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In Short

I’m wondering if there is any research to support the idea that paying for a child to attend college leads to a more desirable outcome than allowing them to pay their own way (either via working, via scholarships, or via student loans). This could be shown in terms of mid-career income, unemployment numbers, happiness index, etc. An answer that compares and contrasts the advantages and disadvantages to each side (as supported by hard evidence) would be even better.

Background

I believe I had an atypical upbringing that I erroneously assumed was normal. Most of my aunts and uncles, and my parents, worked their own way through school. I always believed this was the norm, though I’m now questioning that assumption.

When I started my associates degree I choose a community college for cost efficiency, but refused to let my parents pay after the first semester. I worked 24 hours a week around schooling, then moved up to full time work while attending night school at a local university to earn my BS. I believe that this experience was immeasurably valuable as I graduated with 5 years of industry experience on my resume, no debt, and a working understanding of how to apply classroom theory to industry practice, leading to good career prospects and high pay. Further, a 40-hour workweek with nights free after graduation seemed like a vacation to me which reduced my long-term stress levels, and knowing that my parents didn’t need to sacrifice of their retirement did wonders for my happiness (not to mention confidence in myself).

I have several friends who paid most of their college tuition via scholarships, and this seemed to provide different valuable benefits. As the scholarship was a results of their own accomplishments it provided a sense of agency in their lives and provided a boost to confidence and pride. I don’t know anyone who came out with substantial student loan debt, but I would imagine that paying it off could have a similar effect to my working my way through college: a sense of ownership and agency and pride.

I now have two children and I’ve heard a lot from seemingly everyone about planning for their college, and almost every other parent I’ve met has created college accounts for their children. This mindset seems both alien and counterproductive to me, and anecdotal evidence from my own past and family history indicates that this may not be optimal to my children’s long-term success. However, I also seem to be in the extreme minority and I’ve learned that when in that position it makes a lot of sense to question your own position and fully research and understand the other side to make sure you’re not simply biased towards the familiar. So I would like to know if there is validity in setting up a college fund and helping my children pay for college or if this is just an unsupported fad of our parenting generation.

I’m not sure if it’s relevant, but my children are currently in their early teens. I have setup small investment accounts for them that I'm trying to contribute to more and more, but those accounts are currently set to transfer well past college age. The kids know about them and I always refer to them as retirement accounts, but I’m wondering if there’s value in modifying them to be college accounts instead. Before considering doing so I’d like very clear evidence that it would make a substantial positive impact, as $50,000 (for example) put into college now takes $1,500,000 (~$400,000 in today’s dollars adjusted for expected inflation) away from their retirement.

Addressing College Cost

I'd like to take a moment to address a common theme in the comments and answers that I don't think has been properly fleshed out.

I think we can all agree that education is extremely expensive. However, I feel it is tangential to the heart of this question, if we assume that paying for one's own education is at least possible, even if difficult.

According to http://www.topuniversities.com/student-info/student-finance/how-much-does-it-cost-study-us studying at a Community College will run $3,347 per year, plus room and board. Studying at a state college will run $9,139 per year, plus room and board. For the purposes of the question we can assume that we're talking about financial assistance with tuition, and that students are welcome to live at home and commute. Therefore we can place a lower limit on a four year degree at $24,972. Even with room and board the numbers work out to $59,990.

We can reasonably assume a work schedule of 15 hours per week during school semesters (9 months of the year) and 40 hours per week during breaks (3 months of the year) for a total of 1020 hours per year. If we assume a student attends 12 credit hours per semester all year round and works 30 hours per week, that comes to 1440 hours per year. I know several people that put in more hours than this, including myself in the past and my nephews in the present, so I believe it to be more than reasonable.

