One of the biggest mistakes parents make is actually investing too much in their children's future education, neglecting their own retirement and other long-term financial planning.
Should you pay for your kids’ college? This can be a tricky question to answer, and it's one that doesn’t come with a one-size-fits-all answer.
Some states require non-custodial parents to pay for some form of college expenses, and some require child support as long as the kid is in school1.
Of course, there is no precedence requiring married or never-married parents to pay for college.
If you have a choice in whether or not you provide financial support for your children’s education matter, read on to learn:
- What the experts say about paying for college
- Pros and cons of paying for college
- How much should parents pay for college?
- Parents share how they approached paying for college
- How to pay for college as a parent
Should you pay for college? Here's what the experts advise
Times have changed and college costs continue to rise, says Lynnette Khalfani-Cox, a.k.a. the Money Coach, a former financial news journalist, Houston-based personal finance advisor, and author of College Secrets: How to Save Money, Cut College Costs, and Graduate Debt Free and College Secrets for Teens: Money-Saving Ideas for the Pre-College Years.
According to The College Board, the average cost of in-state tuition at a public four-year college was $8,646 in the 2012-13 academic year. Today, The College Board reports that it costs $10,950 in the 2022-23 school year.
“I'm extremely cognizant of the fact that it is literally impossible for a college student today who is going to a four-year college or university, to work enough hours and fully fund their own college costs in-full, “ Khalfani-Cox says.
Placing the entire financial burden on parents isn’t an ideal path, either, Khalfani-Cox says. Whether your children are in Pre-K or you have a student who is entering junior or senior year in high school, there is a pathway to college that is possible. It starts with being honest about what you can afford.
Be honest about what you can afford
That said, do not write a blank check for your child's education without any consideration for the return on that investment — and a deep dive into whether you as the parent can truly afford that expense.
Khalfani-Cox says single moms should feel no shame, judgment, or guilt about not being able to pay for college. Rather the focus should be on examining every option you have, given your financial situation.
Robert Farrington, founder of the leading personal finance site on student loans, The College Investor, urges parents and their students to have frank conversations about the return on investment (ROI) for any higher education decisions — and for parents to be honest with themselves about what they can really afford. Do not be naive about the actual value of a college education, he warns.
“If you don't want to end up a statistic in the student loan crisis, you need to be mindful of how much you spend or borrow, Farrington says. “If you spend too much, college becomes a bad investment and you'll struggle to pay for it over your next 20 to 30 years.”
Ann Garcia, Certified Financial Planner with Independent Progressive Advisors and author of How to Pay for College, says being honest about what you can afford is crucial.
“The biggest piece of all of this is having a plan and communicating it to your student so that they understand the parameters of their college search because they’ll find good options at any price point,” Garcia says.
Here are some tips from Garcia to help you determine if you can afford to pay for college:
- Look at your budget – How much do you have saved for college? Divide the amount by four (for each year of college) and figure out what you and your child can contribute out of pocket each year. Not enough? Consider a student loan and options like the American Opportunity Tax Credit (AOTC) to offset costs.
- Offer realistic options – Talk to your child about college choices at every price point, from community college and lower-cost online degree programs to top-tier options at prestigious universities. Your budget will determine which path is possible.
- Be realistic about your expectations – Once you determine what you can afford, set the expectations on both sides. It’s OK to expect that your child will apply for loans to help with the cost. It’s not OK to expect your child to contribute $80,000 per year.
Want to get an idea of how much your child’s education will cost at a certain school? Use the U.S. Department of Education’s net price calculator.
Consider the return on investment
Fact: In every industry, there is an increase in earnings with more education, according to the Bureau of Labor Statistics. However, do not fall into the line of thinking that more expensive degrees automatically net out more lucrative careers.
Indeed, The Foundation for Research on Equal Opportunity (FREOPP) analyzed 30,000 undergraduate programs and found the median bachelor's degree for those who graduate in time has a net ROI of $306,000 in lifetime earnings. A few degrees like engineering and nursing netted out at $1 million-plus.
