Is paying for kids’ college a good idea?
We have a three year old daughter and one on the way. So a few weeks ago, I set up a 529 account for our second child (our first already has one). In case you don’t know, a 529 is a tax-advantaged way to save for school expenses. Savingforcollege.com has an excellent website all about them. Anyway, I established the account but doing so got me thinking again about whether paying for your kids’ college education is a good idea. Here’s my thinking:
Pros:
- Child graduates (hopefully) with little or no school debt.
- Child doesn’t have to work during school.
- Earnings are free of federal tax (i.e. it’s cheaper) and we get a state tax deduction today
Cons:
- Child has little or no direct financial interest in making wise us of the opportunity
- Value of the education has less meaning for child
My wife is strongly in favor of funding college to the best of our ability. She feels not having a potentially large debt hanging over your head when you first start out is what’s most important. I agree with that, but I also tend to think anyone is not going to value something as much if it is simply given to them rather than them earning it. Now obviously the child will be earning the degree, but I’m talking about the paying for it. I just think it’s less valuable to them if they didn’t pay for it. On the third hand, I ‘paid’ for college with a combination of working and loans. Since what I really did every semester was sign a boring loan document piling on more debt instead of writing an actual check, I didn’t feel like I was paying for college at all.
At any rate, we’re saving for both of their educations using a 529. I guess the goal should be to raise them to value the opportunity and send them off into the world debt-free. And that’s what we’ll try to do.
April 8th, 2007 at 11:27 am
My wife and I have this discussion all the time. My original position was in the “self-insurance” category where you just save enough in general vehicles and then hope you don’t have to pay. I know I didn’t pay (nor did my parents) for my undergraduate degree. My wife’s position (which is prevailing at this point) has us nearly complete with a pre-paid state plan for our 5-year-old and a 529 for our almost-3-year-old.
I am concerned that if everything goes right (investments and saving stay strong, kids do well in school, get merit-based scholarships, etc.) that much of the gains I could’ve realized with that money will be lost, or even that the pre-paid plans will change their rules making the benefit that I bought not come to pass.
But I think there are some advantages to college plans, both in the tax realm, but more importantly in the financial aid realm, where having parents that are sitting on a huge stash is worse in terms of getting an aid package than having specifically designated college savings for the child.
As for the “value” in just making them pay for it all themselves, I don’t think the value of the degree is worth the potentially spirit-breaking stress of having a simultaneous job, missing social opportunities and networking, etc. Also, not having the funds available to just go to school worry-free encourages the “I’m going to take a semester off and work” situation that inevitably leads them to spending 6 to 7 years trapped in their college town.