Reimburse kids college - how to structure?

[Philliefan33]

….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.

Yes, it’s important that we teach financial responsibilities, but we started that long before college. Kids started getting an allowance in 1st grade. We made them put 10% into the piggy bank, and when it added up to a few dollars we took them to the bank to deposit into their passbook savings account. They might use their money to buy some small doodad that we wouldn’t. (Allowance was small — $1/week in 1st grade, $2/week in 2nd grade, etc

Allowance increased to about $10/week by sixth grade or so. They could earn more by doing extra jobs around the house like mowing the lawn, cleaning the house (our cleaning lady had moved away) or cleaning windows. 10% rule still applied. They used their money to go to movies with friends or buy doodads.

Next step was to get them a pre-paid credit card that I could reload instantly online. This have me some peace of mind that I could fund an emergency (car breaks down and they need $to get home, etc) and we introduced the concept of budgets. Instead of taking them shopping for needed clothes and paying, I would put money on their card and let them do the paying. (Suddenly, a $50 pair of jeans looked just as good as the $85 pair of jeans).

They each got a part-time job at the grocery store when they were 15/16 and kept that job through HS and the first couple of summers home from college. Money was used for socializing or saved for college book expenses.

We taught the girls about money and budgets when the amounts were dollars, tens of dollars, and a $109 paycheck. Tuition/room/board at college was at least $16K per semester for the sixteen checks we wrote. If a kid doesn’t already have a sense of the value of money, college tuition is just numbers.

There’s no way my daughters could have worked enough to pay $32K per year for college on their own. We were able to pay for them. Why would we saddle them with outrageous debt, or otherwise complicate their undergrad years just to prove a point?

 

[pb4uski]

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.

Different time, but while I didn't work freshman year, for the last 3 years I worked ~20-25 hours a week during the school year and full-time during the summer.... I think it was good and I learned to juggle a busy schedule with multiple priorities. The last 2-1/2 years were working a job in my field of study.

 

[SecondCor521]

No interest was due on the loans.

Things may have changed again - they probably have - but when my oldest was looking at colleges in his senior year (so about 2012 or so), even subsidized federal loans came with about 5% in origination fees.

So while there was no interest due, there was a flat ~5.26% (100/~95) upfront fee that did result in an actual loss of wealth.

Unsubsidized and parent PLUS loans looked even worse, as they had both the origination fees and interest at what are ridiculous rates today.

 

[WhenIsItTime]

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.

Congrat's on getting them in 3 great occupations!

 

[WhenIsItTime]

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...

At what age did you present the deal?

I realize it probably wasn't one conversation, but curious when the journey really started and if your kids were mature enough to reason with this at the same age. In other words, were they all mature enough to buy into this as 9th graders? Seems like ideally they would already have good habits in middle school and take this thought process/goal into high school.

 

[WhenIsItTime]

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.

I totally agree with your sentiment. My retail work experience during college helped me mature, get comfortable working with/serving adults, experience different leadership that was both good and bad, gave me business experience (marketing, sales, profitability, inventory management, some supply chain). I think all of this gave me a leg up when I started my career vs my peers who only knew what they might have learned from a textbook.

 

[WhenIsItTime]

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.

I like this suggestion a lot. I had a career in finance, so definitely have bias. However, very important for everyone to be able to do some modeling. Start them at an early age!

 

[WhenIsItTime]

Yes, it’s important that we teach financial responsibilities, but we started that long before college. Kids started getting an allowance in 1st grade. We made them put 10% into the piggy bank, and when it added up to a few dollars we took them to the bank to deposit into their passbook savings account. They might use their money to buy some small doodad that we wouldn’t. (Allowance was small — $1/week in 1st grade, $2/week in 2nd grade, etc

Allowance increased to about $10/week by sixth grade or so. They could earn more by doing extra jobs around the house like mowing the lawn, cleaning the house (our cleaning lady had moved away) or cleaning windows. 10% rule still applied. They used their money to go to movies with friends or buy doodads.

Next step was to get them a pre-paid credit card that I could reload instantly online. This have me some peace of mind that I could fund an emergency (car breaks down and they need $to get home, etc) and we introduced the concept of budgets. Instead of taking them shopping for needed clothes and paying, I would put money on their card and let them do the paying. (Suddenly, a $50 pair of jeans looked just as good as the $85 pair of jeans).

They each got a part-time job at the grocery store when they were 15/16 and kept that job through HS and the first couple of summers home from college. Money was used for socializing or saved for college book expenses.

