Reimburse kids college - how to structure?

[mystang52]

This worked for Kid #1, but of course after then the cat was out of the bag for # 2. Anyway this is what I told my oldest: she was responsible for books. I would pay the first 3 years of tuition and room and board. She'd pay tuition for Year # 4, but at the first year's rate so I'd pick up any increases.
At beginning of year 4 I told her we were paying.

For my son the younger, he was responsible for books.

 

[WhenIsItTime]

The problem with the "kids pay now and we repay them later" schemes is that if you earn a good living, it's practically impossible for your kid to make enough money to accomplish the "kids pay now" part. Back in the day I was able to pay for school and on campus housing myself by working in the dining commons 20 hrs per week during the school year and 40+ hrs during the summer, but that's no longer possible.

Aside from the fact that college costs have risen a whole lot faster than wages, all the on-campus jobs in the dining commons, library, computer labs, etc, are now reserved for work-study kids. When my kid went to college 30 years after I did, the only way for her to earn any money was to work off campus, and there was no job that would pay her enough to front the tuition on her own, much less her housing costs. She was only offered private student loans at interest rates much higher than the fed loans if we cosigned them.

So I'd say Option 2 is impossible. Option 3 is probably impossible if the kid's not an A/B student with a big savings account. Option 4 is possible, but probably not at a 50/50 rate other than for a community college. You might be able to do it at 80/20 or 90/10 though.

Since you are ultimately paying for college anyway, why not do it as a loan from your own funds? Make your kid sign a promissory note for whatever percentage of the costs you think should be on them. Then you can make a gift of the loan forgiveness when they graduate.

I went to community college my first two years. I worked full-time summers during the last three years of high-school, and co-op during my senior year. During college, I worked 40+ hours per week year around. Grades suffered, but I didn't have time to party and got my bills paid. I don't think many kids are willing to work this hard.

I totally agree cost of college has risen faster than wages.

I'm not familiar with current student loan options, so good point if I want to pursue this I'll need to do some homework. Certainly my assets will preclude my kids from financial aid, although my parents lower middle-class status did the same to me.

Option 3 would require up front money or loans.

Loan between me and kid might be part of the solution.

 

[WhenIsItTime]

With my son I had told him I would pay up to $100,000.... but he had to take out federal loans each semester and I would pay the difference. I would reimburse him for loans after he graduates if he had not reached the limit.


Well, in year 2 he moved his GF in. I paid for a year but said I was not going to keep paying for her to live free (my costs never went down). He either had to show me she was contributing or money stops... money stopped. He funded his last 2 years on his own.


After graduation I gave him the money for the first 2 years of loans but told hm NOT to pay them off with all the talk of forgiveness.


My DD is starting next year. She keeps talking about going out of state but I tell her there is a max I will pay and she needs to be smart with 'her' money. I am going to do the same, make her take out federal loans and I pay the rest. I doubt she will be moving in her BF but you never know.




If they qualify, get the federal loans as you never know what will happen in the future. You can always pay them off whenever.

So is GF now a DIL?

Loan forgiveness is an interesting topic. As someone who paid his own way through college and didn't have time for fun, I don't want to see that happen. I personally think loans are what allows college's to be so inefficient and expensive. As long as students keep showing up, college's will be fat and happy. They should be ashamed of their cost increases.

With that said, if some type of forgiveness happens then I agree no reason not to partake.

 

[The Cosmic Avenger]

The problem with the "kids pay now and we repay them later" schemes is that if you earn a good living, it's practically impossible for your kid to make enough money to accomplish the "kids pay now" part. Back in the day I was able to pay for school and on campus housing myself by working in the dining commons 20 hrs per week during the school year and 40+ hrs during the summer, but that's no longer possible.

Yep, and our "kid" is a STEM major, and has a LOT of study sessions and labs, so working would probably detract from their academic performance, which would make pay-per-grade even more problematic.

We have decided to pay for all of it, as the kid is very responsible with their money, and doesn't seem to be taking it for granted. For example, they've decided they want to reduce their meal plan after their first semester on campus, as they find that they don't have time to go to the dining hall to use all their credits, they often use them to bring something with them to eat on the run or in their room while studying. They are attending a $$$$ private college, but got a 50% academic scholarship, so in a way they did their part.

