Reimburse kids college - how to structure?

[WhenIsItTime]

My Dad gave me the opportunity to pay for my own college. Wife did same. We both graduated without debt. That was a long time ago.

We intend to support our kids college and are prepared to pay for all of it. Starting to think about ways to incentivize our kids to use this money wisely or give them skin in the game. We will be involved in the institution selection process partially based on desired major and income potential.

Looking for way's to structure this gift such as:

1. Give them the money and wish them luck.
2. On their own until graduation. If successful in four years, reimburse everything.
3. Pay for grades: A=100%, B=85%, etc.
4. 50/50. Maybe gift the balance after graduation or starting career.

Any advice or experience?

 

[travelover]

I think a combination of 3 and 4 would be most effective for most kids. The prospect of getting the money back at some point is a little difficult to digest at that age, but I've seen many on the 100%-now-ticket party it away. I'd say split costs now, with option for more cash for better grades.

 

[dak2018]

Why play games? Simply pay as they go, with the proviso that they are making adequate academic progress toward a degree.

There is no need to "hope for the best". If you are worried, insist on seeing their official grades and let them know that failure to progress will result in no more support at that institution.

 

[MichaelB]

Very generous of you. I think starting life after university debt free is the greatest gift ever.

My brother let his daughter borrow heavily to finance her expensive undergrad. When she decided to go to grad school they offered to either pay off all her loans or pay for grad school. She’s smart, chose for the loans to be paid, and enrolled in a slightly less competitive program that gave her full scholarship and expenses. Debt free.

My sister offered to pay undergrad for both their kids, with conditions. Up to the amount that the State University cost including scholarship for high achieving high school students and conditioned on studying STEM or similar fields only, which they both took.

We flat out paid for our kids college.

I think there’s no best way, just what works. It is pretty clear, though, that some kids get a sense of entitlement that isn’t healthy, and don’t take full advantage of college. It is important, though, to let them know early on, long before they start planning for college.

 

[retire48in2018]

We are doing this with our nieces & nephews, etc

We give for the first semester, then pay according to grades. We give certain $ per credit hour - up to a certain amount, and no longer than 6 years total.

We set the amount according to 2 years of community college and then 2 years of in-state university. We chose 50% of tuition amount.

We have certain stipulations -
Only to accredited colleges, etc

 

[Dash man]

We treated each of our kids a bit differently. Older son got through school on student loans and we paid them off when he graduated. Younger son paid his own living expenses and we paid tuition, fees and books each semester. Eventually he got a job that paid tuition for the last year and a half of school.
We’re funding 529 plans for each of our grandkids, but haven’t decided what approach to use with them. They’re only 3 and 4, so we’ll see how their personalities turn out to determine the best course of action

 

[latexman]

Our 5 kids all tried college. Some were successful, and some, it was never meant to be. I paid all college expenses as they went, using an interest-free payment plan within each semester. Each kid was responsible for their non-college expenses - car, gas, eating out (they had a food plan), dates, entertainment, etc. Each kid was different. My only requirement was, nothing less than a C hits their transcript. When it did, we started conversations on non-college career opportunities. It worked well with all 5 kids. College can be very stressful to some kids. I didn't want them worried about a lot of rules from Dad. And, I didn't want to be needling them all the time about grades. At end of semester grades, we always had a talk.

 

[cathy63]

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.

 

[HenryD]

With my DD I just shared with her the balance in her 529 as she started looking at schools. I told her, this is what you have to work with, no more, no less, and it can only go to eligible expenses. She had just about enough to fully fund her undergrad at a private school while working to cover her own extraneous costs.

She transferred to a state school after a year when it became clear to her that she'd probably have enough to cover some or all of a grad program going that way. I think just being honest about what was available and not using any convoluted strategies really worked well with her.

 

[daylatedollarshort]

We just paid whatever college costs financial aid didn't cover. They had jobs like tutoring and internships for spending money. We arranged our assets so they went to state schools tuition free once we stopped working. They also started out at community college, one was in a transfer program, went to good value public schools, etc. so the cost was very reasonable. The one in a STEM field had a payback of 6 months of first year salary on our out of pocket college costs. We also either gifted or paid part of first cars so they started out their adult life without any debt. They are adults and working now in their chosen career fields, saving money and living below their means so I don't see any reason to have done anything different.