We taught the girls about money and budgets when the amounts were dollars, tens of dollars, and a $109 paycheck. Tuition/room/board at college was at least $16K per semester for the sixteen checks we wrote. If a kid doesn’t already have a sense of the value of money, college tuition is just numbers.

There’s no way my daughters could have worked enough to pay $32K per year for college on their own. We were able to pay for them. Why would we saddle them with outrageous debt, or otherwise complicate their undergrad years just to prove a point?

This introduces another question that likely has different answers for different folks. How important is the financial return on a college education?
I know some would say that is not the objective as the experience is part of the return.

I won't let my kids spend $120k of money whether theirs or mine if they are pursuing a career that won't pay it back or I am not convinced they know what they want to do. They can go to a cheaper school including junior college for first two years. I think that is as much a life lesson.

 

[daylatedollarshort]

This introduces another question that likely has different answers for different folks. How important is the financial return on a college education?
I know some would say that is not the objective as the experience is part of the return.

I won't let my kids spend $120k of money whether theirs or mine if they are pursuing a career that won't pay it back or I am not convinced they know what they want to do. They can go to a cheaper school including junior college for first two years. I think that is as much a life lesson.

In California there are a lot of well ranked, good value public schools along the coast with great weather, nice scenery and lots to do. It is pretty easy here to have both a fun college experience and get a good education. Even U.C. Berkeley is not that hard to get into as a transfer student from community college. Many of the 4 years here have transfer programs from community college that guarantees graduation in no more than 2 more years (state law). Tuition at San Jose state is under $8K a year and median starting salary in comp sci is $75K.

I never really understood the parents that delayed their retirement / went into debt to pay for expensive schools / unmarketable majors with low ROIs, bad weather and boring locations for their kids but in our neighborhood there seemed to be no shortage of them.

 

[Closet_Gamer]

This introduces another question that likely has different answers for different folks. How important is the financial return on a college education?
I know some would say that is not the objective as the experience is part of the return.

I won't let my kids spend $120k of money whether theirs or mine if they are pursuing a career that won't pay it back or I am not convinced they know what they want to do. They can go to a cheaper school including junior college for first two years. I think that is as much a life lesson.

This is very important to me.

Once again, we put the info in the kids hands.

When we built the model of likely post-graduation life, we looked up the early salaries associated with different degrees they were considering.

It focuses the mind quickly.

 

[4legsgood]

I took out student loans, which my parents agreed to pay off if and when I graduated. That worked!

 

[ugeauxgirl]

At what age did you present the deal?



I realize it probably wasn't one conversation, but curious when the journey really started and if your kids were mature enough to reason with this at the same age. In other words, were they all mature enough to buy into this as 9th graders? Seems like ideally they would already have good habits in middle school and take this thought process/goal into high school.

Middle school I'd say, but they have asked questions about it over the years to clarify, etc. I am a retired CFP and we talk about money a lot around here- and we do at least some of it when our kids are in the room, what we're invested in etc.

Our senior is comparing offers from the schools he's considering right now. He knows how much each will cost with regards to living expenses etc.

Our youngest loathes taking tests, but we explained the importance of taking the ACT several times and we're registering for that today even though he's only in 9th grade. He gets it.

With regards to financial return, we did say it had to be an acceptable major. As long as they can made a living at it, we're okay with that. Philosophy is not acceptable. They're both looking at STEM, though, no problem there

 

[Philliefan33]

In California there are a lot of well ranked, good value public schools along the coast with great weather, nice scenery and lots to do. It is pretty easy here to have both a fun college experience and get a good education. Even U.C. Berkeley is not that hard to get into as a transfer student from community college. Many of the 4 years here have transfer programs from community college that guarantees graduation in no more than 2 more years (state law). Tuition at San Jose state is under $8K a year and median starting salary in comp sci is $75K.

I never really understood the parents that delayed their retirement / went into debt to pay for expensive schools / unmarketable majors with low ROIs, bad weather and boring locations for their kids but in our neighborhood there seemed to be no shortage of them.

Well not everyone lives in CA. In Pennsylvania, the current tuition at a state school is $11,600 per year. Add in room & board and that number doubles. That’s for one of the 14 schools in the state system of universities, and none of them are located anyplace exciting. (There is not an option within commuting distance of where we live)

To go to Penn State or Pitt or Temple (which offer reduced tuition for PA students, but aren’t part of the state system of universities) tuition is between $22K and $32K per year. Then you pay room & board on top of that unless you commute.