The problem with reducing the aid based on less than perfect grades is that sometimes a great student puts in twice as much effort for one class and still gets a B. We are getting regular reports that our kid is barely able to maintain an A in Organic Chem and Cell Bio, they may get a B in those classes, but they often report that the average for an exam is in the 60s or even 50s, and they got an 87 or 89. I would feel awful if we asked them to pay us back because they got a B in one of those classes, as a B in them is still a very impressive achievement.

 

[WhenIsItTime]

One of my former employers had a reimbursement program. The employee had to pay for the courses up-front. Then if they got a B or better they would submit a form, their receipt and their grade and the company would reimburse them and they could use the proceeds to pay for the next semester.

I thought that was a fair way to do it. The employee had skin in the game, was incentivized to be serious about their studies to get that B needed to get reimbursed and was also incentivized to stay with us until their semester was over.

DD was a good student so we never had any worries about grades so we just paid up-front. DS was a different story. He washed out first semester but thankfully pretty early so we got a partial refund. Back at that time, I told him that if he wanted to return that we would pay half and he would pay half and if he got a B or better that we would then reimburse him. At this point, if he went back I think he would be pretty serious about it so I would be willing to front the first semester with future semesters based on B or better grades.

I got a master's degree partially reimbursed by my employer on very similar plan. I felt that was very fair. I noted in previous comments that my kids have different academic abilities. I may have to tailor to each so as not to penalize the kid who struggles more in school.

 

[WhenIsItTime]

Before my three kids started college, I tried to be legalistic and write up essentially a contract that would outline what I would pay for and under what circumstances.

It didn't work. Circumstances arose, plans changed, unforeseen gray areas were identified.

What I would recommend:

1. Have talks early and often. Communicate what you can and can't, will and won't do. This way the kid knows what to expect and can better navigate high school and college.

2. Talk in general principles, not rules. Instead of reimbursing B's at 85% (rule), explain that you'll only support them as long as they're making good progress (principle). This means you can handle gray areas as they arise rather than trying to pre-legislate them out of existence. It also means more communication and understanding.

In general, supporting them along the way as long as things are going well (and cutting off or dialing back support if they go astray) will be less expensive and taxed better than any of the carrot/stick ideas in the OP. Loans, for example, have origination fees and sometimes interest payments. Paying along the way could be done from a 529 rather than paying off loans from a taxable account (with possible realized cap gains).

I'll add that one of my kids didn't really respond to the cliff/threat/rules thing very well. It stressed him out, and with that plus COVID he had a really bad semester. Your kids may respond well to it, but they also might do worse rather than better.

As for skin in the game, I told my three kids that there is a pile of college money for their basics as long as they were getting a marketable degree with a plan to use it to support themselves at graduation. Anything left over will be split among them, and in inverse proportion to how much of the pile they spent on their education.

One of mine is taking a pricy route, the other two were/are on the frugal plan. Pricy kid will get a small chunk at graduation, frugal kids got/will get enough for a decent car.

Thanks for sharing. I am not a 100%/0% person, so appreciate your comments on pitfalls of a strict contract.

 

[WhenIsItTime]

Pay as you go. I had them get a loan for each semester. At the end of the semester, if they had a 2.0 or greater, I paid the loan. Worked out great for DD #2. DD #1 never made it past the first semester. She wasn't meant for college. So she went a different direction and has been paying off the loans.

I admire your resolve to stick to the plan. This approach may have helped DD #1 get on a better track sooner.

 

[WhenIsItTime]

I should add - both boys only get 4 years of full time equivalent paid for. They know this Younger son was setting up his schedule for winter quarter right before Thanksgiving - mentioned he got advice from one of his friend's older brother- a 5th year. I burst out laughing and said he should not take scheduling advice from a ****FIFTH**** year.

This made me laugh!

Your approach seems to balance holding them accountable, but being reasonable. I like that.

Yes, the 4 yr constraint is another factor. Maybe next related thread I start will be how did folks help their kids pick a college major and did they end up using the education for their job/career.

 

[WhenIsItTime]

Yep, and our "kid" is a STEM major, and has a LOT of study sessions and labs, so working would probably detract from their academic performance, which would make pay-per-grade even more problematic.

