Are You Saving For Your Child's College Education?


Are you worried about savings account rates and whether your investments are keeping up with your financial expectations?  That perhaps your money isn't stretching far enough to fund some of your future financial goals?   Well you're not alone.  There is one financial goal in particular, that looms heavily upon those of us with children: increasing costs tied to the call of higher education and college. 

Lately, the issue of higher tuition rates has occupied the news; we heard of the disruption that took place at U.C. Berkeley when regents announced rising fees in the horizon.  It can't be helped really -- it's one of those things that will hold true just like death and taxes do: rising college costs have always been a rite of passage for all of us -- parents and kids alike!  (Check out our College Financial Aid How-to Guide for ideas on how to deal with the rising cost of higher education.)

But I'd like to bring up the notion that perhaps not all parents are intending to save for their children's education.  No, they've decided not to set up that Coverdell ESA with an online stock broker or mutual fund company. There may be various reasons why this is the case and it's something I'd like to explore a little; I'd also like to determine how some well-meaning families are coping with the pressures of paying for college.

7 Reasons Why Parents May Decide Not To Save For College

I am making these points mainly to elicit discussion.  But do you know anyone who has decided not to save for college?  And if so, why don't they?  I thought about it a bit and came up with a few possible reasons (or "excuses"):

1. You feel that you don't have enough resources.

A common reason for not saving for college is that you just don't have enough money to fund competing financial goals.  The rule of thumb here is that you should first fund your retirement accounts before you contribute to your child's 529 college savings plan. The reason?  It's more important to ensure that you take care of your own future to avoid having others worry about you in your old age.  Your kids can qualify for financial aid, but it will be tough for you to handle any shortfalls in your retirement years if you don't have the means or the savings to live on.  Now if financial resources are the issue for you, you may be assured by the knowledge that there are easier ways to get others involved with your savings goals: perhaps an avenue like a 529 account or a free savings account like SmartyPig that allows others to help contribute to your goals may be helpful.  It's something worth checking out.

2. Some kids are independent and make their own decisions.

I believe that not everyone is necessarily cut out to go to college.  It's also often the case that people in the cusp of adulthood will feel that they aren't ready to enter college at a certain point in their lives.  Of course, they may always change their minds later, and that's something that they can decide for themselves.  Now there are kids that only need a little motivation to be able to make it through school.  If you're a parent, you'll know whether your child is the type whom you should trust with this important decision; and based on how you gauge your child, some of you may realize that your child may not require you to cover 100% of their educational needs.

3. Some parents expect their kids to pay their way.

Maybe it's a lesson in life that they'd like to impart to their kids, but many parents make the conscious decision to have their kids pay their way through school.  In the past, by cobbling together various financing resources such as college scholarships, financial aid, work and student loans, a student can make their way through college on their own.  But in recent years, with college costs much more expensive, leaving the financial burden for college solely on your child may no longer be a reasonable option.  Perhaps your children's efforts would probably be better spent attaining a full-time college education and then paying you back once they get a secure full-time job in their chosen career.

4. Kids of veterans may receive reimbursements of educational costs.

Children of veterans are entitled to have 70 percent of their college education reimbursed.  However, parents must still pay for the first semester of college in full. Once the child attains a grade of C or better in all subjects, a designated percentage of the tuition is reimbursed.  Parents can roll these reimbursements into paying for the next semester but still need to come up with the remaining money for their kids' education.  Again, 529 programs such as the one offered by the College Advantage Ohio 529 Savings Plan may help you build up some of the savings needed to support your child.  Veteran parents can save more on their children's schooling by remaining apprised of the latest programs available to them. 

5. Certain families don't see the value of higher education.

Unfortunately, not all people find value in going to college. Those folks who are particularly entrepreneurial by nature may think that their kids may be better off getting the experience from the school of hard knocks, say by working in the family business.  They may value life experiences above those that can be obtained from a structured, academic environment.  In this case, it's all about the family's values. 