Assuming a pay rate of $10 / hour, the student will have a annual gross income of $10,200 - $14,400, or $40,800 - $57,600 over the course of the four year degree. Alternately, setting aside 10% (average tithe suggested by certain major religions, showing that it is possible to do for many) of the US average annual income of $50,000 (those with degrees average much higher) would allow a student to pay off a fully financed degree at a rate of $5,000 per year, or 5-12 years. Based on these numbers it is clear that with the proper choices the student can come out with no debt load or a manageable debt load, even if they don't stay with parents.

To be clear on a few points:

  • Average budgets for college students are higher than this, but it doesn't necessarily follow that they must be if there are financial pressures on the student to budget responsibly and control costs.

  • I do not mean to imply that this is in any way easy. It will, in fact, be very difficult. But it is often the most difficult challenges that allow us to grow and succeed.

  • All points about costs, difficulties, long-term debt, etc are valid concerns, but they are not necessarily salient to the question as they may be offset by positive consequences of equal value (industry experience, practical time/life management, etc). Which leads me to:

  • The crux of the original question is what hard evidence tells us about whether the long term results of paying for college for our children are overall positive, and if so if they are positive enough to offset a massive loss in retirement savings. This is regardless of whether life might be difficult during or recently after.

Nicholas
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    Just to clarify (before I research an answer): have you researched how much inflation college tuition has undergone since you went to college? (Real dollars then - e.g. 1989 or whenever - and now, knowing they will inflate even more.) Do you want them to go to a community college or live away from home? What do you believe the values of a college education are? This is a great question, btw, and if people respect your request for research, it has the potential for very valuable answers. If not, you're in for a lot of opinion. – anongoodnurse Dec 14 '16 at 22:49
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    As someone who did not work to pay for my education, I find the last sentence extremely offensive. No, I didn't "party my way into adulthood", either. –  Dec 15 '16 at 02:44
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    I find it a little unusual that you're willing to help fund their retirement, but are hesitant to fund their education. Why the inconsistency? Ideally they should be able to fund their own retirement by getting a good education, and a good job, and making their own sound investment choices later in life. As a parent you should be focusing on giving them a good start in life, so they can look after the rest of it. – user1751825 Dec 15 '16 at 06:59
  • Should you assist? Yes. College is expensive and it's unlikely any student will be able to study and work enough to pay for it. Should you pay outright for it? No. College is your child's first step to independence and need to see they do need to support themselves in life. My mother in law paid everything so her youngest could get an English degree and now he's in his 30's and still lives at home with his fancy degree. – Stephen Dec 15 '16 at 08:34
  • @fkraiem I apologize. I didn't mean to imply everyone did that. Just to communicate that I don't want to give up so many good things, if the only benefit to doing so was to make life a little easier for a while. I've removed the sentence. – Nicholas Dec 15 '16 at 14:05
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    @user1751825 That's a very very good point. The retirement planning came only after giving them that good start. My pay has risen considerably recently and I have used some of the remainder to help them plan for retirement. I feel the reason it is different is because the idea is not to give them a lot of money, but instead to use a modest amount of money as a learning tool to teach them how to invest and how compound interest and appreciation works. I'd do the same for college if I thought it would provide the same benefit; I'm just not convinced and worry it will do harm instead. – Nicholas Dec 15 '16 at 14:08
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    @Stephen I've had similar experiences. However, our experiences are anecdotal and there are also counter-points many others could provide. That's why I was looking for research to help us slash through those biases and small sample sizes. As for it being expensive that's definitely true, but even if fully financed a college graduate living within their means and setting aside 20% of their take-home pay could pay it off within a decade (or two at most). – Nicholas Dec 15 '16 at 14:09
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    Do your children express a desire to go to university or college? Do they have any career goals? Will an expensive education in the field of their choice, help find them work? Personally, I'd consider so many things before spending money for a 'maybe'. I am not suggesting no higher education, but if your kid would be happier as a plumber they should take some business courses and some practical education -- and they'll make a good living. I am a retired teacher, and the way teachers are paid, it would have taken me decades to pay student loans and start really saving for retirement. – WRX Dec 15 '16 at 15:44
  • @anongoodnurse That's a good point. It looks like average college tuition has increased by about 40% accounting for inflation. I think a college education is a necessity in today's economy for finding a job, and equally valuable for understanding the world around us and making appropriate choices from a perspective of rationality and civics. I don't know that college location matters much, and community colleges do not seem to necessarily provide any worse education for the first two years so I don't care about that either; it's their lives and ultimately I'll respect their choices. – Nicholas Dec 15 '16 at 15:53
  • @WillowRex Yes, they do. They both are interested in careers (internal medicine, psychology, veterinary medicine, etc) that would likely require a graduate degree. Even if they weren't sure what they wanted to do, I think college tuition is a small price to pay for the continual opportunities it would provide them in life choices over the decades. – Nicholas Dec 15 '16 at 15:56
  • @anongoodnurse I thought I should clarify my last comment. Tuition inflation is hard to nail down without more information. For instance, private institutions only charge around 18% more than they did in 2001, while public are up 50%. Further, some colleges have actually decreased tuition when accounting for inflation. And all of that will factor into their decision about which to attend. So I decided to go with a cautious average of 40% for our purposes. – Nicholas Dec 15 '16 at 16:02
  • Let's see here... Notre Dame is $50,000 a year; Goshen College is about $35-$45,000 a year. I get paid $10 an hour... That math doesn't work very well any more. My dad paid his way through school, but that is becoming increasingly difficult. – L.B. Dec 20 '16 at 18:33
  • So, to clarify, you are helping your kids with retirement savings now, but are happy for them to be in debt for 10-20 years? If my parents had done that I would be MAD. My parents had a modest educational fund for me (that I supplemented with a "small" amount of loans (10k!!) , and my husband used loans to pay for all of his schooling (~30k!).

