College financing discussion

[TexasHusker]

Some good friends of ours presented both of their kids an interesting deal:

We are giving each of you $100,000 for college. Whatever you have left over is yours, and whatever amount you are short is your responsibility.

One kiddo got a full track scholarship to a private university, so she's going to score $100K when she graduates.

The other kiddo decided to attend Texas A&M University, where it will cost roughly $15,000 +/- per year.

He could have chosen a private school at $30-40K a year, but he would have been in debt at graduation.

This isn't a bad way to go - it puts the kid in the driver's seat, provides them some incentive and some accountability. I might try the same!

[bjl584]

Not a bad incentive as long as the parents do some coaching to the kids so that they don't pick a stupid major that has no marketability. In other words, their 18 year old brains need to be conditioned beyond the $100,000 they are getting and focus on their long term career paths.

[corn18]

I offered to pay up to in state tuition and they cover the difference above that. So far, both have chosen in state schools. In addition, they take out a loan in their name only each semester for the full unsubsidized amount they can ($5500 for the first year). If they get a 2.0 or higher, I pay off the loan. If they don't, they just inherited the loan. So far, kid #1 has inherited 2 loans and has dropped out of school. Kid #2 is tracking nicely.

[Joan.of.the.Arch]

corn18, you are covering their tuition but telling them to take out the biggest loan they can? Is that correct? If so, why have them take out loans?

[corn18]

corn18, you are covering their tuition but telling them to take out the biggest loan they can? Is that correct? If so, why have them take out loans?

I thought I explained it fairly clearly.

1. Each semester they fill out the FAFSA and qualify for a $5500 unsubsidized loan.
2. College bill comes in and the school applies $2750 to the bill and I pay the rest.
3. Kid gets a 2.0 and stays in school = I pay the loan off
4. Kid gets less than a 2.0 or drops out of school = they inherit the loan and they get to figure out how to pay it off

This happens each semester they stay in school. So the worst they could end up with is a $2750 loan.

Real world examples:

Kid 1: signed up for community college, got a loan, did well, I payed off loan. 2nd semester she signed up for college, got a loan then decided school was too much trouble and stopped attending without telling anyone. She now has to pay off that loan and figure out how to put herself through college.

Kid 2: signed up for state school, got a loan, did well, I payed off the loan. Repeated the same for semester 2.

What is confusing you?

[TexasHusker]

Not a bad incentive as long as the parents do some coaching to the kids so that they don't pick a stupid major that has no marketability. In other words, their 18 year old brains need to be conditioned beyond the $100,000 they are getting and focus on their long term career paths.

I have never viewed higher education as a vocational school. I degree'd in English, and immediately went into hospital administration. Also interviewed with a steel company, a large media conglomerate, and the FBI, and none asked me what my major was, nor my GPA (thankfully).

Higher education teaches critical thinking, and that is about it.

[greenskeeper]

Pocket the $100k and learn a skilled trade via apprenticeship.

No debt, banking money right from the get go, and ability to pull down $100k annually within 5-10 years.

[~bs]

for me, it wouldn't even be a hard decision. cheap in-state public university, hopefully at less than $10k/year. After graduation and job getting, etc. use the excess money for down payment on a house

[TexasHusker]

Pocket the $100k and learn a skilled trade via apprenticeship.

No debt, banking money right from the get go, and ability to pull down $100k annually within 5-10 years.

The condition that they receive the $100K is that they graduate college with a bona fide undergraduate degree.

[AJ444]

We are going to fund both of our nephews college but it will be as economical as possible. They should get plenty of aide with their parents financial situation but then it's community college for two years followed by state school for two years. If they want state for 4 or private the extra is on them.

[moneybags]

Some good friends of ours presented both of their kids an interesting deal:

We are giving each of you $100,000 for college. Whatever you have left over is yours, and whatever amount you are short is your responsibility.

We did something similar with these differences:

1. left over money is yours for grad school; use within 7 years or it is ours

2. if you get a scholarship; you get a kickback each semester if you keep your scholarship (grade based)

Student 1 - had lots of scholarship offers, chose a school with no scholarship. Graduated, now working on her Phd which is fully funded by the school.

Student 2 - chose a school with a generous scholarship, gets kickbacks each semester. Currently halfway though; will have funds available for grad school if he chooses.

[Thrif-t]

I wish I was able to give my kids that choice!! As it is I'm just trying to keep their student loan debt down as much as I can. Kid 1 is on track to graduate with 13k in student loans. My goal was to keep it at the same level as a new car. Kid 2 we'll see what happens. Seems like some monkey wrenches have got thrown in our path.

[disneysteve]

We didn't give DD any specific rules but it was clearly understood that we weren't paying for her to goof off or flunk out. It was also made clear that she was on the 4-year plan.

She also knew that she needed to maintain her 3.2 GPA in order to keep her scholarship, so that was all the pressure she needed. There was no need for us to push her beyond that. She knew that if she lost her scholarship ($19,000/year), we couldn't make up the difference. She also needed a 3.25 to stay in the Baccalaureate Honors program.

So far, so good.

[~bs]

For human nature in general, if you include a reward or punishment as part of a decision, they will make the rational choice.

If you just dump the funds on them with little stipulation or incentive to make the best choice, they'll treat it as "free money" and use it accordingly. Even if you stipulate that it's for college only, that doesn't mean they'll go with the most practical school; they'll just choose the most expensive to max out your gift and to max out the student loans, which many young adults also treat as "free money" because they don't consider how hard it is to repay the loans. The examples in this thread are a prime example of operational conditioning, and its effectiveness.

[disneysteve]

student loans, which many young adults also treat as "free money" because they don't consider how hard it is to repay the loans.

I blame the parents for that. Someone needed to sit down and show the kids how loans work and how much those loans would cost them and for how long.

We're good in that department. DD will have borrowed $15,000 but she has been paying $400/month since last August. By the time she graduates next May, she'll have paid back $8,800 so her balance will only be about $7,000 when she leaves school. She'll have that paid off in about 1-1/2 years or less depending on her employment situation after college.