6. Some parents have lowered expectations.

If a child is not doing that well in primary school, his or her parents may end up having lower expectations of the child. Without noticing the potential, some parents may become discouraged about helping their kids pursue a higher education.  It's sad, but could they be unwilling to take the risk of investing in their child's education?  I believe that no matter what, we shouldn't give up on our kids as surprising transformations can happen in people.

7. There's the belief that what's good for the parent is also good for the chld.

There are some parents who didn't finish college or never attended college, and because of their own experiences, they may not feel compelled to have their kids acquire an education on their dime.  But fortunately, there are many parents who don't think this way, despite the fact that they've never made it into the hallowed halls of academia.  There are many parents who value college highly and look upon it as the holy grail for the next generation; therefore, they do what they can to encourage their children to get a degree.  These are the stories that should inspire us to think about how we can push forward to better ourselves and the plight of the youths in our lives.

Having the opportunity to attend college is priceless and even when resources are low, there may be ways to save up for this important phase in your child's life.  If there's a will, there's a way.

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Guest's picture

As a young person who paid his way through college as did my wife, I really appreciate going over the reasons why not to save for what would be your adult child's expenses. Sign me up for #3! We can work out issues like where they will live, different expenses, but paying for college outright is over the top.

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Liz Stamos

I have to agree with you Ben, paying out right for college is expensive. Student loans area also expensive because of the interest, iphone cover

The best way is to actually start saving from the day your kid is born. That way you will have the money by then and not have to worry about saving up or borrowing extra from you home loan, etc.

Guest's picture

Most Americans can't save much these days. The are thinking that college loans will be the way to go, and that the students will help pay them back.

John DeFlumeri Jr

Guest's picture

As a graduate student, I'm still saving for my own college education :)

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Joe Smith

That's gotta be tough Robert. Saving up takes ages. I tried that too but after 6 months of working I knew it was going to take too long so I spoke to like 20 family friends and relatives and everyone loaned me about $1000 for my 2 years of study. I ended up paying them back in the 2nd year of my full time job. But that's something you can do instead of waiting and waste your youth because getting into a job asap is better than later and not having any experience.

Tow Truck

Guest's picture

Paying for a child's college education is a privilege provided only if the parent's can afford it. If you want your child to go to college, you have to set the expectation early, positively reinforce good grades, and be realistic about how much college education you can afford. We have put two children through college with no savings and one parent working. My husband and I both attended community college. Unfortunately, we didn't think far enough ahead to set the expectation for our children that they would attend community college too. It would have been a huge savings. Both of our children earned some scholarship money and paid for their off campus housing the last two years of school. I don't think expecting a kid to work while they are in college is asking too much. It prepares them for the real world of time management, job responsibility and taking care of themselves. We told our kids they could go to any college they wanted to as long as they understood that we would only pay the equivalent of in-state tuition, the rest was up to them. They both graduated with no student loans. We have one more child to put through school, we offered to pay for a year of grad school, if she would do two years of community college. Still a savings for us.

Guest's picture

I don't like the idea of expecting a young adult to fend for himself and start off his life tens of thousands of dollars in debt. Of course, not all parents have the luxury of being able to pay for college.

When I have children I hope to save up enough to send them to a state school, but there's no way I will save up the money to send them to an expensive private school. I will also expect my children to work for extra cash and small living expenses.

Guest's picture

In Florida, private schools are vary savvy about obtaining scholarship dollars. So actually the affluent are more likely to attend our state universities and minorities get into the private college.

Guest's picture

I agree that MY own retirement is more financially important than my child's college education. I also agree that loans are an option for them, whereas loans are NOT an option for my retirement.

Having paid for college myself, I pulled loans and found a part-time job during school. Like it or not, my child will have to do the same thing, if she elects to go to college.