We did have them look at the Payscale reports (now there is College Scorecard) on ROI by schools and major and steered them to the good value schools.

 

[Texas Proud]

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.

 

[CardsFan]

Why play games? Simply pay as they go, with the proviso that they are making adequate academic progress toward a degree.

There is no need to "hope for the best". If you are worried, insist on seeing their official grades and let them know that failure to progress will result in no more support at that institution.

That is what we did. Only one child, so not a big cost (in the grand scheme of things, it was still $100k).

But that was 20 years ago, and the cost of college has become "stupid" high.

 

[Mmm Rrr]

My ex and I had an agreement with our DD, that we'd split college costs into thirds. Because she was paying a third herself, she did the first 2 years at a community college, then switched to a highly rated public in-state university to complete her engineering degree.

She used her savings and worked during breaks. She did need to take out some loans to pay her third. The ex and I paid them off for her as a graduation gift.

I think the "skin in the game" is a good idea. It may be just me but paying for grades feels manipulative.

 

[Time2]

My daughter got 100% tuition paid by the state for good grades, by the time my son got to college they changed the rules and he only got 75% of tuition paid. We paid all their housing and expenses. My son was doing well the first year, he and his sister lived together going to school, she got married and moved, he went down hill and flunked out. He went to work and we no longer paid for him. At sometime a year later he got it together, went to a community college and we paid the tuition, he graduated and then went on to a university to finish the last to years to get a chemistry degree. We paid all tuition and rent.
My daughter out of school and working for 3 years, making good money for a 23yr old (more than her parents) when here company merged and things changed to where she no longer wanted to work there.
She wanted to go to dental school, but the semester timing was wrong so it was suggested she get a masters while she waited. She got that and applied to dental school, the school picked 100 from students from the applicants, she wasn't chosen, but some students had other schools they had applied for and they chose the other opening up a few spaces, so she got in on the second round, that was rough few weeks.
We have paid all the tuition and tools for her dental college, we have one last payment due this month, she will graduate in May. My son has a job somewhat related to chemistry, and is using many of the skills he learned in college. Anyway, we are happy that my daughter will graduate from dental school without any debt, let alone $300k in debt that some of the students have.
My daughter 30, son is 27, so much for 18 and out.

 

[Philliefan33]

We were able to pay tuition and room & board for each of our DD’s undergrad degrees. They had to cover books and social life, and did it by working summers and some PT while at school.

Our girls were good students, driven to succeed and for the most part made good decisions. We looked at funding their undergrad as partly our responsibility as parents (because we planned for it and could do it without loans), partly an investment in their future, and partly a gift to them.

Our oldest quickly figured out what a wonderful gift we were giving her and voiced her appreciation. The youngest didn’t figure it out until after graduation when she saw the student loan payments that her friends had, while she was unencumbered. Her thanks took longer to arrive but are just as effusive. Our investment paid off, as both pursued graduate work (paying for it themselves) and have good careers. One has a PhD in analytical biochemistry and the other is a Nurse Practitioner.

IMO parents that are sitting on a fat bank account or making well into six figures, but expect their kids to fully fund their own undergrad education are being unrealistic.

 

[pb4uski]

My Dad gave me the opportunity to pay for my own college. Wife did same. We both graduated without debt. That was a long time ago.

We intend to support our kids college and are prepared to pay for all of it. Starting to think about ways to incentivize our kids to use this money wisely or give them skin in the game. We will be involved in the institution selection process partially based on desired major and income potential.

Looking for way's to structure this gift such as:

1. Give them the money and wish them luck.
2. On their own until graduation. If successful in four years, reimburse everything.
3. Pay for grades: A=100%, B=85%, etc.
4. 50/50. Maybe gift the balance after graduation or starting career.

Any advice or experience?

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.

 

[RetiredHappy]

My parents paid for my university tuition and living expenses in full for my Bachelor's. I did that for my son, in fact in full for 2 Bachelor's. This is giving a leg up to your children so that they never need to worry about money while they focus on grades.

 

[SecondCor521]

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.

