Since the beginning of May, we’ve been doing a series about college, money, and student loans. Kim shared several stories in this series, which if you haven’t already checked them out, don’t forget to do so.
- How I Chose My College Major
- Why I Didn’t Mind Paying Back My Student Loans
- How I Paid Off $36,500 In Student Loans
When I was in middle school and high school I didn’t understand the purpose of getting good grades in school. My lack of understanding showed at the end of every semester too (lol)! It wasn’t until my later years that I made the connection between education and income. Luckily my dad was able to pull some strings at the college he worked for and get me in on academic probation. I didn’t have to pay tuition due to him being an employee of the college. I was lucky. Extremely lucky. It’s not likely my son will have the same opportunity to go to college for free. Your kids are more than likely in the same boat as well.
In wrapping up this series, I thought it would be a good idea to discuss why you should save for your child’s college education.
More Opportunities (To Increase Income Sooner)
Most people would agree that a college education can be beneficial and lead to more opportunities, such as earning more income sooner. There are many studies that show that, on average, those with a bachelor’s degree will earn more than those who don’t have a degree. There are definitely outliers to this but it’s what I’ve experienced in my own life as well.
Taking this into consideration, most people would also agree that kids shouldn’t have to go into a large amount of debt just to go to college. Having student loans that will have to be paid back can hinder the opportunities that are afforded by going to college. It can make a college graduate feel like going to college was a waste of time, even if they chose a “good” major.
If we can give our son the opportunity to go to college this will allow him the chance to earn more income faster. And it’ll help even more if we can help him do this debt free (or almost debt free). In doing this, I see the opportunity for him to get to financial independence quicker than me. You might be thinking what does financial independence have to do with saving for a kid’s college education? Well, since the purpose of higher education is to gain skills that allow you to support yourself financially, why should one have to go into a large amount of debt to do so? And then struggle to pay it back?
Arming my son with the financial knowledge to get to financial independence, giving him the opportunity to graduate from college debt free, and the ability to earn more sooner will allow him to get to financial independence much sooner than I will. And don’t all parents want their kids to be better off than they were? This could not only impact him but several generations after him.
Less Of A Burden
When your child graduates from college and starts his career, he’ll be making the least amount of money he’ll make throughout his career (hopefully). If he had to take out student loans to go to college, his student loan payment might be as big as a rent payment. This can force him to live at home until he can clean up the mess and then move out on his own.
When kids finish college they don’t need this debt as young professionals trying to find their way in the “adult” world. What would be better is if they could start their career and not have to worry about paying back a massive amount in student loans. They would be free to make the best decisions possible without the financials being the overwhelming determining factor of what they choose to do with the rest of their life.
Should You Save For Your Child’s College Education?
So, should you save for your child’s college education? I think you should do something if you can. With the two reasons I mentioned above, we decided that it was better to do something rather than nothing. I’ve realized how much of a blessing graduating from college without student loans has been to me. I’ve also experienced how hard it is to pay off student loan debt thanks to my lovely wife (lol). It isn’t fun… at all!
I would love to give our son the same opportunity to go to college, but there’s no telling how much school will cost in 15 years. Kim and I decided that we want to help our son as much as possible with school. We may not be able to cover all of it, but that’s not necessarily a bad thing. This means our son will have to get a job to pay for the remaining cost. I want our son to understand the importance of getting a college degree and how those skills will impact his ability to make a living. Having him take part in paying for his education is a good way to accomplish that. But having him come out of school with crippling debt isn’t an option for us.
To accomplish our goal of doing something we decided to open a 529 through Fidelity. It’s the UNIQUE College Investing Plan. It isn’t a prepaid college 529. Instead, it’s the type of 529 where Kim and I pick the investments. We’ve been contributing each year into an index fund within the 529 since he was born. If you have kids you should do your research and decide what’s best for you in regards to saving for their college education. However, I encourage you to do something if you are able!
Keep This In Mind
I was listening to the Dave Ramsey show one day and a caller called in to ask Dave for advice on behalf of his parents. The caller was one of three kids whose parents took out student loans for all three kids to go to ivy league schools. His parents had borrowed around $90K for him to go to school and borrowed about the same amount for the other two kids. The parents went $270K in debt for their kid’s college and had no money set aside for their own retirement.
Looking from the outside in, this looks like his parents didn’t make a wise decision at all. But all his parents wanted to do was provide them with a quality education. However, in the process, they didn’t realize that their first priority was to themselves. They may never recover from this mistake and the likelihood of them having to rely on their kids in their retirement is higher.
The truth is that there are other ways to pay for college and cheaper colleges to go to that provide a quality education. This isn’t the case with retirement. It’s up to you to fund it. Don’t sacrifice your retirement for your kid’s education. You may end up being a bigger burden on them if you don’t have the money to take care of yourself.
Kim’s thoughts: As we wrap up this series, you would think that with the stories I’ve shared and the amount of student loan debt I had to pay back, I would’ve been all about saving/paying for our child’s college education. However, that couldn’t be farther from the truth.
When Omar and I first discussed it I expressed how no one paid for my college education, and it worked out OK. It also made me realize that I needed to get in and out of college as quick as possible. I told him that I refused to pay for our child’s college education just for him to turn around and not do his best or flunk out at our expense. Omar understood where I was coming from just as I understood why he did want to save/pay for our child’s college education, especially given how expensive it’ll be by the time he is ready to attend college.
Thus the reason that we came to the compromise that we would save something since we are able to – meaning that we are out of debt ourselves and we’re saving for our retirement as well. We probably won’t pay for his entire college education unless it just so happens to work out that way, but I’m comfortable with our decision to help him help himself along the way.