumpets that the Ivy League is the only place for her. Her history suggests nothing less than extraordinary achievement; will not going to an Ivy League school change this trend? The question is not if she will fail by not going to an Ivy League, but whether her trend of success will come to an end. Probably not, but if she listens to the counselor (who is flattering her, so it’s probable she will want to eat what she is being fed) she will come to believe meeting her potential hinges on attending an Ivy League. The disservice here is that the high school counselor based her opinions on two forms of selection bias: non-marginal comparisons and conclusions drawn from data that is unrelated.

Marginal Comparisons

Marginal comparisons allow us to compare things apples to apples, not apples to steak tips. In the case of our talented student, the counselor failed to make a marginal comparison because she framed the Ivy League question in an all or nothing manner. That is, in framing her opinion to our student she compared getting an Ivy League education to getting no higher education at all. What would our student do if she chose not to attend an Ivy League? In the counselors world she would be hooking on the street, but in reality she would probably attend a non-Ivy league college. So by not comparing an Ivy League education to that of a non-Ivy League education, the counselor failed to make a marginal comparison. This is probably the largest error people make throughout the college process, and not just in regards to the Ivy League. When I was applying to college I was convinced that if I didn’t attend a brand-name school I would end up sharing a van down by the river with Matt Foley.

Selection Bias

Selection bias, for those unacquainted with statistics, is an inherent error or lack of focus in the data used for a statistical analysis, thus calling into question the conclusions drawn from the analysis. Selection bias is common because it’s in many cases hard to avoid completely. This in and of itself is not the problem, it’s more of a fact of statistics; it’s when faulty conclusions start being championed as absolute fact that selection bias becomes a real issue.

For example, a study composed only of white teenaged girls will not be a statistically valid study on the popularity of Jack Johnson. Since the data that is widely available and published on higher education is rife with selection bias, we cannot completely blame the high school counselor for framing his Ivy League opinion in the way he did. To see this more clearly, let’s think for a moment about the typical information available for colleges, in publication like the U.S News and World Report College Rankings:

Acceptance Rate: This tells you the percent of students accepted out of the application pool. The bias within this is that this measure doesn’t really tell you anything about the quality of education at this institution, but rather shows more about how popular the school is in the application process. One might be tempted to draw the conclusion that this shows how competitive it is to be accepted into a school, but this too is a stretch. I could get every crack addict in New York to apply to Quincy College, they would all be rejected, and suddenly Quincy College will seem a more selective institution.

SAT/ACT Scores: This chunk of data tells you a lot about the abilities of its students, and not very much about the quality of education at the college. The fact that this is used in a weighted measure that ranks colleges against one another blows my mind. I guess the implication is that students who attain higher SAT/ACT scores can handle more intense classes, which is probably true, but this tells you nothing about whether there are in fact intense classes to be found, and if there are if prospective students will be able to take them.

Percentage of Faculty Who are Full Time: This is a metric meant to infer how much attention a professor will pay to their students, in that the full-time professor devotes more attention to their students. This metric is as easy to manipulate as a gullible third-grader. A school can simply hire a lot of full-time professors, put them to work on managing their departments, gaining notoriety within their area of expertise through speaking engagements and paper publishing, and have grad school students teach as many classes as possible. This is why the students of the universities that rank highest in this metric still report feelings of neglect towards their professors.

I could go on, but the purpose of this article is not to point out the inherent stupidity and meaningless nature of the U.S News and World Report College Rankings. I am making a larger point: since rankings such as these are the basis of much of society’s college related opinions, and the data is rife with selection bias, then the majority of the opinions we hear are as useful as Paris Hilton on trivia night.

Alan Krueger’s Bias Free Study

One study on college that did manage to completely eliminate selection bias from the equation was the one conducted by Alan Krueger, a Princeton economics professor. To control for the selection bias present in the varying academic abilities between students at prestigious institutions and their lesser counterparts, he looked at high performing students that were accepted into both highly exclusive schools and ones less so. Some went to the Harvard’s of the world while others attended state schools or the middle of the pack private schools. The results showed that regardless of the student’s choice, they all tended to earn about the same salary twenty years into their careers. If that doesn’t blow up the U.S News and World Report College Rankings I don’t know what does.

