As the parent of a college-aged child, you may have wondered, “Should parents pay for college?” Although parents are not obligated to pay for college in most circumstances, many parents consider helping with expenses. In fact, 70% of parents are saving some money for their child’s college. This is helpful because, in the 2019 – 2020 school year, families paid an average of $30,017. Fifty-two percent of this cost included parents’ income, savings, and loans. If you take out parent student loans for your child’s college expenses, you will be obligated to pay them back. Another instance in which parents are sometimes obligated to pay for college is if a divorce or custody agreement requires it. Whether parents should pay for college is a personal choice. Here are a few things to consider before choosing to help your student pay for school:
- Have you saved enough for retirement, or are your savings on track to meet your goals?
- Can you afford an additional loan payment?
- Have you already saved an emergency fund?
If the answer to all of the above is “yes,” then you may be in a good position to help your child pay for college. Here are a few more tips to help you decide whether this is the right choice for you.
Consider Federal Loans First
In most cases, your student should max out their federal loan options before you consider taking out private or Parent PLUS loans. They should start by completing the Free Application for Federal Student Aid (FAFSA) to determine whether need- or merit-based aid may already be available to them. It’s important not to wait until the last minute to fill out the FAFSA. Completing the FAFSA early will give your student the best chance of qualifying for aid that’s distributed on a first-come, first-served basis. If your student does need additional loans to help pay for college, they’ll likely need you to cosign. It’s difficult to be approved for student loans with no credit, and your student may need help meeting the lender’s requirements. Keep in mind that if you do cosign a private student loan, you’ll be responsible for the debt if your student is unable to make their monthly payments. Missed payments may also affect your credit score. In some cases, you may be able to drop off the loan once your student graduates using a cosigner release. If your lender doesn’t offer this option, you may also be removed from the loan through student loan refinancing.
Look Into Scholarship Eligibility
If you are against taking on loans for your child and are unable to save early, you can still help your child by helping them research how to get a scholarship. There are various scholarships available for college based on academic standards, essay submission contests, extracurriculars, and many more. For more information about the types of scholarships available, don’t miss these ELFI blogs:
- Scholarships for Black & African-American Students
- Scholarships and Grants for Women
- Scholarships for Latinx & Hispanic Students
- Scholarships for Graduate Students
Helping research scholarship opportunities can be a great help to your student to find free money for school.
Take Out Parent PLUS Loans or Private Loans if Necessary
If your student has reached the Federal student loan limit, then another option to consider is Parent PLUS loans. Parent PLUS Loans are federal student loans offered by the U.S. Department of Education to parents of dependent college students. Interest rates on Parent PLUS loans are often high, and the parent is responsible for paying the loan back. Another option is private student loans, which are available from private lenders like ELFI.* Private student loans may be a better option than Parent PLUS loans for borrowers with good credit because competitive interest rates are often available to borrowers with higher credit scores.
Pay Through 529 Savings Plans
If you decide early that you would like to help your student pay tuition, a 529 plan may be an option for you. A 529 plan is an investment account designed specifically for educational expenses. One of the major benefits of a 529 plan is that your money grows tax-free in this account and can be used to cover qualifying expenses related to your child’s education. For more information about costs covered under these plans, explore our blog on 529 plan qualifying expenses. If you’re considering options to help save for a child’s education, be sure to look into 529 plans.
Hybrid Loan Scenarios & Financial Support
As a parent, paying for your child’s college doesn’t have to be an all-or-nothing effort. You can assist with the costs in many ways without shouldering the entire financial burden. For example:
- Split the cost with your child: If you’re covering the expense of tuition, help your child make a financial plan to cover any remaining expenses, like housing and meals.
- Divide the Student Loans: If you’re unable to take on the financial responsibility of all your student’s college loans, then divide them between you in a way that works for both of you.
- Cover up to a Certain Amount: If you have educational savings that will cover some, but not all, of your child’s college expenses, then let them know ahead of time what you’re willing to contribute.
- Give Your Child a Stipend or Allowance: Giving your college student an allowance is a great way for them to learn financial responsibility and budgeting.
