Ethics/boundaries-related question about college funding

[SecondCor521]

Hi all,

My father is 80 years old, a retired physician, and a big believer in a college education. He paid for my two sisters' and my undergraduate degrees, and helped with my sister's MD and my MBA. He has contributed annually to college savings accounts for each of his nine grandchildren since they were born.

While I appreciate and respect his opinion, I am not fully convinced that (a) ignoring the price tag of college is reasonable, (b) that the value of expensive colleges is always present, and (c) that the cost/benefit of a degree today is what it was when he graduated from college fifty years ago. Therefore, for my three children, I have saved enough money to cover all of the basics (tuition / room / board / transportation / fees) for four years of public university. My kids are aware of what I am providing and what I am not providing.

The other day, my father very intently emphasized to me again that he thinks that the price of college should be no object, and that the best course of action is for my kids to choose the best college for them, and that between my father and I we should just cover the cost.

On the one hand, I appreciate my father's generosity. On the other hand, as noted above, I'm not sure I agree with him. On the other other hand, it seems bad somehow to keep this conversation to myself and not inform my kids.

What I am thinking of doing is having a conversation with my kids informing them that I'll still pay what I was planning to pay, and then if they want to go to a more expensive school, they need to work that out with my Dad. If he wants to pay, and they want to accept, what's wrong with that?

On the other other other other hand, I feel like I should be the one paying for all of their college. Having my Dad help out, even though he wants to, makes me into some sort of cop-out, since I was able to retire at 46 partially because I decided not to budget for 12 years of Ivy League.

What would you do?

 

[tulak]

I would let your kids decide. I told my kids the same as you. We will pay for a full ride at an in-state public university. If they want to spend more, then they need to figure out how to pay the difference, either through scholarships or loans.

I think it's great your dad is willing to help out. I'd make it clear to him what you are willing to pay and tell him if he wants to help them make up the difference, that would be great. I'd then leave it up to your kids to figure out the details and only help them where needed, with advice/guidance, not extra money.

 

[W2R]

Let your father help!! There's nothing wrong with that. It's very kind that he wants to help your kids go to whatever school they may be dreaming about.

I think you are SO very lucky to have a father who cares that much and is willing to step up to the plate like that. My own father was a surgeon and would not pay a dime of my college expenses or even room and board. I think that reluctance to pay anything for college even if the money is there, is probably more common than we know. I will always wonder what life would have been like if I had college paid for. Your father's offer sounds like a dream come true to me.

Besides, if he is 80 years old, there is probably no way he would be able to spend that money in any other way that would make him as happy. So let him pay, as a favor to him.

 

[braumeister]

even though he wants to

That's the key for me.
Why do you want to keep him from doing what he wants? Because that's the bottom line here as I see it.

 

[bclover]

I would look at each case individually. I paid for my sons college. It was a decision my late hubby snd I decided together. Now my kids were not IVY league material so that was never an issue. We also did not agree with the "skin in the game" theory. We knew before the first day of college each kids maturity level. Making them take on tens of thousands of dollars in debt does not make a person grow up. If my choice was retire early or pay for their tuition, I would always pick their tuition.
Lol, hey look at it.way, you cam be a burden to them in your old age ss# payback

Agree with others, if someone wants to help out with tuition, why not let them?

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[tulak]

I'd also add that you should talk to your kids about the value proposition of college. By having a bigger budget, you're allowing them to choose among more schools. It doesn't mean that they should choose the school that's most expensive. They should choose the school that is best suited for them and their goals.

This also allows you to share your thoughts in this area. One question I ask my kids is, if this is your money, would you spend it? Or better yet, that school costs 50k more. What if you go to the cheaper school and I give you 50k?

 

[rodi]

I was fortunate to have my dad seed my son's 529's with $10k each. I've taken over and am on track to offer them 100% of an in state 4 year degree, including dorms or similarly frugal living.

I agree with you that the cost of college matters. I've told the kids what we have available for their college - and that unless they get significant scholarships - a private school education isn't happening. I don't want them graduating with a huge amount of debt. (Plus - public schools in CA include UCLA, UCSD, Cal Berkeley, Cal Poli SLO, UC Davis... etc.... some really exceptional colleges.).

If my kids want to go to a private or out of state school then I'd be open to a discussion about whether it's the right choice. That said - if they were making what I consider a terrible choice I would withdraw my offer of funding. For example if they wanted to major in a fairly obscure specialty of a liberal arts - with no job prospects - and do it at a private school that cost double the state school.... I'd have issues and encourage them (financially) to reconsider.