As a side note, I am putting $10.00 into a 529 for her. However, by the time she goes to college, this money will only pay for her books... :X

Guest's picture

4 years ago I intentionally left an extremely good job with excellent benefits (free airline flights.....heavily discounted travel perks, etc) to take a lower paying job at a local private university. The new job not only is lower paying but adds an additional hour to my commute every day. Why? Because my 4 children will be able to attend college for free. Half a million $s in free education more than makes up for the reduced pay, additional commute, and change in benefits.

That being said, I paid 100% for my undergrad and graduate degrees with zero help from my parents. Whatever benefits my children do not get from my job, they will be responsible for (books, board...).

Guest's picture

I AM a young adult. I moved out before graduating high school, enrolled in my nearest high school, graduated on time, became a single parent, and enrolled myself in college. I'm going for my degree as we speak.

Nothing is "too difficult" anymore. I'm sorry but as someone who has school-related debt I have no sympathy for people whining about it. College isn't free and it shouldn't be treated like it is. I think it's better to raise our children to make sound financial decisions and value their own education instead of sticking money aside, thinking that will make everything alright.

Guest's picture

What about the parents who believe that what's being taught in colleges is wrong? (in addition to the classes)

Carrie Kirby's picture

My parents were only able to save a little to help pay my tuition, and I helped by applying for and getting a few scholarships. Even though "only" 14 years have passed since I graduated, things have changed a lot already. The cost of college has risen much faster than inflation or earning power. If I only save the pittance my parents saved, it won't go far.

However, I agree that saving for retirement comes first. Although it's not recommended to borrow from your retirement accounts, it's probably better to borrow from them later than to never have put money in them in the first place.

I really don't know what to do about saving for college -- we can't afford to save much although ideologically I would like to pay my kids' tuition. Having to work so much while I was in college -- even though I was only paying room and board myself -- detracted from the college experience. There were a lot of activities I would have liked to be in that I couldn't do, I was often stressed about work and money, and when looking at internships to launch my career I could mostly only afford to look at those that paid.

Guest's picture

I'm wondering if your statement regarding children of veteran's is correct. I did a quick search and couldn't verify it. As a veteran, I would be very interested in my children receiving reimbursement for 70% of their college.

Guest's picture

Both of my children did a lot of extra curricular activities and kept their grades up and have received substantial scholarships. The catch to the largest of these is that I must remain relatively poor or they'll lose their scholarships. I don't want them to graduate with the equivalent of a mortgage before they've ever had real jobs though, and since one of them will be going to law school he can garner his debt then.

Guest's picture

Two things ...
1. Kids have to have skin in the game to take responsibility ... foreclosure rates on 0% down are much higher then those with 20% down
2. Paying for college 10+ years after finishing is excessive punishment
... I plan to make sure 80% is covered and have my child pick-up 20% in loans ... approximately of course ... miles may vary ... they need skin in game ...
Other ways to get skin in the game ...
I was also think of picking up 100% if she finishes in 3 years and 90% if she finishes in 4 years ... I will also pick up more, if she goes a couple years at a community college or is rewarded scholastic scholarships or does something else to help control costs

Guest's picture

No I do not think that parents should have to pay for their child's college education. However, it wouldn't hurt to send the child off with a couple grand to get started but other than that the child is fully capable of applying for scholarships and grants and getting a part-time job as well.

Guest's picture

We have 529's for both of our children and I would love to be able to save enough to cover both their college costs. My husband and I worked while we went to college, but we also lived on our own and had to take loans to cover the costs. We're still paying on those loans nearly 15 years out of college! I don't want my children facing that kind of debt if I can help them. My parents were wonderful and helped me all they could, and I appreciated every bit of it. I don't think keeping them from a mountain of debt will make my children unaware of the realities of life. We will expect them to learn life's lessons and make their way otherwise.

Now, having said all that, I have to admit that we've been unable to contribute to the 529's for over a year due to the financial situation. I don't feel guilty about that. We have to put food on the table and clothes on them right now. I plan to start contributing regularly again soon. And, if it comes down to a choice between saving for retirement or contributing to a college fund, retirement is going to win out. Otherwise, we're saddling them with a whole different kind of problem!