Maybe that’s the source of some of the disconnect between those parents expecting their kids to pay for college themselves by working part time and parents like me who don’t think it’s possible. Kids in my neighborhood could commute to Temple University, but they would still have to work enough to pay $21,000 per year in tuition. Just rough figures: to earn $21K per year, if you get a job making $15/hr you have to average 27 hours of work per week. Since the minimum wage in PA is still $7.25, it’s likely that a student is going to make closer to $10/hr. So now he’s working full time to make that $21K. How do you go to class when you’re working 40 hours/week?

Yes, it can be done and plenty of people have had to work that hard to get ahead. But why would a parent do that to their kid if they didn’t have to?

Our daughters gave us no indication that they would fail at being a college student, so we paid their costs without any conditions being set up front. If they had received bad grades, we would’ve introduced some conditions. But we expected them to succeed and they did.

I wonder, is there some subliminal message sent to students whose parents pay for grades or only finance certain majors? Sort of a “we aren’t sure you can do this so we aren’t fully invested” vs “you’ve proven that you are a good student and make good choices, we will help you get a good start in your adult life”?

 

[daylatedollarshort]

Well not everyone lives in CA.

I get that, which is why I specified California in post, gave two California public schools as examples, and the comments about paying more for less in terms of education and experiences mentioned parents "in my neighborhood". Otherwise it is comparing apples to oranges if you don't live in a state with good value public schools in desirable locations to choose from.

 

[Texas Proud]

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.

Not yet DIL, but more than likely will happen after she graduates this year...


I do not want to see loan forgiveness either, but like you say if they are giving it away might as well take it..


BTW, I do agree with the loan forgiveness for the people who work in areas where it is hard to get good people... teachers in the inner city, Drs in rural or small towns etc... my nephew is a Dr who is working at a small hospital in a small town... but he and his wife grew up in small towns so it was a perfect fit for them...

 

[Closet_Gamer]

At what age did you present the deal?

I realize it probably wasn't one conversation, but curious when the journey really started and if your kids were mature enough to reason with this at the same age. In other words, were they all mature enough to buy into this as 9th graders? Seems like ideally they would already have good habits in middle school and take this thought process/goal into high school.

We had the conversations with our kids at the beginning for junior year when the college search and ACT/SAT prep really starts in earnest.

Those conversations also came with an admonition that its best not to discuss how much we had saved for college with their friends as everyone was in a different situations. While the kids were aware that we have a comfortable life, this was the first time when they saw a large number on a page.

They needed to understand that if they had 10 friends, there were 10 different conversations going on and theirs was one of the better ones. They've carried that with them and as DD1 nears an age when friends are graduating and drowning in debt, she knows its best to be silent that she will be debt free.

 

[WhenIsItTime]

Well not everyone lives in CA. In Pennsylvania, the current tuition at a state school is $11,600 per year. Add in room & board and that number doubles. That’s for one of the 14 schools in the state system of universities, and none of them are located anyplace exciting. (There is not an option within commuting distance of where we live)

To go to Penn State or Pitt or Temple (which offer reduced tuition for PA students, but aren’t part of the state system of universities) tuition is between $22K and $32K per year. Then you pay room & board on top of that unless you commute.

Maybe that’s the source of some of the disconnect between those parents expecting their kids to pay for college themselves by working part time and parents like me who don’t think it’s possible. Kids in my neighborhood could commute to Temple University, but they would still have to work enough to pay $21,000 per year in tuition. Just rough figures: to earn $21K per year, if you get a job making $15/hr you have to average 27 hours of work per week. Since the minimum wage in PA is still $7.25, it’s likely that a student is going to make closer to $10/hr. So now he’s working full time to make that $21K. How do you go to class when you’re working 40 hours/week?

Yes, it can be done and plenty of people have had to work that hard to get ahead. But why would a parent do that to their kid if they didn’t have to?

Our daughters gave us no indication that they would fail at being a college student, so we paid their costs without any conditions being set up front. If they had received bad grades, we would’ve introduced some conditions. But we expected them to succeed and they did.

I wonder, is there some subliminal message sent to students whose parents pay for grades or only finance certain majors? Sort of a “we aren’t sure you can do this so we aren’t fully invested” vs “you’ve proven that you are a good student and make good choices, we will help you get a good start in your adult life”?

I don't think our views are that far apart, but we might be arguing opposite sides of the same topics.

I made 60% more than minimum wage when I worked during college. That is about $15.00 per how now. $31k would pay for a lot of a degree with first two years at junior college. While I did 40 hours working year around, I don't want that for my kids especially during the last two years. However, during first two years at a junior college it is entirely possible.