    And to put that into perspective, it was not an expensive school and we lived at home when going through school. Neither of us partied and we have always been frugal and smart with finances.

     – BunnyKnitter Dec 21 '16 at 16:13
  • Also, some degrees may allow time to work. Not all. My working friends in engineering did not fully contribute to group work as did the non-working friends who had time to spend on projects and study. Think about the course load before telling your kids to work through school. If they are smart they will take loans instead and focus on their schooling. – BunnyKnitter Dec 21 '16 at 16:13
  • Honestly, when you weigh the costs and benefits of paying vs not paying for their schooling, do take into account how long it will take them to be hired into a job where they can start paying off their loans (some of my friends from school are still jobless after 1.5 yrs), and assume that they paid for everything with loans. So also take into account the cost of borrowing for those loans. – BunnyKnitter Dec 21 '16 at 16:21
  • @SnyperBunny If someone gave you a gift, but it was not in the form you most wanted, you would be mad? In any case, especially now that they're getting into their teens, I often need to make choices that make them mad if I feel that's what's best for them. You do make a good point about the type of degree making a difference; between myself and friends I'm really only familiar with computer science, engineering, and some hard sciences, so that may bias my perspective. – Nicholas Dec 21 '16 at 21:05
  • Being saddled with debt racking up interest but having an untouchable retirement account would still make me a little mad. My government ("low interest") student loans were still 7%. So please do be sure to take into account the cost of borrowing the full cost of tuition when you make your decision. Also account for at least 6 months of non-working/job-searching post graduation. – BunnyKnitter Dec 21 '16 at 21:09
  • I am a sophomore at a college with a 12% accept rate for the CompSci program. My parents both have high paying careers and saved enough to pay my tuition and living expenses. I've worked summers since high school, and I got a job this semester but I had to quit because it was impacting my ability to do well academically. Yes, there are some people who can work 20+ hrs a week and get good grades but not being able to doesn't mean that you're lazy! If I couldn't get college paid for I would drop out and get an industry job. – Sorcha NicEalair Nov 29 '17 at 04:49
  • Looking at the rates of student loans, as well as the risks of investing. It seems your children would likely be in the best position to simply cash out the retirement accounts with whatever penalty is given for that and pay off their loans. Could you practically prevent that if you don't like the idea? – Vality Jan 30 '19 at 20:54
  • Bottom line is this - if your kids are responsible people, then helping them get through college without debt will have a significant impact on their life outcome. This is intuitively obvious. They will graduate already financially secure, they will be able to start a family, buy a house, buy a car sooner, and they will do better in school because they don't have competing priorities. On the other hand, if your kids aren't responsible, the problem will be your kids irresponsibility, not whether or not you give them money. – Cdn_Dev Jan 31 '19 at 18:24
  • @CanadianCoder I don't necessarily disagree with your statement, but a major part of the question is how said assistance, or lack thereof, will act as a enhancement or detriment of their level of personal and fiscal responsibility. I'm looking to cultivate responsibility, not simply measure it and punish if they're not on-target. As such, your statement is not intuitively obvious, as the help itself affects the variables that determine the outcome. This is why I asked for objective statistics or studies, so that we can use real world data to build an accurate predictive model. – Nicholas Jan 31 '19 at 18:44