Guest's picture

My parents never funded my schooling. Instead when I moved out on my own, my finances were so destitute that I was able to get grants for technical school. When I went for my B.A., I got grants but also had to take out hefty loans to cover the costs.

At first I was satisfied with my technical degree and decided it wasn't worth paying back loans until I was 40. Then I realized how bad it is out there for people without at least a B.A. The educational requirements for many jobs are rising. Jobs that required a technical certificate five years ago now require an associate's. Jobs that required a B.A. now require an M.A. More and more jobs are calling even for doctorate degrees.

As a personal choice, I decided not to go higher than an M.A. I certainly have enough loans to pay back.

What's really sad is that jobs that require no skill, like working at Waffle House, only want to hire college students or those with experience. Jobs that used to be easy to obtain are now difficult as hell.

The only way to get ANY sort of work anymore is with a degree, a marketable skill, or both. Personally, I am financially responsible so I will have no issues paying back my student loans. And my parents were lower middle class and are struggling to this day because they have crappy jobs. They chose not to go to college. I am the only one in my immediate family with a college education.

I am actually glad that they did not take out of their ever-dwindling reserves to fund my college education. They taught me self-sufficiency and though they do not value education, the way that they lives their lives makes me want to pursue it all the more. I want a good salary, a good career, and a resume I can be very proud of. I don't ever want to have to say to my children "You eat this. I'll just go without tonight." Unfortunately, without college no one can really survive anymore.

Xin Lu's picture
Xin Lu

I have been putting a little bit of money a month aside before my kid was born in a 529.  However I am pretty sure whatever I put in won't be enough in 18 years so I am not trying that hard.  Like one of the above commenter said, if parents don't take care of their own retirements then their kids would have a whole other kind of problem, namely parents living with them.  I am hoping that if our kid has to pay his own schooling he would appreciate the degree more and be more picky about what and where he studies. 

Guest's picture

I would love for both of my children to attend the private school where I went (that my father took out loans to pay for). Realistically, they will be able to do that only with substantial financial aid. I don't feel comfortable encouraging them to take on $100K+ in loans (each!) when they're 20.

However, I do want to help them pay for school, which I believe is very important. I have a 529 plan for each of them, and I hope to save enough to send each to a good state school. I encourage the grandparents to contribute to the 529 plans instead of giving other gifts, and I contribute as much as I can after making my retirement contributions (not much this year, though).

I'm also trying to get a job as a professor (it's a tough job market), and if I succeed, that should result in future tuition savings for my children at the same school. And I'd expect them to live at home while attending school to save money. (Of course, they may choose not to do so, but then they will incur the expenses themselves.) It also helps that my children are five years apart, so they probably will not be in college at the same time.

While I don't believe that community college is a substitute for a four-year college for us, I think it can be useful to take a few courses at CC in preparation for college. I also think that sending an immature student away to school can be a very poor investment. Spending a year at CC while the student matures can be a good option.

Guest's picture

i do think that planning is necessary for the future of the child , i am not a dad yet nor i am married but still i am thinking for the future of the upcoming ones.It is better to be prepared for it then working on last minute. Time just flew away

Guest's picture

Great stuff--I'd only add that if you can't fund your retirement along with saving for your child's education, then get your finances to the point where you can.

I think asking a child to entirely pay his way thru college is an outdated notion. Sure, it was possible when I went to school, when my entire education may have cost $8K, but not in this day and age

Guest's picture
Amy K.

If you save in a 529 and your child does not go to college, and you would like to use the money instead to fund their budding business (#2 above), what are the ramifications? Would you have been better off saving in I bonds?

529 plans do seem like the best choice if the child chooses to attend college, but I'm curious about the devil's advocate side, hedging my bets. What is the best way to invest and tax shelter $20K today (inheritance) that would be available for tuition or appropriate equivalent expenses for my child as a young adult?