We have decided to pay for all of it, as the kid is very responsible with their money, and doesn't seem to be taking it for granted. For example, they've decided they want to reduce their meal plan after their first semester on campus, as they find that they don't have time to go to the dining hall to use all their credits, they often use them to bring something with them to eat on the run or in their room while studying. They are attending a $$$$ private college, but got a 50% academic scholarship, so in a way they did their part.

The problem with reducing the aid based on less than perfect grades is that sometimes a great student puts in twice as much effort for one class and still gets a B. We are getting regular reports that our kid is barely able to maintain an A in Organic Chem and Cell Bio, they may get a B in those classes, but they often report that the average for an exam is in the 60s or even 50s, and they got an 87 or 89. I would feel awful if we asked them to pay us back because they got a B in one of those classes, as a B in them is still a very impressive achievement.

The pay for grade approach would work really well for me, because I could do it and it would incentivize me to work harder than I might otherwise. I hear your point though as it would penalize one of my kids who struggles academically.

 

[levindb]

Similar to others, I believe that college is a time where our children learn about life, as well as their chosen field. I thought it important that my 3 sons have some skin in the game and really learn about financing their own lives.

1. The financial office at the school has a "cost" that they use when looking at financial aid. This includes tuition, room and board, as well as some funds for social stuff. I agreed to pay 50% of that total each year...for an in state school.

2. Each of my 3 sons had to fund the remaining amount through scholarship, grants, working during school breaks, and possibly during the school year. This also encouraged good grades in high school.

3. I also agreed to have them live up to 1 year at our house after graduation.

All 3 found ways to fund their education, and they learned about credit cards, living on a budget, and dealing with student loans. None of my sons stayed at home longer than 1 year (hard to date when you want to bring GF back "home" to watch a movie...or whatever)

All 3 sons have married, purchased homes, and have not moved back home or asked to have us fund their lives...which I think is a measure of success. I also think each one will have the opportunity to FIRE if they want to.

To me, paying for everything does not give them the opportunity to learn about money. I was always there if they got into trouble financially, but they all learned about financial responsibilities...which is not often taught in school.

 

[WhenIsItTime]

I really appreciate all the thoughtful comments here. I responded to many. I am going to have to let this marinate to filter down my current preferred approach. Welcome any additional thoughts.

 

[Time2]

So is GF now a DIL?

Loan forgiveness is an interesting topic. As someone who paid his own way through college and didn't have time for fun, I don't want to see that happen. I personally think loans are what allows college's to be so inefficient and expensive. As long as students keep showing up, college's will be fat and happy. They should be ashamed of their cost increases.

With that said, if some type of forgiveness happens then I agree no reason not to partake.

I agree, easy loans are driving up college costs, I also will be a bit upset to see debt forgiven* after we pledged 15% of our net worth to put our daughter through dental school. On the bright side, over the 4 years even after all spending, we are up 42%.


* I don't know that higher degree loans would be forgiven or in what amounts.

 

[SecondCor521]

Yes, the 4 yr constraint is another factor. Maybe next related thread I start will be how did folks help their kids pick a college major and did they end up using the education for their job/career.

Oldest finished in 11 semesters. First two semesters were essentially wasted because of a lack of readiness and not really pursuing the degree he ended up with (went from Biology to English to Supply Chain). Emotionally those were tough because of frustration and disappointment on his part, but financially it wasn't that bad because he had a full ride scholarship. The additional extra semester was because he preferred to take a bit less than full load over the remaining 9 semesters - I was fine with this as he was happy and successful and the cost differential was immaterial. He picked his degree by narrowing it to business degrees and then going over those degrees with his BBA advisor. He is currently doing well in R&D operations and wants to (and will very likely get) a promotion into a job with "supply chain" in the title soon.

Middle is on track-ish to finish in 10 semesters. Second semester was essentially wasted due to COVID and lack of readiness. This resulted in a summer semester of only 1 class in order to catch back up a bit. He chose mechanical engineering based on a love for a technology class in junior high, multiple conversations with students and professors, talks with me, and salary reviews. Expecting to get a mechanical engineering job at graduation in the second half of 2024.

Youngest is on track to finish in 9 semesters. They are in a 9 semester music education program which includes both an undergrad degree and state certification - the extra semester is a student teaching semester. Chose the degree probably mostly because of their love for music and a great deal of respect for their high school band teacher. Expecting to get a high school teaching job at graduation in the second half of 2024. This one will probably continue their education and get either a master's in music theory (current love) or maybe? a PhD and become a professor.