However, if you do not graduate, the median net lifetime value (premium in earnings minus cost of education) of a bachelor's degree drops to $129,000. When the foundation crunched the numbers for all the degrees in its report, more than a quarter of bachelor's degree programs have a negative ROI.
“Regardless of your beliefs on whether higher education should be free or how valuable it is, the fact is, today it is a monetary investment,” Farrington says. That goes for both students and their parents, many of whom overestimate what they can truly afford to pay for their kids’ degrees.
“Parents think they're helping their kids by spending all their money, or even borrowing Parent PLUS Loans to help their kids pay for college,” Farrington says. “However, a few years after graduation, when parents are thinking about retirement, they quickly learn they can't — they spent or borrowed too much to pay for the kid’s college. So, parents have to work longer, or even worse, have to move back in with their kids who by now are in their 30s/40s because the parents can't save.”
The problem with these ROI calculations is that it is not realistic to expect most 17- or 18-year olds to decide what career they will pursue for the rest of their lives.
“I recommend staying broad, such as a general business major, unless the student really has a deep understanding of what they want to do,” Farrington advises. “That opens up a lot more options to find a positive ROI route through college.”
It can also help your student decide if a career that does not require a degree at all is a better fit.
Pros and cons of paying for college
The College Investor's guide, Where To Apply To College – Finding Academic and Financial Fit, can help you sort out the price-value ROI equation. The reality is that most families will devise a college finance strategy that is a combination of financial aid, choosing a school that is a good fit for the student’s goals and skills, parent financial contribution, loans for both students and their parents, as well as part-time work (such as being a nanny) for the kid.
But as a parent, consider these pros and cons of paying for your kids college:
Pros of paying for your kids’ college
- Allows the student to graduate with a manageable amount of student loan debt, or even none at all
- Allows them to focus on schoolwork and maintain a social life
- Might sway them into choosing a more affordable college
- Can help close generational wealth gaps for some families
- Allows parents to receive tax credits or deductions
On one end of the paying-for-college spectrum, Khalfani-Cox plans to pay for 100% of college expenses for her three children. She is a first-generation college graduate whose parents didn’t have the opportunity to attend college. She and her husband are both entrepreneurs and have a 24-year-old who has already graduated college, a 21-year-old college junior, and a 15-year-old. She and her husband also bought the kids’ first home (which have so far been a condo and townhome purchased during their college years) and a car.
“My family and I are very fortunate financially, I recognize my privilege and the fact that I've been able to achieve really at levels that my parents, my grandparents and ancestors just only dreamed about,” says Khalfani-Cox, who is Black.
“We’ve promised our three kids that in order to help close the wealth gap in this country, we are going to give them what we're calling a wealth starter kit or a wealth launch kit,” she says. “Paying for their education is so they don’t have to worry about money, the home is in recognition of the huge homeownership gap between Black and white households in this country, and the car is so they can drive away and not be dependent on us anymore.”
Cons of paying for your kids’ college
- Can ransom your retirement
- Kids may develop a sense of entitlement, lack of money management skills, especially if they don’t have the opportunity to work part-time
- Removes the exercise of scrutinizing the ROI on the investment in the degree vs long-term earnings or other value
- You could end up with an overwhelming amount of debt, bad credit, if you take out loans for a child’s dream school that you cannot afford
One of the biggest potential pitfalls of funding your kids’ educational expenses is if parents commit to doing so at the expense of their retirement savings, Khalfani-Cox says.
“If you’re not careful about avoiding that, you’re shooting yourself in the foot and doing yourself a disservice, so we've been extremely clear with our kids and said ‘we are not sacrificing our retirement and we are not tapping our home equity to pay for college,” she says
“Frankly, there are just way too many other options for students to fund higher education. They can always borrow for college, but you can't borrow for retirement. Single people, in particular, need to be extremely careful about their own financial security and not jeopardize their well-being as they plan for, or enter, retirement and not jeopardize that by overextending themselves, by committing to colleges that they can't afford or taking out loans that they can't afford.”
How much should parents pay for college?
According to Sallie Mae’s 2022 report on How America Pays for College, families paid an average of $25,313 in the 2021-22 academic year. The largest funding source, at 43%, was parents’ income and savings.