Guest's picture

We live modestly on a modest salary and are stretched as it is. We are helping with our children's education in a limited way. But if they want college they'll have to take the brunt of it on themselves. Yes, generally costs have escalated, but with our oldest in Community College this year and living at home, I've realized his costs are less than mine were when I worked my way through and was on my own. At least he knows he won't starve or or be out on the street. During our current economy this might be the perfect time to consider options. Who said kids have to start college right out of high school? Working and saving like crazy is still possible. Scholarships are still out there, work study and side jobs (babysitting, yard work, snow shoveling, basic computer stuff) too. Why are we convinced it's the parents' duty to foot the bill? What's wrong with a son or daughter going into the trades? Or going into the trades and funding their own college ambitions?

Guest's picture

I live in Georgia where, if your grades are good enough, the state will pay your tuition to any Georgia public college/university with lottery money.

If I didn't, I'd be worried about 1) college savings counting against my kids' expected contribution on financial aid applications, and 2) my kids deciding to take the money & blow it.

Both my husband & I attended college on academic scholarships. He also had some student loans, since he had to pay for 3 semesters out of pocket, but we've got a good rate on those.

We also live in a college town, and within commuting distance of several other schools, so our kids can live at home. I just hope they can still stand us by then!

Guest's picture

For all those concerned about "expensive" private schools:

If your kid's grades are excellent but your income is only modest, the elite private schools are actually pretty affordable thanks to their generous financial aid.

In the late 1990s, my family had a total annual income of about $50k, and little in savings. However, the elite schools to which I applied -- and the Ivy League school that I attended -- were all within reach, thanks to their generous grants. Tuition, room and board totally around $42k a year, I think. My folks paid about $7k a year (a struggle, but workable). I received some small private scholarships and worked 10 hours a week on campus to pay for books and personal expenses. I took out about $15k (total) in Perkins and Stafford loans. The school picked up the rest. Whenever I thank my parents for paying for such a top-notch education, they always say, "YOU paid for it, thanks to your grades. We just paid for the equivalent of Ohio State!"

Guest's picture

Given the needs-based nature of College aid, I'd like to see the effective tax on our own savings for our daughter.
We planned 'very well.' Enough saved now (she's only 11) to pay in full. And we'll likely work till she graduates. Good incomes so we expect no aid at all.
Now, if we sacked the money into retirement savings instead, and retired a year before college starts, how much aid would she see? Makes us wonder if we did the right thing.

Guest's picture

One thing to keep in mind is the cost that people report to attend college isn't really accurate. When I went to school, the reported cost to attend my university was about twice what I actually paid. Why? It assumed a lot of things, like cost of books (you can buy used, especially with the internet) and living expenses. By being careful with what I did in my free time, where I lived (always had lots of roommates), and searching out ways to share books with classmates or buying used, I was able to take out only $14,000 in loans, plus had some grant money and a few merit scholarships that eventually covered the entire cost of my last year. This covered five years in a state school (two years out of state tuition) about six years ago. My parents didn't help at all, and if anything, their income hurt me with aid. All of my loans are now paid off, thanks to living small and making debt reduction a priority.

For my own kids, we aren't funding a 529, which seems risky considering where the money is going. We are funding our retirement. When our boys are filling out the financial aid forms, our money counts much less than theirs when it comes to formulating aid. We intend to help some with living expenses and anything that overwhelms them, but they will be expected to walk the maze of aid (with our help), and save on their own to be able to afford college.

After having known one too many party animals in college who were blowing through their parents' money, I know their experience in college with matter much more if they work hard for it themselves.

Guest's picture

My parents had an education plan for me, but somehow I was not eligible to use it. I'd had health issues in my last year of high school, and had to drop out - maybe that's what happened. Maybe the plan didn't allow for college instead of university. Maybe it didn't allow for me becoming dreadfully ill with the flu and mononucleosis in my first year of college - I returned to high school to prepare for university after that.

Find out if there are any caveats to being able to use what you buy into, before there's an issue. I think my mom was able to transfer my education plan to a family friend, so they had benefit where I was not qualified.

