Paying for College

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By Rick Kahler MS CFP® ChFC CCIM www.KahlerFinancial.com

Rick Kahler CFPDo you want to give your children the best possible chance to do well in college, earn higher salaries, and save more for their retirement? Then, don’t pay for their college education.

One of the most popular money scripts I encounter is the notion that being a good parent means paying for your child’s college. Many parents do this at the expense of taking care of themselves in retirement, which is a very high price to pay.

The most popular reason I hear from clients for funding children’s’ education is empowerment. They want to spare kids the burden of repaying school loans after graduation. They also want them to be able to focus on their studies without the distraction of having to work to put themselves through college. For most parents, allowing students to concentrate on classes so they can perform well, make better grades, and obtain better jobs, is a sacrifice worth making.

The Myth

There’s just one problem with this scenario. It’s a myth.

In most cases, parents who fund their kid’s’ college education are insuring they will actually do worse in school than those who have to pay their own way. This is the finding of new research conducted by Laura T. Hamilton, published January 7, 2012, by The American Sociological Review under the title “More Is More or More Is Less?” Her study shows that students whose education is funded by parents or through student loans actually have lower GPA’s than students who in some way must work to put themselves through school.

Hamilton found that students who have to “do something” requiring them to take personal responsibility for obtaining the funds for their education do best and carry higher GPA’s. This includes those who receive grants, scholarships, or veteran’s benefits, or who participate in work-study programs.

Parental funds or borrowing “provide the time, money, and proximity (i.e., living on or near campus) necessary to delve deeply into college peer cultures,” Hamilton notes. The gift of time that student loans and parental funding provide isn’t usually poured into studies. Instead, students tend to focus that extra time on increasing their social life. The average college student receiving money from loans or parents spends less time on studies in college than in high school. Even though they spend about 28 hours a week attending class and studying, the research found they devote a full 41 hours a week to social and recreational endeavors.

Put more succinctly, students who have to work to pay their way through college spend slightly more time studying and significantly less time partying.

The Results 

The net result in this is a big personal and societal lose-lose. Those of you who have sacrificed your retirement to help your children through college have potentially done harm to both your children and yourselves. Your kids have probably done worse in college, thus obtaining lower paying jobs. This loss of potential income has downsides for both children and parents. Previous research has shown that parents who don’t fully fund their own retirement years will actually end up costing their children five times as much as the kids would have spent by funding their own college education.

Understandably, a few of you are now choking on your last sip of coffee as you read the last paragraph. This is not at all the outcome you intended.

Money

Assessment

The evidence is clear. Parents who take care of fully funding their own retirement instead of sacrificing to pay for their kids’ education are not being selfish. Instead, they give their children something far more valuable than the cost of tuition: the gift of success and achievement.

Conclusion

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7 Responses

  1. Course Load: The Growing Burden of College Fees

    Students and parents are learning their college fates this week and then having to address whether schools are actually affordable.

    http://www.propublica.org/article/course-load-the-growing-burden-of-college-fees

    They have their work cut out for them as college fees, often well-disguised, continue to explode.

    Charles

  2. The Admission Arms Race – Six Ways Colleges Can Game Their Numbers

    According to Marian Wang, prospective students have long looked to low acceptance rates, high number of applications and other factors to determine how prestigious a college is and whether they should apply.

    http://www.propublica.org/article/the-admission-arms-race-six-ways-colleges-can-game-their-numbers

    However, colleges have found ways to make their institutions seem more appealing.

    Aditi

  3. After Years of Troubles, Largest Student-Loan Servicers Get Stepped-up Oversight

    According to Marian Wang, the Consumer Financial Protection Bureau just announced increased oversight of the companies that act as go-between for student borrowers and lenders.

    http://www.propublica.org/article/after-years-of-troubles-largest-student-loan-servicers-get-stepped-up-overs?utm_source=et&utm_medium=email&utm_campaign=dailynewsletter

    Felix

  4. How Exactly Do Colleges Allocate Their Financial Aid?
    [They Won't Say]

    Universities rarely release the specific criteria behind their aid decisions.

    http://www.propublica.org/article/how-exactly-do-colleges-allocate-their-financial-aid-they-wont-say?utm_source=et&utm_medium=email&utm_campaign=dailynewsletter

    But, could a little-known regulation help open the black box?

    Hope R. Hetico RN MHA

  5. FAFSA

    The federal financial aid form can be tricky to navigate, but here are 10 mistakes to avoid when filling it out.

    http://wealthmanagement.com/college-planning/cracking-fafsa-code?NL=WM-07&Issue=WM-07_20140226_WM-07_76&YM_RID=marcinkoadvisors%40msn.com&YM_MID=1452038&sfvc4enews=42&cl=article_2

    Ann Miller RN MHA

  6. STEM occupations continue to grow

    As the U.S. continues on its path of economic recovery, there are certain occupations that will be a driving force behind the rebuilding and strengthening of our economy.

    The technological innovations, new products and discoveries that come from STEM (science, technology, engineering and math) occupations help fuel economic growth and keep the U.S. competitive in a global marketplace.

    These occupations, which have been a major focus in the past several years, will continue to remain center stage, with more than one in four employers (26 percent) planning to create jobs in these areas over the next 12 months.

    Sheila

  7. Do College Loans Beget More Debt?

    Young adults who took out loans for college have significantly more overall debt than those who didn’t have to borrow for their education, researchers report.

    http://news.msn.com/us/pew-student-loans-often-mean-more-overall-debt

    Related: http://www.kevinmd.com/blog/2012/02/real-life-financial-implications-medical-student-debt.html

    Alice

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