News In Brief

Should parents save for their kids’ college?

Amy Scott Oct 1, 2010

Marketplace asked listeners to weigh in on whether or not parents should save for their kids’ college education. Here are some of the reasons people give for not saving.

My kids will value their education more if they pay for it.

Many parents who said this had to pay their own way through school. They believe they got more out of college because they had to work for it. One parent told me about a professor she had in college. This professor claimed he could guess which students in his class were paying for college themselves–and which ones were there on Mom and Dad’s dime–based on their attendance and effort.

One problem with this rationale is that college is far more expensive today than it was when many parents were going to school. Kids who pay their own way are likely to take on some serious debt. Lynn O’Shaughnessy, of The College Solution Blog, points out that financial aid awards are based on what parents earn. So even if you want your kid to go it alone, the people who dole out financial aid won’t see it that way. O’Shaughnessy suggests having your son or daughter cover part of the cost–maybe books and extra expenses–but not the whole bill.

My kid will get less financial aid.

This is one of the big financial aid myths out there. The federal formula most schools use to calculate aid ignores any education savings up to a certain level. For a 55-year-old parent, that amount is $60,200. That means anything you’ve saved up to $60,200 won’t count against you at all. (Retirement money doesn’t count either.)

But even you save more than that, don’t worry. Let’s say you manage to rack up $100,000 in savings by the time your child is ready to go to college. O’Shaughnessy says the total amount you would be expected to contribute is just $2,656 above what you would have owed if you had no savings. “So obviously someone who saved $100,000 is going to be so much better off than someone who didn’t save a penny,” she said.

I can’t afford to save for college.

Fair enough. Many parents have a hard enough time keeping the lights on and food on the table. Parents in this situation can help their kids research scholarships and low-cost schools. The federal Pell Grant program offers help to low-income students, and many states provide grants as well. Check out for resources.

I can’t afford to save for college and retirement.

If you have to choose, some say it’s better to save for retirement. As parent Toni Woods in Jacksonville, Fla., put it, when your children graduate they’re entering their highest-earning years. “When you’re retiring, you’re entering your lowest-earning years.” Plus, students can take out low-interest loans with favorable repayment terms. Not so easy with retirement. Woods still sets aside some money each month for her daughter’s education. But she’s focusing on her own financial stability down the road.

We invested in kids.

Laila Goodman of Gloucester, MA said she and her husband didn’t save for college or retirement. They worked part-time so they could spend more time with the kids when they were young. They spent the money they did have on private schools. They’re paying the price now. With two kids in college, half the family income is going to tuition and room and board. But Goodman has no regrets. “I think we got these really healthy kids who have a good sense of the world,” she said. “I feel like we invested in children, not in retirement accounts and college accounts.”

Whatever you do decide to do, Harvard economist Brigitte Madrian suggests starting the conversation early, so your kids know what their options are.

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