Guest's picture

And what happens when the 529 or equivalent college fund nose-dives in value such as in the current economy? One person I know invested for college expenses for 4 children and is unwilling to access the money because the investment plummeted in value over the last 2 years. He is paying out of pocket and struggling.

I went (circa 1990) to a private elite college. Tuition was paid via student loans, parent's contribution and financial aid from the school. The student loans kept me vested in my own success. I worked hard to repay them and it helped to teach me responsibility. I had a 2 year stint in the Peace Corps during which loan payments were suspended (too bad I missed the student loan forgiveness plan). This taught additional responsibility and life skills.

My spouse and I are not saving for college for our 2, instead we are trying to save for retirement. We got a late start as we were wild child types not marrying until later. We feel it's more important to not be a burden to the kids when we're old and gray. I'm also an optimist, we'll find a way.

Guest's picture

Parents that do not fulfill their responsibility to pay for their child's college education are a disgrace. The world of higher is very different today than it was a generation ago. It is unreasonable to expect an 18 year old to pay for 80k+ 4-year college education. Why are people selfishly having children they cannot afford? It's absurd, stupidity and ignorance is Not an excuse. The world is very competitive place today and it is the rare individual who can survive and thrive in a global business world without the benefit of a higher education. If you cannot afford to save for retirement AND have educate your children, you should limit yourself to one child or forgo that new car every 3 years, and keep yourself from indulging on Big screen TVs and other uneccesary luxuries most peole think they are entitled to at the expense of your child's future! Watch the documentary IDIOCRACY get some common sense!

Guest's picture

This is an incredibly idiotic notion that you have--and arrogant, too. What makes you think that being able to afford a college education qualifies you to have children any more than a family who cannot afford it? I think you might need to get your parenting priorities straight before you do or do not have more children. I am the youngest of five children whose parents could barely keep a roof over our heads, let alone put all five of us through college. Somehow (miracle of miracles), all five of us put ourselves through college without incurring staggering debt or feeling emotionally scarred. We all have advanced degrees: two of us are doctors. I don't think we are a particularly exceptional story. Many, many families of humble origin have managed to spawn highly educated, independent and financially stable children without 529s or prepaid college plans. N.B.: I have taught at several universities over the last 15 years, and I can tell you that the quality of the student does not increase just because Mom and Dad are able to pay the tuition bill. In fact, very often quite the opposite is true. The value of an education becomes apparent quite early to those students for whom more is at stake.

Maggie Wells's picture

My parents barely paid anything for my education (it was really like when they remembered and could kick something down). I don't want my kids struggling the way I did to go through school but there's not a whole lot I feel I can do. But these are my plans: They each have a 529 and I ask those family members that want to send them big gifts to consider contributing to these. I have $100 taken out of my earnings every month each for them. I know in the long run it won't be a lot but it will help.

I also am going to have them start on their community college classes in high school which our local community college has a program for. And like an earlier commenter, I work for a few colleges that they will have access to as well.

And as my maternal grandfather says, "we don't retire; we just die."

Margaret Garcia-Couoh

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Thanks for sharing

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kevin smith
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Your posting is very good and theme base for which it is liking to every people. Thanks a lot!!! mechanical engineering degree

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Liz Stamos

Saving money for your kids education is more important than everyone things. You should just open up a long term deposit account and dump money in there when you kid is born once your child is ready for university, you should have saved up more than enough

Guest's picture

My husband says that we should not pay for the kids college education because we do not know what kind of relationship the kids will embark on. If our kids decide to get married to someone who has a large student debt, then it is not fair on us that we spend years scraping and saving to pay the kids college, and then the kids have to help payoff their spouse's loan. He suggests that instead, we should put aside that money and if the spouse does not have a loan, then we payoff the kids loan

Interesting viewpoint. Comments?

Guest's picture

Well my daughter certainly wouldnt vote for number 3. I still havent even begun to save for my daughters eduation, finding trouble getting funds available to actually save.