 

[DektolMan]

My friend had 4 sons that he told were on the 4 year plan. He would pay for 4 years a t a state university but if they partied, took there time getting through school then they were on their own after 4 years. Also if they made the adult decision to quit then they could move home for 30 days & then they were on their own. It worked well as all the kids respected their parents and the sacrifices they made.

 

[corn18]

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.

 

[rodi]

I am in the throes of this. I was fortunate that my parents paid for my college at a public school, supported me at poverty level (dad's phrase), but required to see grades and needed a b average or better.

Older son went off to college 2 years ago. Fell in love with the social aspects, not so much the academic aspects. Flunked 3 of 4 classes - was put on academic probation. Promised he'd do better. Covid hit, he moved home and basically flunked out. We made him get a job. He did fine working but wanted to move out... found a cheap rent deal near his old school with friends. He's going 1/2 time to community college, and working about 30 hours a week. I pay for the community college one term at a time (based on previous terms grades.) If he gets b's or a's I reimburse the rent (after the fact) He's getting A's. If he proves himself I'll consider paying for full time school again.

In his defense... I wasn't ready for full time college at age 18 - got a job, moved out, and then negotiated with my parents for that 'paid for school' a few years later. Best thing I ever did - since I likely would have flunked out also.

Younger son started at his university in September. He's got all A's. I'll keep paying as long as he maintains his grades.

I'm hoping to provide my boys with the same gift I was given - a college degree from a public school with no student debt.

 

[rodi]

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.

 

[daylatedollarshort]

Our oldest quickly figured out what a wonderful gift we were giving her and voiced her appreciation. The youngest didn’t figure it out until after graduation when she saw the student loan payments that her friends had, while she was unencumbered. Her thanks took longer to arrive but are just as effusive.

Our kids also eventually realized that our advice regarding schools and majors was actually pretty good after some of their friends and their parents had post college horror stories like huge debt, couldn't find jobs in their majors and huge debt, took 8 years to get an undergraduate degree, hundreds of thousands in undergrad costs and no degree, parents not able to retire due to college costs they really couldn't afford, etc.

 

[pb4uski]

.... In his defense... I wasn't ready for full time college at age 18 ...

Me either, but I was 17 when I entered college. Mom and dad were paying. I got a 1.9 in my first semester because it was my first time away from home and I was having a great time with my newfound freedom.

When mom wrote the check for the second semester, she made it clear that it would be the last tuition check that she would write unless my grades improved... and they did... was consistently Dean's List after that.

But that 1.9 in the first semester cost me since it brough down my cumulative average... you needed a cumulative average of 3.0 to graduate with honors and I had a 2.975 cumulative average at the end of my senior year so that first semester of fun denied me graduating with honors.

 

[WhenIsItTime]

We are doing this with our nieces & nephews, etc

We give for the first semester, then pay according to grades. We give certain $ per credit hour - up to a certain amount, and no longer than 6 years total.

We set the amount according to 2 years of community college and then 2 years of in-state university. We chose 50% of tuition amount.

We have certain stipulations -
Only to accredited colleges, etc

That's awesome you are helping your nieces and nephews. Your method seems good way to incentivize results matter.

We treated each of our kids a bit differently. Older son got through school on student loans and we paid them off when he graduated. Younger son paid his own living expenses and we paid tuition, fees and books each semester. Eventually he got a job that paid tuition for the last year and a half of school.
We’re funding 529 plans for each of our grandkids, but haven’t decided what approach to use with them. They’re only 3 and 4, so we’ll see how their personalities turn out to determine the best course of action

We will likely need to treat our kids different. One gets A's easily and the other really struggles. Your point about personalities seems very relevant.

Our 5 kids all tried college. Some were successful, and some, it was never meant to be. I paid all college expenses as they went, using an interest-free payment plan within each semester. Each kid was responsible for their non-college expenses - car, gas, eating out (they had a food plan), dates, entertainment, etc. Each kid was different. My only requirement was, nothing less than a C hits their transcript. When it did, we started conversations on non-college career opportunities. It worked well with all 5 kids. College can be very stressful to some kids. I didn't want them worried about a lot of rules from Dad. And, I didn't want to be needling them all the time about grades. At end of semester grades, we always had a talk.

Great point on communication. I like how you gave them all a shot and then had deliberate conversations at key milestones.