As for your dad - he's generous, that's a good thing... but YOU are the parent of your kids.

 

[daylatedollarshort]

We offered to pay for 4 years at public, in state schools or the equivalent $ if they went elsewhere, but we said if they wanted to go elsewhere they could work, get financial aid, look for scholarships or whatever but we would not pay part and let them take out huge loans to make up the difference. If their grandparents wanted to give them extra to go to a more expensive school, personally I would have said fine (if it wasn't a financial hardship for the GPs).

We also told them they had to have a major with decent prospects of getting a financially self supporting job post college.

 

[SecondCor521]

That's the key for me.
Why do you want to keep him from doing what he wants? Because that's the bottom line here as I see it.

Fair question.

I am concerned that his "gift" would come with strings attached, specifically any or all of the following:

1. The right to brag about his grandkids to such an excessive degree that he is living vicariously through them and taking away from their accomplishment and making it his.
2. The right to have undue influence or say on which colleges get applied to, which colleges are attended, what major is chosen, etc., especially the pressure to attend a more prestigious school or select a more prestigious major even if it is not the best fit for the kid.
3. The right to hang an asterisk on my FIRE accomplishment and imply that I couldn't have done it without him.

 

[FUEGO]

2cor, I agree with your general take on college; costs matter, you should get value for moneys paid; ivy isn't necessarily worth the money, etc.

I'd keep your full (basic) ride on the table for your kids. What a great head start in adult life to have a four year degree, no need to work during college (but they may work anyway for beer money) and zero debt.

And let them know your father's offer of money is out there. They can make arrangements with him. I wouldn't see it as a cop out - it's your father's money so let him do what he wants with it.

I would probably discuss with your father whether the money could be offered to your kids as a lump sum with the choice to take it and use it on more expensive undergrad or further education in grad school, or alternatively use it to start a new biz, down payment for a house, gap year bumming around Europe, etc. I think that is a more fair way to allocate gift money among offspring than forcing $ to be spent on a gold-plated education when a solid steel education might be 99% as good at a fraction of the cost.

 

[Fedup]

I let my kids choose. But they chose well, each school is at the top of their respective major.
But I did think they do take the money aspect into account.


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[youbet]

OP,

You understand there are estate planning advantages (inheritance tax avoidance) to having grandpa pay for the kiddos' college, right?

And even before "estate time," money in the 529b's (you said "college savings accounts" in your post) withdrawn and not used for the kiddos' college will be penalized....... I think it would be 10% of the principle and the earnings would be taxed at your dad's marginal income tax rate. You know that, right?

Are there other grandkids or grand-nieces/nephews or whoever your dad could direct the money at?

(I'm assuming your dad owns the 529b's and your kids are currently the beneficiaries.)

Edit: After re-reading your post, I note there are a total of nine grandkiddos's. If the college savings accounts you mentioned are 529b's, your dad can change the beneficiary of each of your kids' accounts to one of the other grandkids and juggle his plans that way. This assumes some of the other six will have post secondary educational expenses.

Edit-2: The penalty would be 10% of the earnings. Thanks for the heads-up rodi!

 

[youbet]

I would probably discuss with your father whether the money could be offered to your kids as a lump sum with the choice to take it and use it on more expensive undergrad or further education in grad school, or alternatively use it to start a new biz, down payment for a house, gap year bumming around Europe, etc. I think that is a more fair way to allocate gift money among offspring than forcing $ to be spent on a gold-plated education when a solid steel education might be 99% as good at a fraction of the cost.

If grandpa does not use the 529b money to pay for the beneficiary's qualified educational expenses, then the withdrawal will be penalized by the IRS. That's the problem with 529b's. Follow the rules and they save tax dollars. Break the rules and pay a penalty.

Before I started 529b's for my grandkids, I had a looooooong talk with DS and DIL as to whether they wanted me to do that or not since if they decided later they'd be offended by my money, I'd pay a 10% penalty (on the earnings) to take it out unused.

If OP's reference to "college savings accounts" doesn't mean 529b's (but I can't think of what else that would mean given his dad's income is too high for an ESA), then your comments would be appropriate.

Edit: See edit for above post. Grandpa could do some beneficiary juggling to the other grandkids.

 

[CaliforniaMan]

I also told my kids that I would fund a 4-year public university, anything else they would have to find on their own. Both are finished now and doing well in life.

