27 Jan Talk to Your Student Now About the Reality of Paying for College
Perhaps the most difficult question parents can confront is whether you should be responsible for paying the entire cost of your child’s college education. In your heart you feel like it is the right thing to do, and you are definitely willing to make sacrifices to get your child started on the path to a successful life. In reality, though, you know that this will put a huge burden on you and your family. You may have your own student loans to repay, a mortgage and household expenses, other children to consider, older parents to care for, and even your own retirement to fund.
These questions can be challenging and complex, but avoiding them does no good for you or your student. According to T. Rowe Price’s 2016 Parents, Kids & Money Survey, 62% of teenage students expect that their parents will cover the cost of “whatever college I want to go to.” But 65% of their parents, on the other hand, say that they will only be able to contribute some to the cost of their child’s college education. This is a huge disparity in assumption and truth. To keep this from happening in your family, here are some tips to help you talk to your student now about the reality of paying for college:
• Let your child know whether you have saved any money: Most children don’t understand the reality of family finances, and might just assume that there is some type of college fund available. Let your child know early on whether you have been able to start a 529 Savings Plan, or have put money aside in other ways. This will go a long way towards finding and attending an affordable college.
• Think carefully about taking money from your retirement account: You put money into retirement accounts for your own purposes, and withdrawing anything could adversely affect your financial stability in later years. It’s not just the principal amount you’re putting on the line; it’s the interest that will not accrue, too. You might think you are withdrawing just $5000 from your retirement, but that could end up being $7000 or $8000 less in your account, depending on your investment plan and time until retirement. There could also be tax consequences for an early withdrawal.
• Know why costs go up: Many families don’t have an adequate understanding of why college costs increase. Clearly discuss the cost differences between public and private, two and four-year, or in-state and out-of-state colleges. Learn about financial aid, and roughly calculate how much you will have to pay out of pocket or borrow through student loans. Start budgeting early, and look for scholarships that might be able to draw costs down.
Parents should not get disparaged or feel entirely responsible about paying for college. You need to strike a balance between helping and overburdening your student. Clear money discussions from an early age should make it easier for everyone.