The college admission process is stressful enough to begin with without adding to the mix meaningless, biased data and opinions. From the lack of marginal comparisons by those we trust most to guide us through the process to the application of unrelated data to conclusions society bases its opinions on, the deck can at times feel stacked against us. Not so. Tune out the cacophony of biased opinions, the “rankings”, and other drivel and focus on history: if you have a track record of success, you will likely continue to have one. With that in mind, please, ignore your high school guidance counselor.

Mitchell Pauly writes funny and informative personal finance articles at Snark Finance. You can also join his Facbook Page or follow him on twitter at @Snarkfinance

(Photo courtesy of j.o.h.n. walker)

Graduating College Without Debt

July 11, 2012 By Jennifer Derrick 3 Comments

My neighbor’s child, Lisa, just graduated from college. She could have gone to some prestigious private schools or out-of-state colleges, but she chose to go to a smaller in-state college to save big bucks on tuition. She also considered a degree program online that are much more affordable and would have given her the ability to be more flexible.

Her graduation was distinctive for two reasons. First, she graduated with honors. Second, she graduated with no debt, yet her parents didn’t pay for school. Her mother brags about both, and rightly so. Lisa recently came by the house while I was visiting with her mother. Always nosy about financial matters, I asked her how she managed to get out of school with no debt when it seems that all I hear in the media is how student debt is skyrocketing.

“It wasn’t easy,” she said, “but I knew I didn’t want to get out of school and owe thousands of dollars. I’m not going to make that much at [her new job], so I need my money so I can eat and pay rent. Let me tell you, though, it was a full time job to get out with no debt.”

She shared her strategies with me and she’s right. It was a lot of work. But I imagine it was worth it for the peace of mind she now has knowing that her pitiful starting salary isn’t eaten up by debt payments. Here’s how she was able to reduce college costs in a way that she graduated debt free.

Choice of School

Graduating with no debt started before she even entered college. This young woman is smart and gifted. She graduated second in her high school class. She could have gone to some prestigious private schools or out-of-state colleges, but she chose to go to a smaller in-state college to save big bucks on tuition. As she said, “I knew that in my field the degree was the important thing, not where it came from,” so she chose an affordable school.

Scholarships

She was able to put together a lot of scholarships. She applied for everything for which she might qualify, even if it was just a small amount. “I had some scholarships that were literally for just a hundred dollars, but it was money that wouldn’t have to be paid back so I was happy to get it,” she said. There are many scholarships out there, but some people refuse to apply for the small ones. The small ones can add up, though, and they often have less competition. You don’t even have to be gifted or super-smart to get one. It may be as simple as connecting with a local business, or writing a winning essay. Any aid you don’t have to pay back, no matter how small, is welcome. And don’t stop applying once you’ve started school. There are many scholarships that are only for juniors or seniors, so always be on the lookout for aid.

Cut Corners Where Possible

“My roommates made fun of me because I cut coupons. They called me an old lady,” she says. “But I needed to save every penny.” There are plenty of ways to cut corners as a college student. Textbooks can be rented or bought used. Campus cafeteria food, while not great, is often less costly than grocery store food. If you have an apartment with a full kitchen, cooking inexpensive meals at home costs less than eating out. Colleges have a huge variety of free entertainment, so take advantage of it rather than going to first-run movies. Many of the frugal tips that we give adults apply to college kids, as well.

Take Longer to Graduate

Lisa graduated in five years. Taking that extra year gave her a chance to earn enough money to keep from taking loans. By not overloading herself on courses she was able to work longer hours and earn more money. Lisa admits that it wasn’t ideal, especially as she watched her friends graduate in four years, but it was the only way to graduate without debt.

Work

Lisa worked a couple of different part-time jobs throughout college. In her senior year, she was chosen for a work-study program sponsored by one of her professors. During the summers, she worked full-time for a family friend who runs a business in her chosen field. If you want to graduate without debt, work is a necessity. The plus side is that you’ll have some experience to put on your resume. Many schools offer “co-op” programs where you work in your chosen field one semester and go to classes the next. Along with the money, you gain experience and find out if you really enjoy the work.

Live on Campus

In her junior year, all of Lisa’s friends moved into apartments off campus. Lisa chose to stay in the dorms because it was cheaper. “I would have liked an apartment, but I didn’t like the rent payment,” she says.

Pick and Stick with a Major

Lisa did a lot of research before entering college and she knew exactly what she wanted to major in when she got there. Changing majors often not only delays graduation, it is expensive as you end up wasting money on courses that end up having no use toward your degree. Know yourself and know what you want. “If you have to take a year off after high school to figure that out, it’s not the end of the world,” Lisa says.

