I moved my youngest into her dorm room at Cal Poly the other week. In exchange for being an empty nester, I cut two tuition payments this month, as both of my kids are in college now. We were prepared for this because somewhere along the way, my husband and I had to define what our philosophy was for paying for college for our kids.
The way we approached saving and paying for college is not right or wrong, as it has more to do with our personal views. The savings part also has something to do with capacity of course. This is true for all of our clients, as we plan for many different approaches for supporting kids (and grandkids). Also, our philosophy developed over time, as my husband and I come from different backgrounds. Whether we valued the kids having to pay some of their own way (him) or we wanted to try to get them through undergrad without debt (me), somewhere along the way, we had to compromise. In the end, in a nutshell, our philosophy was to give the kids a budget for their undergraduate degree for which we would pay 100% of their tuition, room, board, and books. Anything over that budget, they would be required to work, take out student loans, and make other sacrifices. Under that budget, they would get the extra funds, to a reasonable extent, to upgrade their room and board and pay for extracurricular activities.
Interestingly, both kids chose schools within (almost exactly at) their budget. We noticed it became one of their screening criteria. While we did not discourage more expensive schools, the kids are happy with their choices. Both kids received some scholarship assistance that helped them come in at or under budget. My son used his extra funds the first year to stay in the nicer dorm and quickly moved out to an apartment in subsequent years. My daughter is applying her extra funds to a myriad of extracurricular activities.
Our approach to saving for college was to invest a reasonable amount in their 529 college savings plans. We added to the 529 plans along the way with the Alaska Permanent Fund dividends, gifts, and other contributions we chose to make. Any funds needed above what is in their college savings plan come from our current income.
We have worked with clients of every mindset towards paying for college. I can think of one client with three very successful kids who put themselves through college without any help from their parents. I have clients who save for 100% of anticipated undergrad and post grad tuition to be prepared to see their children through as much schooling as they desire. Most of us fall somewhere in the middle, and the kids don’t seem to be better or worse for the strategy. This assumes you communicate your philosophy and strategy to them in advance to allow them to prepare to make those college decisions. There are many approaches to saving for college and we work with clients to design the most appropriate strategy. But first we are going to ask you, what is your philosophy about paying for college?
Cathie Straub, CPA, CFP®
Director, APCM Wealth Management for Individuals