I would bring your kids into the discussion, however it is my opinion that kids age 17 or 18 after high school are usually not able to make informed financial decisions on their own, just because they do not yet have any experience. By the time they are in their early to mid 20s that should change, and they will be able to handle their own financial affairs.

So I think it would be a good idea for you to stay involved with any discussions between your kids and your father, and make it clear that you have to approve whatever is decided. You cannot give up parenting your kids to your father, even though they are of legal age. That way you can still help them decide on the appropriate major, university, etc. The kids should have input, your dad can have input, but you have the final say.

 

[rodi]

If grandpa does not use the 529b money to pay for the beneficiary's qualified educational expenses, then the withdrawal will be penalized by the IRS. That's the problem with 529b's. Follow the rules and they save tax dollars. Break the rules and pay a penalty.

Before I started 529b's for my grandkids, I had a looooooong talk with DS and DIL as to whether they wanted me to do that or not since if they decided later they'd be offended by my money, I'd pay a 10% penalty to take it out unused.

If OP's reference to "college savings accounts" doesn't mean 529b's (but I can't think of what else that would mean given his dad's income is too high for an ESA), then your comments would be appropriate.

Edit: See edit for above post. Grandpa could do some beneficiary juggling to the other grandkids.

I thought the penalty was only on the GAINS in the 529. The original contributions were post-tax and could be withdrawn without penalty (similar to a Roth).


What Is the Penalty on an Unused 529 Plan?


I looked at this pretty hard to decide if I wanted to continue funding in a 529 or in a regular after tax account.

 

[DrRoy]

I like your plan. I made the same offer to my kids, except there was no grandparent in the mix. I think that covering the cost of in state public college is fair, and that you can pay too much at high cost schools.

 

[SecondCor521]

@FUEGO, my father's offer is to help pay for their undergrad education. He is not offering money for startup business capital, trips to Europe, or anything else.

@youbet, yes, I understand both of your points. Regarding the estate tax, my father's estate will almost certainly be under the federal exemption amount, and there are no inheritance or estate taxes in his state of residence.

To give some more detail: All 9 grandkids have various mixtures of ESA/529/UTMAs established by their parents and/or my Dad. The amounts in these accounts are roughly enough to fund 4 years at a public university. Any additional funds provided by my Dad for a more expensive school would (I assume) be out of his taxable investments.

So in general, we would withdraw from "college dedicated funds" first (to avoid the 10% penalty), cascading any excess funds down to younger cousins/siblings, and supplement as needed from my Dad's taxable investments if the kids choose a more expensive school.

 

[daylatedollarshort]

We showed our kids the Payscale reports on starting salaries by college and by major plus the Job Outlook Handbook for career prospects by major. We told them if they could make a financial case for a more expensive school than what we were offering we would consider it.

There are probably careers like big law and investment banking where school name / cost makes a big difference in career opportunities but we could see from the Payscale reports for our kids' majors / interests there was no quantifiable benefit to paying more for their education than we offered.

 

[KmmFIdreamer]

I am all for letting the kids choose what they want to do - they have to learn their own decision making process anyway. My now 20 year son decided to go to work instead of college all together and I am totally cool with that. He is learning about the reality of the work world and he can always choose later to go back to school if he wants. (The older one did take some college and is now gonna join the military to continue the education that he wants as an army medic...).

Grandpa is quite kind to offer to help out the grandkids and I would not deprive him of that pleasure for sure....

 

[Fedup]

There is no way we would take money from my in laws for that purpose. Kids' tuition is our responsibility. I personally don't feel comfortable period. Inheritance is a different category. Does he have enough for the rest of his life? Unless he is in the 3 or 4 commas club, I would turn it down. The only place where the name of school makes a difference is investment banking. Not medical school, not technology jobs.


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[MBAustin]

DH and I both graduated from private universities mostly funded by our parents, and we were able to earn and save to do the same for our two children. Both looked at both private and public schools and picked the one they felt was the best fit (smallish private schools for both). Both graduated in 4 years or less and got an excellent education that has served them well in their early careers.

I think allowing Grandpa to provide the "extra" to give them a broader choice is a wonderful gift. Addressing your concerns from post #9:

1. The right to brag about his grandkids to such an excessive degree that he is living vicariously through them and taking away from their accomplishment and making it his.
If you have a serious concern about this, I assume there is some history with him doing similar things in the past. Perhaps you should discuss your concerns with him if so.