Consider Alternatives

Lisa knew several people who began their college careers at the local community college. “It’s much cheaper and you can work through your required courses there and then transfer them to the university where you’ll finish your degree.” Just make sure that whatever you take will transfer to the university of your choice. You don’t want to waste the time and money on courses that won’t transfer.

Live at Home

Or live at someone else’s home. One of Lisa’s friends lived at home for all four years of college. She saved a lot of money this way. Another friend became a live-in house sitter for an elderly woman. The woman gave her free room and board in exchange for help around the house, help with errands, and for taking her to appointments. If your parents are willing to let you stay or if you can find a house sitting arrangement, you can pocket the cost of room and board.

Graduating with no debt isn’t easy. It requires commitment and focus. You have to say, “No,” to some fun things that your friends are doing. You have to be willing to be, “The old lady who clips coupons on Saturday night.” And you have to work your butt off. But that’s not so different from what will be required of you once you graduate, really. It’s not easy, but it’s worth it. Lisa already sees how she is ahead of her friends who graduated with a lot of debt. “I don’t worry about making my rent, or charge my utilities to credit cards. I don’t have much, but it’s mine.”

(Photo courtesy of j.o.h.n. walker)

Why Parents Shouldn’t Pay Entirely For College

April 29, 2009 By David G. Mitchell 21 Comments

One of the most enduring images that I recall from college was a video clip of an obviously drunk student at a football game and holding up a sign which read, “I don’t care. Daddy’s paying.” At the time, although my parents had paid for my tuition, I was working about 20 hours per work to cover my costs of school attendance – roughly $15,000 per year, as compared to the approximately $8,000 per year that my parents paid for my tuition.

I worked hard to pay for my car (a used car), car insurance, gasoline, food, clothing, books, entertainment – everything that I wanted or needed that was not included in the price of tuition. I also worked hard to do well in school. For four years, it was a lot of work, but I never once felt that my parents should be paying more. Indeed, I always regretted that I could not pay my own way to college, and found it much more satisfying when I did pay all of my costs in graduate school – including rent and the $15,000 per year in tuition.

But back to the “Daddy’s paying” sign. Did the parents of the young woman who held up that sign really do her any favors by paying for her four year’s of binge drinking? I think not. So many people I have known have failed to invest sufficient effort in their college educations because they have not had a stake in it. You probably also know people who have felt that they could have achieved so much more in life if they had just tried harder in college – partied less, and studied more.

At some point, parents need to force their kids to stand on their own two feet. Of course, the process needs to happen gradually. I have known young adults who have been required to cover all of their costs through college, others who have covered some costs, and still others who have received a free ride courtesy of the their parents. In just about every case, the people who have had a personal financial stake in their college educations have also performed far more effectively in the class room and have enjoyed much greater success upon graduating from college.

I have also known parents who do not want to see their children saddled with tremendous debt upon graduating from college, so they have over-contributed to their kids college costs, without even realizing that the money intended for food and books has been spent on beer and concert tickets. The parents’ objectives were well-intended, but they failed to prepare the child-beneficiaries to face life in which we all have to work hard to pay bills – not just to play.

Whether they are attending Averett University or a junior college, I do not believe that kids should feel entitled to the college education that they want. Rather, parents should make sure that a child who works hard through high school will have the opportunity to attend a good college. My wife and I prepaid the tuition in the Florida public university system 9 years ago (for a total cost of about $13,000). Our kids can attend any Florida school that they want, as long as they are accepted, and their tuition will be covered. They will have to pay all of their other costs, and they have known that for a long time. One has been saving for the past five years. The other has nothing put away (despite my urging) and may have to work for a year before he goes off to college. That is his choice.

Parents can also help their kids look for scholarships and other sources of “free money” – a process that should begin when a child is a freshman in high school. In addition, parents should start their kids in an attainable savings program so that kids learn to put money away for when it is needed.

Parents should not, however, feel that it is their responsibility to cover every cost that a child faces in college. Parents need to make sure that their kids have some “skin in the game” or they will run the risk of seeing their children holding up “Daddy’s paying” signs at a football game, too!

What do you think? Are parents obligated to pay for their kids’ college educations? Should college students be required to pay some of their own costs? Does a parental “free ride” give students an advantage or a disadvantage?