Some kids go to a prestigious or big-name school as a birth right. I'm not paying $40k a year for my kids to find themselves, have the time of their life, change majors every semester, etc. I think that encourages entitlement and dependency, rather than good decision making and tough choices. We talk at home all the time about decision tradeoffs. I'd rather give them $160k to buy a house, car, go to trade school, etc. They won't question support.

 

[WhenIsItTime]

We had the conversations with our kids at the beginning for junior year when the college search and ACT/SAT prep really starts in earnest.

Those conversations also came with an admonition that its best not to discuss how much we had saved for college with their friends as everyone was in a different situations. While the kids were aware that we have a comfortable life, this was the first time when they saw a large number on a page.

They needed to understand that if they had 10 friends, there were 10 different conversations going on and theirs was one of the better ones. They've carried that with them and as DD1 nears an age when friends are graduating and drowning in debt, she knows its best to be silent that she will be debt free.

Great point. We have started the conversations about gratitude, being humble, families/individuals make different choices about work, spending, etc. so different approaches to lifestyle.

These lessons are also good in the workplace. I was in actg/finance. First time I saw payroll data early in my career, I couldn't help but spend some time seeing who made what. Lots of reasons for variation. I wanted to be paid for performance and fortunately that worked for me. Best not to compare and try to use as negotiating leverage.

 

[RetMD21]

We didn't give grade or major requirements, but I did discuss instate vs out of state. We have excellent public universities in Michigan, and I couldn't see paying higher tuition unless there was a compelling benefit. We paid tuition, room and board and other expenses. They were responsible for "extras."

It seems like folks here have strong opinions on this topic which makes sense since there is no one size fits all solution.

 

[daylatedollarshort]

Our youngest loathes taking tests, but we explained the importance of taking the ACT several times and we're registering for that today even though he's only in 9th grade. He gets it.

On an interesting side note, the University of California has shelved any kind of admission tests, including the SAT and ACT, because they said they were biased and favored wealthy families who could afford expensive test prep classes - https://www.santacruzsentinel.com/2021/11/20/uc-system-shelves-tests-for-undergraduate-admissions/

 

[youbet]

On an interesting side note, the University of California has shelved any kind of admission tests, including the SAT and ACT, because they said they were biased and favored wealthy families who could afford expensive test prep classes - https://www.santacruzsentinel.com/2021/11/20/uc-system-shelves-tests-for-undergraduate-admissions/

The most interesting part of the article was its complete omission of what criteria Univ of Calif system is using in granting admissions if test scores are not a part of it.

Interesting times........

 

[daylatedollarshort]

The most interesting part of the article was its complete omission of what criteria Univ of Calif system is using in granting admissions if test scores are not a part of it.

Interesting times........

Right, if they use grades then it actually might put wealthy kids at a disadvantage as it is probably harder to get straight As in wealthy school districts than disadvantaged areas due to more intense competition in the wealthier areas.

 

[The Cosmic Avenger]

We didn't give grade or major requirements, but I did discuss instate vs out of state. We have excellent public universities in Michigan, and I couldn't see paying higher tuition unless there was a compelling benefit. We paid tuition, room and board and other expenses. They were responsible for "extras."

It seems like folks here have strong opinions on this topic which makes sense since there is no one size fits all solution.

That's exactly what I was thinking. There have been a huge range of approaches, and based on what we've all said, they all seem suitable for the student involved. It would seem to depend greatly on their personality and what motivates them. I, for one, even with a responsible, self-motivating student, am very interested in reading about other possible approaches.

 

[KarenF]

We did not do any of those options. We paid for tuition and living expenses. We did require login access to look at their grades and that was enough incentive. Both of our sons did take our help kind of for granted at the time. After hearing their friends talk about their student debt they have both thanked us profusely for starting them out in life debt free.

 

[bonvoyage]

My wife and I are both immigrants from Asia and paying for college is one of the few topics where our views seem to differ substantially from those of native born Americans. In our extended family, it is simply expected that it is the duty of parents to fully pay for kids college without any expectation of repayment. In fact, the only restriction generally is that any thing that distracts from studies like campus jobs are strictly to be avoided. So, in a nutshell, we are your typical Asian parents

We did save aggressively for college from when the kids were born but thankfully, our incomes grew to the point where we did not have to dip into savings for both kids. The older one graduated and is working on her PhD in biology and the younger one is a math major, intending to work in data science.