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In my generation, about half of the students in my incoming freshman class paid for the full cost of their own college education through work, student loans, and personal savings. On their own, they were financing their college education. It was very rare to find a student who wasn’t paying for at least half of their own college education.
Though those days are long gone, occasionally I still meet with middle-income parents who fully expect their children to pay for the majority of their own college education. While this may not seem realistic in today’s environment, there can be a way forward.
View financing college education as a partnership between you and your student.
Several studies have shown that students who make a significant contribution to their own education will perform better in college than those getting a free ride from their parents.
Creating a partnership agreement with your student may be easier said than done. After all, a lot of your student’s friends won’t be taking a dime out of their pockets, while many others will only be making a very limited contribution toward the cost of their education.
Good communication is essential.
It’s important for parents to be honest with their students about the resources available to pay for college. Be clear that those resources will not include your retirement accounts. Parents also shouldn’t overestimate their student’s ability to earn scholarships. They should be realistic about what college is likely to cost and share that information with their students.
Here are some ideas that can make a parent-student partnership work in paying for college:
Incentivize your student by matching savings targeted to finance college education.
This can best be done by offering to match dollar-for-dollar what your student puts into their own college savings account. This account, of course, should be in the parent’s name to avoid the high student assessment rate.
This dollar-for-dollar match should generate about $10,000 in additional college funding through the college years–$5,000 from the parent and $5,000 from the student. While in college, students should be able to earn about $3,500 from an on-campus or off-campus job. During the summer, they should be able to add an additional $1,500 to the college savings account.
Incentivize the student to pursue outside scholarships
Providing incentives for the pursuit of outside scholarships can be very effective, especially since this will require quite a bit of effort on the part of your student.
Your student will have to first identify colleges which will allow any scholarships earned to fill unmet need. After that, they will have to do the necessary research to identify suitable scholarships. Finally, they will have to do the work required to earn them, which will often require that they write short essays. Parents can then offer to match the scholarships earned with an equal amount of money.
With a consistent effort, this could generate another $8,000 in college funding– $4,000 from the student in outside scholarships and $4000 in matching funds from the parent.
Parents can leverage a $4,000 contribution into a total of $6,500 in college funding value.
Middle-income parents earning up to $160,000 should remember to claim their $2,500 American Opportunity Tax Credit. A $4,000 contribution to qualified education expenses will qualify them for a full tax credit from Uncle Sam. With the tax credit factored in, you are actually receiving $6,500 in education funding value for your $4,000 contribution.
It’s important to point out, however, that your contribution can not be sourced from 529s for which you are already receiving a tax benefit.
Be realistic about the community college option.
If you are working in partnership with your student, this is a decision that needs to be made together. If community college is going to be in the picture, it is especially important for your student to work with their high school counselor or college coach to identify four year colleges well before they enter their first year at a community college.
They will also need to make sure that the credits they earn will transfer seamlessly to their selected four-year colleges.
Finally, even if you and your student decide on the community college option, your student should still apply to, and work to get accepted by, a number of four-year colleges.
Parents should be clear that their contribution is limited to four years.
By having a solid sense of direction prior to entering college (including community college), and with proper planning, the vast majority of students should be able to graduate in four years. Accordingly, parents should not feel guilty telling their students that they are limiting their contribution to four years.
When money is tight, parents working in partnership with their kids to finance college education should also remember the importance of not leaving any stone unturned when it comes to using the most cost-efficient strategies available to them.
Our financial and academic teams are always ready to work with you if you decide on a partnership approach to pay for college.