  • I think the best predictor of whether your kids will be responsible in the future, is whether they were responsible in the past, not how much money you give them. Either they care about and are smart enough to make good decisions, or they aren't. That will determine how they react to financial assistance, not whether they were given assistance at all. Sure, I have no studies, but take it as you will. – Cdn_Dev Jan 31 '19 at 18:59
  • @CanadianCoder I don't agree with a simple nature > nurture viewpoint. For 18 years children live in a false, safe, protected environment. As parents we work to teach them responsibility, but there is no real repercussion other than our praise or wrath. The first time they face real consequences is either in college (if we don't pay) or in their first job (if we pay for school). That experience will be a much better teacher of real responsibility via real consequences. I think getting that at 18 is vastly superior, but is offset by financial difficulties, a comparison I hoped to quantify here. – Nicholas Jan 31 '19 at 20:35
  • @Nicholas It honestly sounds as if you've already made up your mind. IMO if you can afford it and you're almost certain that your child (18 is still a kid lets be honest) will pass, you should aid them financially. Remember what a big student loan debt can do, in most countries the mortgage you can get will be less for instance. – EpicKip Jun 29 '21 at 10:58

6 Answers6

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  1. People with degrees statistically have a better income than those without degrees.
  2. If assisting your child financially is the difference as to whether they can acquire a degree or not then it seems logical that you should consider helping them in whatever way you can.

http://www.pewsocialtrends.org/2014/02/11/the-rising-cost-of-not-going-to-college/

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/229498/bis-13-899-the-impact-of-university-degrees-on-the-lifecycle-of-earnings-further-analysis.pdf

https://www.abc.net.au/news/2012-10-24/uni-graduates-likely-to-earn-one-million-more-over-lifetime/4330506

Pete
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  • This is a good start. It may be helpful to note if there a statistical correlation between parent financial assistance and graduation rate, or education level achieved. For the purposes of this question I would assume that the child will attend college either way. – Nicholas Dec 19 '16 at 14:25
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    @Nicholas Can you reasonably assume that? If I had to pay myself I may have decided not to go. – Weckar E. Nov 24 '17 at 15:44
  • @WeckarE. In a larger, more general, context maybe not. In my particular situation I believe we can. In any case, the assumption helps remove a variable and narrow down the focus of the question. – Nicholas Nov 24 '17 at 18:31
  • @Nicholas, the fact the person will go to college in the first place rather than not going infinitely increases the statistical correlation between parent financial assistance and graduation rate. – Pete Jan 29 '19 at 08:24
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My husband and I helped our son with undergraduate college so that he wouldn't have so much debt from student loans but only because he was committed to his education. I am all for helping your children with this if you have the resources, but only if they are committed to their education too. I paid for my own college costs with student loans, but I did see some students at that time that were not very committed to their education because their parents were footing the bill. I guess that you have to weigh in all factors.