Unsurprisingly, most parents aren’t going to be equipped to cover all expenses in full with savings. Before looking into parent or student loans, Khalfani-Cox urges parents and students to pursue:
- Scholarships ― Your child can pursue merit-based scholarships in five areas: academic excellence, athletic aptitude, artistic endeavors, social impact, and initiative
- Grants ― Grants can come from schools as well as federal, state, and private resources and are often considered need-based aid, do not need to be repaid, and are for students who require financial support to pursue college or a vocation
- Work-study programs ― Many colleges offer this option and it gives your child a chance to contribute but still keeps the focus on directing the most energy toward pursuing a degree
- Paid internships ― Your student can get an opportunity to work in the field they are pursuing while being paid for their efforts
- Help from family and friends ― Share your child’s education goals with family and friends so that they can partner with you to help them pay for books, room and board, tuition, and other expenses through donations and contributions to an education savings account like a 529 Plan
When it comes to scholarships, Khalfani-Cox says parents of children who do not have academic or athletic accomplishments should pursue opportunities that encourage creativity, activism, and initiative, such as:
- Performing spoken word, creating a blog, acting, or making music
- Volunteering for community projects, rallying support for social justice, or advocating for eco-friendly practices or literacy
- Creating an app, starting a multicultural club, or launching a pop-up shop
The point is, there are so many opportunities that align with your child’s interests and billions of dollars set aside each year to help children go to school. These sources of aid, plus a parent’s contribution, can often be enough to fund the pursuit of higher education. But there is still hope if the funds fall short.
“If you still don’t have enough money to pay for college, that’s why you should look into loans, which should be in the student’s name,” she says.
Khalfani-Cox is adamant that college students shouldn’t be working more than 1520 hours per week, much less full-time, as the hourly wages they would likely earn would be a drop in the bucket in terms of expenses and would leave literally no room to spend on anything else.
“Working takes time and attention and focus away from hitting the books and from the academic side or from the enrichment part of college,” she says. “I also strongly recommend you don't let a student work during their freshman year, which is an adjustment period for the child to be on their own for the first time to be independent.”
Khalfani-Cox says that your ultimate plan for paying for college will be unique to your family. You might need to draw from all five resources mentioned in addition to what you will contribute, and if that works for your family, it’s all right.
“Every family has to make a judgment call about what their values are — about what they will or won’t do,” she says. “But I don’t think it’s financially prudent to go into massive amounts of debt or have students borrow excessively for higher education.”
Khalfani-Cox encourages single moms to dig deep to find free money in the form of scholarships and grants to pay for college. And if your children are young, don’t discount the power of putting a small amount away each month. It adds up.
Parents share their experiences helping pay for college
Viewpoint: Mom wants her children to have a different college experience
Gabriela Ramirez, a mother of three children ages 15, 11 and 8, agrees, especially after having lived the reality of paying for college herself when her parents couldn’t afford to finance her education at the University of Houston.
Ramirez initially started working part-time as a bank teller, but then moved up to working full-time (40 hours per week) by the end of her sophomore year. This situation had its perks, as the bank offered a generous tuition reimbursement program for qualifying employees, along with medical benefits, which is what incentivized her to work full-time. However, while she was able to graduate on time, she felt this arrangement came with the sacrifice of a social life between full-time work and full-time school schedules.
“It was stressful because during my ‘free time’ I had to study, and I remember having to study in between servicing clients,” Ramirez says. “I also did not get to experience the dorm life because I lived at home to please my parents and save money. I also didn’t join any clubs, had no time to attend any social events.”
As such, Ramirez and her husband, who she met at the University of Houston, plan to help their eldest son, who will be college-bound in the next two to three years, and other children as much as they can, wherever they decide to go.
“Part of the reason I stayed in Houston was to please my parents, as Hispanic parents sometimes guilt their children into staying close by and I did not want to disappoint them,” she says. “I want my kids to have the full college experience, go out and explore, make mistakes, and learn and grow from them. I don’t have a preference for which college my kids attend, so long as it is a good fit for them and we can afford it.”
Even so, as much as many parents want to do their best for their children and help to not end up with insurmountable debt after college, many also want to instill good money management skills.
