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May 2010


Who should pay for your child's college education?

Should you pay for your child's college education? Or should your child find the financing? It depends on who you ask.
  • Parents should pay.
Arguments in favor of shelling out your hard-earned cash for a son's or daughter's higher education can be compelling. For one thing, college is a very expensive proposition these days. A year of undergraduate study at a private university can easily top $30,000 and public in-state schools can run over $12,000. Of course, if your student decides to get an advanced degree or go to medical or law school, he or she can run up a bill exceeding the cost of your home mortgage. Advocates of this point of view ask, "Do you really want to saddle your kid with that kind of debt so early in life?"

They add that if your child ends up working to pay for college, that's less time available for study and making friends. And, of course, friendships built in college ("social networking" in today's parlance) can generate a wealth of opportunities for a future career. Also, by investing in tax-deferred 529 plans, parents can withdraw funds free from federal income taxes when it's time for college.

  • The child should take the responsibility.
Others argue that covering the cost of your child's college education should not be a priority. After all, they reason, your kid has a lifetime to pay back student loans, and making loan payments can generate a positive credit history. Advocates of this position also argue that kids who have to pay for their own tuition, books, and living expenses learn responsibility and value the investment that college represents. They may also point to tuition reimbursement plans provided by some companies or the military service option as a way to get a college education without breaking the bank.

Folks on this side of the debate often argue that 529 plans are overrated as a savings vehicle because investment options can be limited and tax rules are likely to change, undermining future tax benefits. Finally, they reason that a person's own retirement should take precedence over saving for a child's education. "You can't take out a loan for retirement," they argue.

Making the decision.

Of course, your family's dynamics, the importance you place on a college education, and your personal financial priorities will factor into this decision. If you'd like help looking at the pros and cons of this important issue, give us a call.

For more complete information about 529 savings plan, including investment objectives, risks, fees and expenses associated with it, pleases read the issuer's official statement.  The issuer's official statement can be obtained from your financial advisor.  Please read it carefully before investing. 

Please consider, before investing, whether your home state offers any state tax or other benefits that are only available for investments in your state's qualified tuition program.  Other benefits may include reduced or waived program fees, matching grants, and scholarships to state colleges.  Any state-based benefit offered with respect to a particular 529 college savings plan should be one of many appropriately weighted factors to be considered in making an investment decision.  You should consult with your financial, tax or other adviser to learn more about how stat-based benefits (including any limitations) would apply to your specific circumstances and you also may wish to contact your home state or any other 529 college savings plan to learn more about the features, benefits and limitations of that state's 529 college savings plan.

Qualified expenses include tuition, fees, room and board, books and other supplies needed to attend an institution of higher education.  A 10% federal penalty on earnings will apply if you receive a non-qualified withdrawal.