It might be in students’ best interest for mom and dad to cut the purse strings when it comes to paying for college.
A recent study shows that while parents who fund their child's college education increase children’s chances of attending college and completing their degree, students with their parental financial support scaled back on their academic efforts.
In her research, Laura Hamilton, a sociology professor at the University of California, Merced, found that as parental aid increased, students in every income group experienced a drop in GPA, with the steepest curve among the most privileged students.
While most students may have difficulty taking on the entire cost of college, parents can use this opportunity to help them achieve their educational goals while also learning financial responsibility, says Ameriprise Financial advisor Anna Behnam.
“The students that are partially responsible appear to have better financial goals, savings habits and overall better financial responsibility—[they] are the ones who call me to discuss how to pay off the loans faster, how to maximize employer benefits and how to participate in 401(k) plans as well as learn about IRAs,” she says.
If parents take on too much of the monetary burden of their child’s education, they could end up compromising their own financial future, says Mark Maiewski, certified college planning specialist and founder of StopOverPayingForCollege .
“Now you have to come out and pay $40,000, $50,000, $60,000 out of pocket; if you just got a normal interest rate, that money could double by the time you’re ready to retire,” he says. “Students have 40 or 50 years of earning power after that—they should accept responsibility and parents should not take that on.”
Here are expert tips on how parents and students can split the responsibility of tackling college costs without breaking the bank.
Find a school that matches the budget. A big price tag doesn’t always mean a quality education, so families need to identify students’ needs, wants and expectations out of a college.
“Too many people feel that they have to get a caviar education on a tuna fish budget—don’t go overboard,” says Maiewski. “Part of that is to understand if you cannot afford to do this, you cannot afford to go into debt, you’re going to ruin your financial future, then you talk to your student about it.”
“In general, folks are starting to focus more on can you manage this cost when you get out? The follow up to that is can you get a job to help you afford that obligation when you get out?”
Discuss student loan parameters. Experts say it’s essential that families sit down and discuss how the borrowing process works to make sure everyone understands the amount and terms.
Oftentimes parents don’t understand the limitations that students face when borrowing on their own, says Maiewski.
“They think, ‘well I’ll just let the kid borrow it all’--the most they can get is $5,500 as a freshman from the government, that doesn’t cover even two thirds of the tuition at state schools nowadays,” he says. “You have to co-sign for them or have to borrow all of it in your name at outrageous rates, 7.9% and above.”
Borrowing through student and parent loan programs allows both parties to contribute as long everyone is on the same page in terms of what repayment obligations will require, says Kandianis.
“If you look at it before you go and get an understanding of finding the right balance of financing and the shared responsibility, that’s a very sound way to approach the issue of, ‘as a family, how can we afford that?’”
Find ways to make school cheaper. Students should exhaust every outlet of free money available by applying to as many scholarships and grants they are eligible for and research any work-study programs.
“The biggest chunk of ‘free aid’ comes from the schools themselves, so a scholarship for $500 is great but that’s not really going to move the needle, however, every little bit counts,” Kandianis says.
Reinforce smart spending habits. Behnam recommends students take on a low-limit credit card to help them understand how monthly payments work and build their credit without the possibility of getting into too much debt.
“Keep in mind that having a student loan and/or credit card in the student’s name helps them build credit early in life—something that parents will appreciate when they do not have to cosign the car loan after college or personally guarantee the apartment rental agreement,” she says.
No matter how families decide to split up financial responsibilities, it’s important for parents and students to maintain open communication throughout the whole process, suggests Kandianis.
“Families that are having conversations like these open up a lot more good result possibilities as opposed to families that are just writing the check, because maybe there’s never this real understanding of what the money costs and what the return is on it.”