Should You Pay for Your Child's College?

According to the National Center for Education Statistics, the average annual net price of attendance for on-campus students was $25,700, $33,500, and $54,500 for public, private nonprofit, and private for-profit four-year universities, respectively. These costs go beyond tuition and fees including books, supplies, and living expenses. When considering your child's higher education, trying to figure out how to pay for all of these expenses can feel like a daunting task.

But that begs the question: Should you pay for your child's college? This can actually be harder to answer than you might think. Let's review some of the considerations to keep in mind as you decide whether to help your child pay for college.

Can You Afford to Pay for College?

The first thing to consider is whether you can afford to pay for your child's college education. When your student fills out the Free Application for Federal Student Aid (FASFA), the information about your family finances will determine your expected family contribution (EFC). However, you may not be able to actually afford the EFC determined by the government.

When trying to determine whether or not you can afford to pay for your child's college education, be sure to take the following into account:

• Siblings: How many children do you have, and will you try to pay for all of their college costs as well?
• Savings: Do you have enough in your savings? If you've started setting money aside for your children in a 529 plan or some other savings vehicle, you might be able to better afford those college costs.
• Loans: Are you comfortable taking out loans to help pay for your child's college education? In some cases, if you don't have the money readily available, you might be able to get a Parent PLUS loan to help your child cover college costs.
  

How Will Paying for Your Child's College Impact Your Retirement?

Though there are loans for college, there aren't any for retirement. Before you put money into your child's college education, review your own financial security and goals.

Are you setting aside enough money each month in a retirement plan? If so, and helping your child won't require raiding your retirement plan, then there's a greater chance that putting money toward their college education is within your means.

Don't forget to consider other financial goals you have. Remember that having a Parent PLUS loan or private loan is debt in your name. You're responsible for it, and it impacts your debt-to-income ratio and your ability to get other loans, including a mortgage. Take a step back and consider whether paying for your child's college could cause bigger financial problems for you down the road.

Taking a Hybrid Approach to Pay for Your Child's College

Helping your child pay for college isn't an all-or-nothing proposition. Even if you've come to the conclusion that you can't afford to finance your child's entire higher education, there are still ways you can support them financially by taking on part of the cost.

• Help with housing: One approach is to offer to help your child pay their housing costs. They can live with you for free while attending school close to home, or you can cover their rent while they're at college. Your child is then responsible for their tuition costs and other expenses.
• Pay for tuition: Alternatively, you can offer to pay the cost of tuition for your child. If they decide to attend a school that's outside your price range, you can specify a set amount you'll pay and leave them to make up the difference.
• Provide an allowance: Some parents offer a weekly or monthly allowance that their children can spend to cover expenses at college. These can include costs such as groceries, transportation, and/or even a portion of rent.
• Cosign on private student loans: If you trust your child will be able to afford payments when they get out of school, you can consider cosigning on a private student loan. If there's still a funding gap after they've exhausted their federal aid, a private loan can fill it. However, your child is unlikely to qualify unless you have good credit and are willing to cosign. Just keep in mind that you're on the hook for the debt if your child doesn't end up making their payments.

When using a hybrid approach, it's important to start talking with your prospective student when they're young to set expectations. Be realistic about what you'll be able to do to help with college and walk them through different options that can reduce their need to borrow, including preparing for scholarships, saving some of their own money, and choosing to start at community college for lower costs.

The Bottom Line

College can be expensive, and some parents want to help their children cover the costs. However, before you decide to pay for your child's college, it's important to consider your own financial situation and decide whether you can truly afford it. Run the numbers and only help in ways that don't put your own retirement and financial security at risk.