“I think it is very important for young adults to have a good grasp on finances early on, so I would like for my son to get a part-time job at least to pay for something and learn responsibility,” Ramirez says. “If I was able to do it, he can do it.”
Viewpoint: Parents paying for college to keep kids out of debt
Erin Williams, a West Point, N.Y based mom of three children ages five, three-and-a-half and two, has a more unique plan in that she and her husband plan to pay for a chunk of their kids’ college using the Post-9/11 GI Bill education benefits. She and her husband both served in the military and went through the process of transferring the Post-9/11 GI Bill education benefits to their kids, giving the three of them 66 months of tuition in total, which should cover about two-thirds of undergraduate education for each child.
Although she has a while until her kids are college-aged, Williams is conscious of the fact that they may have all three in college at the same time (possibly even two years where all three are in college), so they have tried to be deliberate in planning for it.
“My husband and I both had college paid for — I went to a military academy, and he had an athletic scholarship that paid for half his tuition and his parents covered the other half,” Williams explains. “Starting adult life with no debt was huge for both of us.”
As the other end of their hybrid approach, Williams and her husband plan to have their kids take unofficial “loans” from them that can be paid back once they graduate and enter the workforce, without accruing high interest rates.
“We don't want them to take out traditional student loans, either, which I see as predatory business and I don't want my kids to spend half their adult lives paying a loan off unnecessarily,” Williams says.
One potential caveat, Williams noted, is that she wants to ensure her kids value their education and understand how costly it’s going to be while also avoiding living their entire lives in debt.
“My husband often reflects that he didn't take college seriously enough and he believes that if he was more financially invested, he would have taken it more seriously,” she says.
One of the caveats of committing to paying your kids’ educational expenses is that you may have to give them some tough love regarding what you can afford, especially if they’ve got their heart set on an expensive private college versus an in-state option with lower tuition and scholarship offers. You may receive some pushback from your emotional teenager, Khalfani-Cox says, but when you explain why in the long-term it’s best to come out as close to debt-free as possible, they will likely understand.
Viewpoint: Child chose not to have parents pay for her schooling
Kelly Dumesnil, of Fort Collins, Colo., had a unique experience in that she was the one who opted to accept a full ride to Ohio State University despite her parents being willing to finance her education at Stanford University, which would have cost about $75,000 per year. Ohio State actually paid Dumesnil a stipend to attend, enough for her to buy a car and invest in the stock market.
“It was a pretty big shock to basically everyone at the time because I had been saying I was going to go to Stanford since I was 8 years old since my older sister had gone there,” Dumesnil says. Plus, her parents had very highly valued prestigious higher education for all their children, and were taking on expenses for Dumensil’s brother’s medical school, and the degree for her younger sister who was unlikely as the other siblings to earn scholarships, while still paying loans on her sister’s Stanford degree — a burden that made little sense to Dumensil given her ability to go to college for free.
“My parents have always taken extreme pride in their kids’ successes, which is common among immigrants and minorities,” Dumesnil says. “We’re Mexican Americans from Texas’s Rio Grande Valley. My parents both got GEDs, my dad went to The University of Texas Rio Grande Valley, and my grandpa got his associate’s degree later in life. So to them, their kids making it at these elite institutions was the ultimate pride.”
But the deeper reason for rejecting Stanford in lieu of a state school? Dumensil was rebelling against her parents’ paradigm that a prestigious education would increase her social standing — as well as a rebuff against their conditioning their love on her academic achievements.
“My parents were so angry I didn’t pick Stanford and my mom cold-shouldered me for months,” she says. “I felt like their love was contingent on me succeeding academically. It wasn’t, but all the constant praise for my grades and school achievements, and the way they bragged about my sister when I was growing up made it feel that way sometimes. I was rejecting the idea that I needed to keep striving just to be something for them to show off.”
Dumesnil says her experience will undoubtedly influence how she and her husband view their 3-year-old daughter’s path to higher education.
“I think we’ll be a lot more conscious about not putting pressure on her in any direction,” she says. “I really have no personal investment in what she does other than that it helps her to grow and feel fulfilled.”