2. The right to have undue influence or say on which colleges get applied to, which colleges are attended, what major is chosen, etc., especially the pressure to attend a more prestigious school or select a more prestigious major even if it is not the best fit for the kid.
Very reasonable concern. Again, I think an honest discussion with him (and perhaps with the kids also) would make sense.
3. The right to hang an asterisk on my FIRE accomplishment and imply that I couldn't have done it without him.
I'm not sure I understand this one. If it is based on things he has said to you in the future, it sounds like you may have other issues with your relationship and I would be careful not to have that cloud making a good decision for your children.

Good luck in working through this.

 

[MichaelB]

I am concerned that his "gift" would come with strings attached, specifically any or all of the following:

1. The right to brag about his grandkids to such an excessive degree that he is living vicariously through them and taking away from their accomplishment and making it his.
2. The right to have undue influence or say on which colleges get applied to, which colleges are attended, what major is chosen, etc., especially the pressure to attend a more prestigious school or select a more prestigious major even if it is not the best fit for the kid.
3. The right to hang an asterisk on my FIRE accomplishment and imply that I couldn't have done it without him.

You have a reasonable concern IMHO. Helping can be a form of stealth meddling, an unwelcome attempt by the grandfather to circumvent the parents. It might interfere with the values and attitudes you are trying to teach your children.

OTOH, as a parent and grandparent, I want to have the option of helping my children, and contributing to the cost of higher education for their children is easily my first choice for "how to help". If my kids don't need it, great, but if they do, I'd rather that money be available, and contribution to a 529 now is a reasonable way to do it.

My experience with meddling parents and grandparents, FWIW, is that they don't meddle in just one thing, the do it everywhere (or nowhere). A grandfather that wants to be heavily involved in the child's higher education will probably have tried to influence other schooling (and parenting) choices much earlier.

 

[youbet]

I thought the penalty was only on the GAINS in the 529. The original contributions were post-tax and could be withdrawn without penalty (similar to a Roth).


What Is the Penalty on an Unused 529 Plan?


I looked at this pretty hard to decide if I wanted to continue funding in a 529 or in a regular after tax account.

Thanks for the correction on what portion is penalized rodi. I would note that the "gain" might be the majority of the money if the account was fully funded when the child was an infant. But, yes, the penalty is on the "gain."

Thanks for the link too! I read in depth about 529b's before opening them years ago. But adding to them has become more of a blind habit over the years and I haven't refreshed myself on the rules for some time. Actually, I need to have my son read the rules. I don't really want to be involved beyond the fact I'll need receipts and details for my tax returns once the withdrawing starts in about 4 years..

 

[youbet]

meddling parents and grandparents.

It is a fine line, isn't it? When are you helping and when are you meddling?

When I got the bright idea of contributing to ESA's and 529b's 12 - 13 years ago, I had a discussion with the kids. I suggested I'd like to sign up to pay for the grandkid's post-secondary education and they could focus on saving for retirement. But, greedy me, I wanted to harvest the tax advantages since, back then, I had the tax problem, not them.

It seemed simple enough to me. I stash dough in college savings accounts which gives me an immediate Illinois income tax deduction (up to $20k/yr) and which can be withdrawn to pay for college with no fed or state cap gain tax due on the gains. Nice........

But it means that when my son or a grandkid pays qualified college expenses, I'll need a receipt to justify the corresponding 529b withdrawal. That means I'll know what they're spending and maybe they wouldn't want me to know.

In that regard, just giving them the money a priori (and filing the appropriate gift tax forms) would allow them to spend it without disclosing details. But I'd get no tax benefit and I'm a frugal guy........

So, while I think I've done the right thing, I'm not completely positive. I'm really being careful to not inject any feelings about the grandkids education into conversations to reduce any possibility they think they're doing something that wasn't my first choice, etc. I've just told them I'll pay and have the money set aside in a dedicated way so that it will be available at the time even if I've croaked by then.

 

[Bamaman]

My best friend (an Ivy Leaguer) put his two kids thru Dallas and Atlanta's finest primary and secondary schools. The daughter went to Washington and Lee and the son went to a military college.

While his friends are retiring in their late 50's and early 60s, he's having to work until he's almost 70. He sure wishes he had some of that $2 million gross income he spent on the kids' educations. The daughter is a M.D. in residency and the son is an Army Ranger somewhere nobody will talk about.

My father always told me state universities were good enough for my sister and me. There were no student loans in our family--a cancer on the pocket of the middle class.