Cathy
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Split the cost with the child

My parents and I had a deal with regards to college. They would pay for 50% of the costs of college, including tuition/fees/room/board. I had to pay the other 50%, however there was the stipulation that any scholarships I earned went into my 50%. Since I was able to receive a full ride scholarship, my parents even gave me the 50% they had saved for me so I could keep it in savings.

If I failed to keep my scholarships, I would have had to take out student loans or started working. This arrangement incentives your children to maintain good grades knowing that they'll have to pay extra if they goof around and start failing classes. It also means that if they're dedicated and get lots of scholarships, they won't have to have a job in college and are able to spend more time on their studies.

You also mention the student working part time in college. This is do-able, however the potential gains from scholarships are so much greater than working part time. My parents' philosophy while I was in high school was that my full time job was doing activities/maintaining grades that would get me good scholarships. If you get a full ride, that's essentially saving you anywhere from $100k - $500k. I was able to get a full ride for my first year via ROTC. I decided that I didn't want to join the military, but since I had good grades, I was able to apply for (and get) a bunch of other scholarships that continued to pay for all my tuition and fees. Then my parents payed for housing. I had 1 part time job in college during a lighter semester, but instead of working in college, I was able to graduate with 3 degrees in 4 years, study abroad, and get an honors degree. All of these experiences were way more beneficial to me than working a part time job would have been.

Robin Clower
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  • My parents did something similar for me: They'd pay as long as I passed. If I failed a class, I'd have to pay to re-take it. That was a good motivation to work hard and make sure I passed first time! – stan Jun 29 '21 at 16:44
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As you note in your question, college tuition has risen significantly faster than inflation over the past decade or two. This makes it more difficult to cover all one's college costs just from work during college. If you can afford it, you might put enough away to take some of the burden off of them, while still depending on them to do some work to avoid debt.

Be aware that many universities take into account how much money a student has available when determining student aid. It pays to be aware of these policies and to put as much of your money as possible into things the universities won't or can't take into account. For example, they are not allowed to take your retirement accounts into account, and most will not take your housing equity into account, though universities differ on the latter.

Warren Dew
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There is no need to pay for their college tuition. I have only my own anecdotal experience. However, by not paying for their college, they will need to ascertain risk/reward themselves. e.g.

  • Does this private university, which is 300% more, provide additional value to my life?
  • How could I pay for this without incurring excessive debt?
  • Should I go part-time to college?
  • Will I be able to handle this debt with the major I am choosing?

Note, please sit with your child and walk them thru such questions (maybe get reasonable accountant or financial planner to help)

This will also help you let the little "chick" leave the nest as these are all their decisions.

Now, when they turn 25, if you want to set up a trust or give them a gift, by all means feel free.

paulj
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I think you should, because I wouldn't be able to study aboard for university without my parents' help. But you need to let your children understand you are not giving them free money.

I think the key point is to let your children understand the value of their education, and that university degree doesn't just fall from the sky. It comes from your hard work.

You can also tell them that this is a loan from you with no interest (or low interest), but you expect them to to pay you back in x years. So that they will feel pressure and value their time in university. When we get something for free, we usually take it granted; but when it comes at a price, we usually treat it more carefully. You don't necessarily actually need them to pay you back the loan, but don't let them know that before they graduate.

You can actually start teaching them value of money now, by asking them to get some part-time job.

As others have mentioned, average tuition in US is very expensive. Googling shows that

published tuition fees for 2014/15 at state colleges are an average of US$9,139 for state residents, and $22,958 for everyone else. This compares to an average of $31,231 at private non-profit colleges.

(http://www.topuniversities.com/student-info/student-finance/how-much-does-it-cost-study-us)

So even if they go to a local one, by working around 1000 hours a week (20 hr/week * 50 weeks) at $7.25 minimal wage, they can barely cover their tuition, not to mention other expenses (say the university is out of town, then they'll need housing).

Alic
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