How to pay for college as a parent
If you decide to help your children pay for at least some of their college education, you have several options for paying for college as a parent including:
Scholarships for children of single parents
Here are some places where you can find legitimate opportunities:
- High school counseling office
- Financial aid office at your child’s chosen college or university
- Local library
- Nonprofits, churches, civic groups, community organizations
- Sororities and fraternities
- Your employer (or your child’s employer)
- Free scholarship databases like Big Future and CareerOneStop
- Your state agency
There are many free resources available. If you come across a paid option to get scholarship resources, verify its legitimacy before you pay.
Student financial aid
Mike Hunsberger, CFP, Certified College Financial Consultant (CCFC), and owner of Next Mission Financial Planning, LLC says the key to understanding your readiness to pay for college is to understand how much you’ll be expected to pay.
The cost of attendance at colleges can range from $10,000 to more than $80,000 per year.
“Your financial situation and your student’s GPA and test scores drive what a school will expect you to pay,” Hunsberger says.
He suggests filling out the Free Application for Federal Student Aid (FAFSA) because it can identify your child’s eligibility for need-based grants and scholarships that are renewable each school year or semester.
If you haven't already, start a high-yield savings account at an FDIC-insured bank. With a high-yield account, you’ll earn a higher rate of interest on your balance than a traditional savings account, as well as compound interest as it grows. Some options to look into:
You can use funds from a personal savings account as you see fit, for any expense, without the restrictions of a 529 college savings plan. With a 529 plan, you must use the funds for education-related expenses.
Plus, if your child decides they don’t want to attend college, you can use the money from your savings account to help them with something else.
Garcia says that you can use any type of investment account to pay for college, including a Roth IRA. Of course, each option has its pros and cons. It’s best to discuss your options with a financial professional.
If you have investments or plan to start building your wealth, think about how you can use these investments to your advantage for your child’s education:
- Coverdell Education Savings Account – You can make cash contributions up to $2,000 per tax year on behalf of your child. Your child, as the beneficiary, can use the money for qualified education expenses, tax-free.
- Roth IRA – For 2023, you can contribute up to $6,500 per year after taxes ($7,500 if you are 50 or older). If you have had the account for at least five years and are 59½ or older, you can make withdrawals without penalties or taxes.
- UGMA or UTMA custodial account – An account that holds financial gifts for a minor that a parent, guardian, or other entity oversees. According to the IRS, there are no limits on contributions, but a federal gift tax applies to amounts of $17,000 or more ($34,000 for married couples filing jointly).
- U.S. savings bonds – You can use Series EE or savings bonds dated after 1989 to help pay for college but the bond holder must be at least 24 years old when the bond was issued. There are some additional restrictions, IRS Form 8815 lists them.
You can also use funds from taxable investment accounts, Garcia says. You’ll benefit from the capital gains tax rate but any realized gain or dividend income is reported on your tax return, increasing your income on a future FAFSA. However, if your child doesn't go to college, there's no penalty to use the money for a different need.
Another option is to do a cash-out refinance of your home, which allows you to increase your mortgage amount and take (cash-out) the difference between your new mortgage amount and what you previously owed. You can usually borrow up to 80% of the property’s value.
For example, let’s say your child’s college costs are around $80,000. If you have a $225,000 mortgage with a home value of $350,000, you can cash-out refinance to a new mortgage of $305,000 or more and take out the $80,000 in equity to pay for college.
Ksenia Yudina, Chartered Financial Analyst (CFA) and founder and CEO of UNest, says it can be a viable option for some, since the interest rate is typically lower than personal loans or credit cards. Plus, the interest rate on a mortgage is tax deductible.
However, your monthly mortgage payment will be higher, and you run the risk of losing your home if you can’t keep up with the payments.
“Cash-out refinancing of your house is the least preferred route due to the high interest rates in 2023,” Yudina says. “Mortgage rates have reached 6-7%, and cash-out refinance can have even higher interest rates compared to a home purchase.”
Yudina says it’s best to speak with a CPA before deciding to take out a mortgage to pay for your kids’ college education. Make sure it’s the best move for your family.