 

[38Chevy454]

Loan forgiveness is an interesting topic. As someone who paid his own way through college and didn't have time for fun, I don't want to see that happen. I personally think loans are what allows college's to be so inefficient and expensive. As long as students keep showing up, college's will be fat and happy. They should be ashamed of their cost increases.

Herein lies the real root of the problem with current times college costs.


Back to OP's subject, lots of interesting discussion. I don't have the issue, so can only comment that I believe it is good for your kid to have some skin in the game. How you arrange that is what works for you and your kid. I was in the work yourself through engineering college program (as I call it, the J-O-B scholarship), so my feelings are very set against any loan forgiveness by gov't. One of the biggest problems I see is students taking on big debt with a major that has no real potential for any higher paying jobs. That is just stupid financial choice. Go with a major that has better paying job aspects and future growth. College really is an investment decision in your future, tell your kids to consider this as a chance to make the right choice.

 

[pacergal]

Each family does what is best for their circumstances.
While our two were growing up, we always told them we would cover 2 years community college expenses, and advised to live at home so they didn't have to work for living expenses. And we would try to help them with loan payback for the rest of their college if we could afford it.
Both of them went that route. DS went on and got masters also. DS got $5000 payback for his Americorp time after college and grad school and we paid the monthly loan payment while he was in Americorps, then we paid it off after his payback went through.
DD stopped after AA degree, she knows we will help if she decides to go back.

 

[Splash]

My parents couldn't afford to help me. It took 10 years to pay off my loans. So, it was important to me that we help our sons but also have some boundaries in place to get them to consider the cost/benefit of their decisions.

We told our sons that we would pay the equivalent of in-state tuition, books, on campus housing and meal plan for four years. Any cost difference was theirs to pay or keep. Interestingly, both sons went to an in-state school, graduated in 4.5 years and got really creative on how to save money during that last semester like buying texts on Amazon or from other students instead of from the Book Store and 1 kid even stayed with friends instead of renting an apartment. Our approach worked okay, but I think it points out that how you structure the deal matters. It likely will influence your kids' decisions, good or bad.

I'm sure there are many different ways to accomplish what you want. A friend paid for her kids' tuition and books and made them pay for housing and meals. Her thought was that her kids could influence housing and meal costs but not tuition and books.

 

[SnowballCamper]

I'm a few years away from this process with DD. DW and I were on our own for our college expenses, and managed to finish without large loans, due to GI Bill. So that is an option, especially if they're not college ready, or quickly realize they're not college ready.

My plan is to show DD how much money is available in the college account(s), and that is what she gets. I disburse it directly to the school, so any off campus expenses she pays for.

Then of course I can add to the college account if I want to (as a bonus for performance, or to offset some unforeseen adversity, or enable a much more profitable choice of major, etc.).

 

[daylatedollarshort]

As far as working in school, there have been studies done to see if that is helpful our hurtful. The College Board has this to say, "Studies show that students who work are more confident and possess better time-management skills than students who are not employed. In addition to offering a paycheck, some independence and satisfaction, a part-time job can provide both training and experience. Working teaches students about responsibility and can also reinforce what they are learning in school....On the other hand, experts agree that students who work more than 15 to 20 hours per week often experience decreased school success, which can lead to dropping out entirely. Working long hours can also limit opportunities to build friendships and explore interests that enhance intellectual and emotional development. - Students & Part-Time Work – Preparing Students for College | Education Professionals – The College Board

Our kids had pretty good experiences from internship type jobs including work experience in their majors, full-time job offers and the STEM major had a glowing recommendation from the CEO of a tech company that was a small startup when they worked there.

 

[brett]

We did not play any games.

We do not think that grades are the only or the best indication of industry and application to work/study. Our son's grades we very average in his first two years. Final year was good...good enough for him to earn several scholarships to grad school. From our perspective grades are just one of many measurements of academic success and personal growth.

Both of our children graduated without debt with our assistance.

We feel fortunate that we we were in a position to do so We are in the fortunate position to offer our grandchildren the same opportunity when their time comes.

We can think of no better use of our funds than the help them build a base for their future lives.