Consider Student Loan Interest Rate Types
Before you sign on the dotted line, be sure you’ve chosen the type of student loan interest rate that works best for your situation. For example, certain loans will have fixed rates, while others will have variable rates. Parent PLUS loans generally have fixed rates, while many private lenders will offer you the option of either fixed- or variable-rate student loans. Your average student loan interest rate is based on the type of loan you choose, and in some cases, your credit score and debt-to-income ratio. That’s why doing your research and making the most of your finances before taking out student loans will pay off in the long run. If you do opt for a variable rate student loan, it’s important to remember that your rate may increase over time. If your federal loans were issued before 2006, they may have variable interest rates, but consolidation could help you transition to a fixed rate. If you aren’t taking advantage of federal benefits like income-driven repayment or Public Service Loan Forgiveness (PSLF), then student loan refinancing may also be a good choice to switch from a variable- to a fixed-rate loan. Two of the primary student loan refinancing benefits you can enjoy are an updated interest rate and repayment term that fit your current financial situation.
Pros & Cons of Helping Your Student Pay Tuition
Like many financial choices, there are both benefits and drawbacks to helping your student pay for college. Here are a few pros and cons of parents paying for college to consider.
Pros of Helping Your Student Pay Tuition
While parents are not obligated to pay for college, many families feel that there are benefits to doing so. If you have the financial flexibility and would like to help, here are a few positive impacts you may experience:
Boost Your Child’s Financial Future
If you help your child pay for college, they will be less likely to need student loans. Graduating without student debt sets them up for a healthy financial future. If parents help their students pay tuition, then the student may not need to repay student loans after graduation. That will allow them the freedom to accept a career they enjoy rather than one that will pay more so they can pay off their debt. Avoiding student loan debt will also allow your child to focus on their financial goals, like homeownership and maxing out their retirement plan. Recently, surveys show new graduates feel saddled with student loan debt, preventing them from going after other financial goals.
Open Doors to Job Opportunities
More jobs are expected to require college degrees in the next ten years. Helping your student pay tuition could open up doors for his or her future. Your student will have more options available to them with a college degree and greater earning potential. If they cannot attend college because they can’t afford college tuition, that can hinder their career growth opportunities.
Allow More Time to Focus on School
Without worrying about tuition, your child can focus on academics and earning their degree quickly. If a student has to work to pay for school, it may take longer to complete the degree.
Cons: Why Parents Shouldn’t Help Pay for College
While there are several pros to helping your child pay for college, it’s not always worthwhile. If financially supporting your student’s education means significantly decreasing your own financial health, you may reconsider. Here are a few reasons you may decide not to help your child pay for school:
Instill a Sense of Responsibility
If a student does not have to be concerned with paying for college, they may not learn the value of money. A student may take financial help for granted, not taking school seriously. If a student is required to contribute towards expenses, they may learn responsibility.
Focus on Your Retirement Savings
As many experts say, students can borrow for their college expenses, but their parents cannot borrow for retirement. That’s why it’s important to consider all the benefits and drawbacks before using a Roth IRA to pay for college. If you can max out contributions to your retirement accounts and still save and help pay for college, this may not be a concern. However, if you are unsure if you are on track for retirement savings, helping pay for college may not be financially wise.
Are Parents Legally Obligated to Pay for College?
While it’s great to help your student pay for college if you have financial flexibility, parents are not obligated to pay for college if it will hurt their own financial health. The one caveat to this rule is that divorced parents may be required to pay for their child’s college education if that responsibility is specified as part of their divorce agreement.
Bottom Line
Whether you think that parents should pay for college or not, it’s important to begin the discussion early. This will allow time to make a financial plan and help everyone be on the same page with expectations. Be sure to help your student fill out the FAFSA to find out what types of financial aid may be available. Then, if student loans are necessary, take the time to find the best options for your family’s financial situation. If you’re thinking about taking out private student loans, consider ELFI for your educational financing needs.* ELFI offers both private student loans for undergraduates, as well as student loans for graduate school.