Selling valuable items from your home can also give you a much needed cash boost. You can get top-dollar for:
- Fine jewelry, diamonds, sterling silver
- Rare coins
- Luxury clothing and designer handbags and accessories
Income-based repayment or income-sharing agreements
If your child has a federal student loan, you may have the option to choose an income-based repayment plan.
This allows the borrower to choose an affordable payment that is a percentage of your discretionary income which is based on your state, household size, and the poverty guideline.
You can apply for one of four repayment plans for most federal student loans:
- Revised Pay As You Earn (REPAYE) – Offers a 20 to 25-year repayment term
- Pay As You Earn (PAYE) – Pay back your loan over 20 years
- Income-Based (IBR) – You can pay for a minimum term of 20 years
- Income-Contingent (ICR) – Offers a 25-year repayment term
REPAYE and PAYE plans are usually 10% of your discretionary income. IBR can be 10-15% depending on the loan start date. ICR payments are either 20% of your discretionary income or a 12-year fixed payment based on income.
You can use the Loan Simulator to compare repayment amounts for different repayment plans.
If you don’t want to use a student loan, you can look into creating an income-sharing agreement (ISA). This type of agreement is based on a student’s future ability to pay for education. Your child receives funding to attend school and agrees to pay the money back after graduation through a fixed percentage (2-10%) of their annual salary.
Places where you can get information about an ISA:
- Financial aid office of your child’s chosen college or university
- Technical or vocational schools
- Your employer
- Private lenders
Repayment terms vary, but the total amount is capped. It’s an interest-free option that does not require a co-signer or good credit, so your student can apply on their own.
There are a variety of sources to borrow money for school for both parents and students, from federal to private loans.
To figure out which is best for your family, consider the terms of each loan type.
Federal loans have low, fixed interest rates. Most don’t require a credit check or co-signer and they are repaid once you graduate or stop attending school full-time.
- Direct subsidized loans – For undergraduate students who demonstrate financial need because they cannot repay the loan without help
- Direct unsubsidized loans – For undergraduate, graduate and professional students who can repay the loan without help
- Direct PLUS loans – For graduate and professional students and parents of undergraduate students who need help paying for expenses that are not covered by financial aid
- Direct consolidation loans – This is for borrowers with multiple student loans who want to combine them and pay one payment.
Private student loans from lenders like Sallie Mae, College Ave, banks, and other financial institutions may have fixed or variable rates and often require a credit score of at least 640.
Garcia recommends that students shouldn’t borrow more than the direct student loan ($27,000 over four years), and that parents should avoid non-education loans and limit other borrowing to an amount they can repay prior to retirement without compromising other goals—especially since parent PLUS loan borrowers are the fastest-growing segment of the outstanding student loan balance.
College 529 savings accounts
Many parents, grandparents and others choose to invest in a 529 plan to help pay for the education of a child in their lives. There are pros and cons to 529s.
A 529 plan is a federal program that allows tax-advantaged savings and investing for education. Any profits from a 529 plan accumulate tax-deferred, and you do not pay federal taxes on any distributions when you use them for qualified higher education expenses, which now include accredited colleges and universities, computers, and up to $10,000 for K-12 private education.
“One of the great things about 529s is their gifting pages,” Garcia says. “Even if you're not at a point where you can save, you can ask relatives who give your kids gifts to contribute to their college instead.”
Bottom line: Consider the pros and cons of paying for your kids’ college
In today’s day and age of exorbitant college costs, make sure that the sum you and your student are spending on college will have a positive ROI long-term. If you decide to help pay for your kids' school, but sure to account for your own financial well-being as well.
Remember: There are countless ways that young people can finance and pay for their college educations (including paying for it themselves!). But there are no loans or Pell grants for retirement.
If you are on track with your investments, have at least 3 months in cash in a savings account, are maximizing your employer's 401k or another retirement match, have your personal debt easily managed, and feel comfortable that you can retire comfortably, then consider investing in your child's future.
According to Sallie Mae’s 2022 report on How America Pays for College, families paid an average of $25,313 in the 2021-22 academic year. The largest funding source, at 43%, was parents’ income and savings.