I was fortunate. I was able to pay my own way through university. But those were different times. It can hardly be used as the same measure of today, and perhaps tomorrow. Edu costs continue to grow at a much faster rate than inflation.

 

[1242Vintage]

We have 3 kids in their mid-20s.

For kid #1 and #2 we had them take the govt backed student loans of a few thousand a year so they had some skin in the game and we paid for everything else. Both finished in four years with student loan debt of approx $10k and are now off our payroll.

Kid #3 is disabled and our state funded nearly all of her undergrad. So when she went to grad school we picked up the tab. She has no student loan debt.

And we have never disclosed to any of the kids how much financial help each received from us. Each had their own education/career path and that path came with various levels of financial help from us.

All three are in STEM careers; a Mechanical Engineer, High Energy Physicist, and a Cardiac ICU Nurse.

 

[ugeauxgirl]

My parents saved enough for us to go to a state university. They told us if we had any money left we could keep it- but only if we graduated. I worked my butt off to get scholarships. My money lasted through an undergrad and an MBA with a little left over.

I presented the same deal to my kids. Oldest son is about to go off to college, so we'll see...

 

[brett]

We never felt any obligation to spend the same on each child's eductation.

Nor did we care if one knew what we spent on the other. And neither did they.

It was purely on the basis choice-their choice as to what post secondary they chose and the financial requirements of that course. We spent much more on our son's education. Never gave it a thought, nor did his sister.

They both had the same opportunity. That was the crux of the issue. They both worked, we made up the shortfall.

 

[HarveyS]

I was fortunate. I was able to pay my own way through university. But those were different times. It can hardly be used as the same measure of today, and perhaps tomorrow. Edu costs continue to grow at a much faster rate than inflation.

Yes, different times for sure. Many of us could work all summer at 1, 2 or 3 jobs. Plus work-study or an off-campus job while at school. And pick up some hours during the winter break. For some of us that was enough to pay for tuition, room and board. Maybe a small loan to cover books or other shortfalls.

But how many of our kids are working as hard as we did when we were their age? True, the money they make wouldn't cover the cost. Would the effort be worthwhile for them to exert? Wouldn't that be "skin in the game"? I find that the harder I have to work to attain something, the more I value it.

 

[Closet_Gamer]

We were transparent with our kids, both enabling them and requiring them to actively engage in the cost of college with an eye to debt management and the likely need to go to grad school.

We had saved enough to pay for an undergrad at a private school -- and told them excatly what that was. We also explained tuition inflation and that the younger one would need more money to obtain the same outcome as the older one. So both knew exactly what the difference was an why.

We then built a spreadsheet to model the cost of school including expected annual inflation. From this we deducted our contribution so they could see the what might be left as debt or money for grad school. We also built a simple budget showing what life would cost when they were on their own and how a debt payment impacted their likely post-school life.

We showed them that anything they got in scholarships or earned along the way would go directly to them by keeping debt down or leaving more for grad school. This helped them focus on ACT scores and other places where their behavior impacts financial outcomes. I once expalined to my daughter that her ACT prep would likely pay back at rate of $200/hour.

For each university they considered we did a copy of the spreadsheet with the specific numbers and updated the sheets as new info became available.

When the time came to choose a school, they had full insight into the trade-offs and the financial impact of each school. Ultimately both chose out-of-state public schools that gave them good scholarships, left money for grad school, and had solid programs in their fields.

As we pay for each semester we keep a running tally of the costs, remaining balance and what that implies for debt. This keeps both kids engaged and actively managing it.

DD1 is on course to finish a PharmD with zero debt.

DD2 just started but is already thinking of ways to get through a post-grad degree without debt. I suspect she will pull this off.

I would recommend this approach to anyone.

My $0.02.

 

[freedomatlast]

We paid 100% of the cost of the kids' college out of cash flow.

The stipulation was that they had to apply for and accept the federal loans available that didn't accrue interest and that you didn't have to pay back until after graduation. The deal was that after graduation I would write them a check for the full amount of the balance of the loans. If they wouldn't have graduated, they would have been on the hook for the full amount of loans. Granted, these loans only represented a small fraction of the total cost, but this way they definitely had skin in the game and an incentive to do well and graduate on time.

They all graduated in four years and they really appreciated the check that paid off the loans. No interest was due on the loans. At least this way they had an appreciation of the financial aspect and an incentive to graduate on time.