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Follow meFinancing a college education: Fact and Fiction
Written by EmilyIf you have children, saving for their college education is probably among your financial goals. Today, the average tuition at a private college is over $22,000. Refinance the house? Dip into retirement? Not according to Anne Marie Chaker at the Wall Street Journal Online. Her article Seven Myths About College Finances debunks several assumptions people are likely to make if they don’t look deeper into college financial aid.
Myth 1: Financial aid means grants and scholarships. Truth: Financial aid includes scholarships and grants (don’t have to be paid back) as well as federal loans. Loans can be subsidized and unsubsidized, but either way there is a cap on the interest rate–saving big bucks over the long term. Some jobs after college offer loan-forgiveness programs.
Myth 2: My assets (home and retirement savings) will prevent me from getting a need-based loan. Truth: The home you live in and retirement plans are not included when determining how much aid you can get under federal rules. Private colleges may use a separate formula, but do not include retirement savings.
Myth3: I should go with the lender preferred by my college financial aid office. Truth: Shop around and read the “fine print.” What looks like a good deal upfront might include an origination fee, or heavy penalties for missing a payment.
Myth 4: I’m doomed if I have two kids in college at the same time. Truth: You are likely to qualify for more aid.
Myth 5: The federal aid process follows a strict formula and my situation will never be given special consideration. Truth: College aid officers have the authority to make adjustments on a case by case basis. Documentaiton will be required.
Myth 6: Our child is likely to receive many private scholarships. Truth: Nearly all financial aid officers agree that parents overestimate the amount of scholarship and grant money children will receive.
Myth 7: The 529 college savings plan is bound to be the best for me. Truth: Shop around–be sure to look at fees.
If you are researching college financial aid, be sure to check out this post by Anna Leider.
After reading these articles, my biggest question is: Have parents always footed the bill for college? It never occurred to me to ask my roommates how they were financing their education; I only know that at least half of them worked. My parents paid my first year of room and board, but after that I was on my own. Just the idea that they would have used their retirement or refinanced their home to pay for my education seems crazy to me.
Has a college education become an entitlement? Even at the expense of the parent’s financial future? We live in a land of opportunity, and some believe that our country stays strong because life isn’t handed to us on a plate. We believe in hard work, and the self-made man. By giving our children everything, do we rob them of the chance to struggle, work hard, and fulfill their potential?
Posted in Debt, Finances, Saving | 6 Comments »
July 12th, 2007 at 10:36 am
My parents did not pay for my college. One particular memorable phone call went something like this. Me: “Dad, I’m a bit short this month. Can you loan me some money?” Dad: “We are a bit tight ourselves. I hope you can make it.”
I knew they loved me, but also knew that college expenses were mine to bear. I made it through college with little debt and a whole lot faster and cheaper than others.
I also don’t plan on paying for my children’s college.
July 12th, 2007 at 2:02 pm
I am currently putting myself through college. I lived at home only my first semester. I have a couple of grants, some subsidized student loans, and one unfortunately chosen loan at 12.2% interest. I didn’t know then that I could get unsubsidized student loans throught the government.
I’ve worked from 0-3 jobs at a time during my college career. I currently have one year left and am looking at not working the entire year. I will have to take some loans out to finance the tuition though.
Some would argue that it’s a stupid choice to not work, but I have nothing but difficult classes left. Also, all of my student loans will be interest deferred while I’m in school except the unfortunate one, which I am currently and will continue to make payments on.
In the end, I plan to graduate with less than 10,000 dollars of student debt at about 6% interest. If I get a job straight out of college (very likely) and make at least what I am at my current internship (very likely) I will probably be debt free in about 6-10 months at most. I have no other debt currently.
It was never an option for my brother and I to have our parents pay for college. My parents are divorced, we don’t talk to our dad (who is on disability checks from the government) and our mother made less than my brother did at his high school IT job. She has NO retirement savings and will be turning 50 next year. I wouldn’t let her pay for college if she offered.
July 13th, 2007 at 10:48 am
My wife and I have decided that we may help the kids out depending on our situation when the time comes, but it is a pretty low priority. First, second, and third priorities are covering needs, debt, and retirement. If the kids have some debt after college, they’ll have 40 or so years to pay it off before retirement and they’ll learn some good financial lessons. If I don’t have a secure retirement fund I will be much worse off than my kids.
If my wife and I are secure and have enough to help the kids out, we won’t make it easy on them. One of the options we discussed is making a deal with the kids such as, “we have X ammount set aside for you, when you get your degree its all yours”.
July 14th, 2007 at 11:10 am
Enjoy your blog…
Yes – around where I live on the West Coast it is a huge entitlement thing. People look at me like I am crazed because I haven’t made college savings a priority. People tell me all the time, “well my parents didn’t pay for my college” as an excuse to why they are not successful. I often find people assume we are doing well because we must have had everything handed to us. & a lot of friends bitter that their parents did not help more are spoiling their kids in that regard.
I find quite the opposite – we do well because we don’t feel entitled to everything – we worked darn hard in college and don’t expect a free ride. Dh and I disagree a bit as his parents footed his college bill AND he lived at home, but he worked through school as much as I did so he *gets it* to an extent.
Mostly I am with Noah. I don’t mind helping but it is not a priority in the least. Somehow I survived working and going to school full-time with a 4.0 GPA – graduated no debt. It is obvious already my kids are bright. If not and I Felt they needed more time to study and less ability to work, I may consider helping. But being out on my own and taking care of myself was an invaluable learning experience I want to pass on to my kids. They will appreciate it in the long run far more than a free ride. On the other hand we have the means to help our kids much more than our parents or grandparents ever did. If the situation arises that they may need some help I probably rather help than have them go into debt over it.
I have been considered to be a “bad parent” around here for not buying into the “any college at any cost” thing. Coming from a long line of family that put ourselves through public school and had very high-paying careers, I need a lot more convincing why I need to pay for a fancy private education and why my kids are entitled to it at my expense. ??? & why they can’t figure it out themselves.
July 24th, 2007 at 9:26 am
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July 28th, 2007 at 6:44 pm
[…] Getting Finances Done » Financing a college education: Fact and … Best Mortgage Rate; Mortgage; European Bank Facts; Finance; Free PC Mortgage Calculator; Bad Credit Loans … It was never an option for my brother and I to have our parents pay for college. My parents are … http://www.gettingfinancesdone.com/blog/archives/2007/07/financing-a-college-education-fact-and-fiction/ […]