Should You Pay Your Children’s Higher Education?

higher-education

I had this discussion with a co-worker a few months back when he said that he was at odds with his wife over their daughter’s tuition bill. She did not think it was a good idea for them to co-sign a loan for her. I wasn’t sure if he was asking for my opinion or just venting, but I wouldn’t be me if I didn’t put in my 2 cents. So it became of matter of to pay or not to pay.

I came up with a little test to help you figure out which way you should go. It’s as simple as answering YES or NO to the following questions:

Are you debt free? – Credit card debt, your own student loans, car note, etc.

Is your primary home paid off?  – No other bills besides taxes, utilities, association dues, etc.

Are your retirement accounts maxed out? – The IRS released the 2016 401K contribution limits here.

Do you have enough in an emergency fund? – Minimum 3 months of living expenses.

Are you adequately insured? – Health, life, personal property, car and homeowners.

If you answered YES to all of these questions, you can afford to take whatever money you have left, after meeting all your obligations and putting food on the table, to pay for your child’s high education. If you have enough to pay the entire bill, more power to you. If you’re just contributing to part of it, well your kid should be grateful nonetheless.

If you answered NO to any of these questions, you CANNOT afford to pay for your child’s school and he or she needs to figure it out. Why? Because your creditors are not going to care that it ain’t cheap for Junior to go to Stanford. They’re going to want their money and they will make your life miserable, as well as ruin your credit to collect their funds. Because it would suck for Junior to come home for thanksgiving break and find you homeless after a foreclosure. Because the older you get, the less time you have to work and save for retirement and NOW is always the right time. Because an emergency could set you back financially for years to come. Because not having appropriate insurance can put you or your survivors under extreme financial strain.

But this guy asked about student loans, not tuition. The answer is no. Don’t do it. Let me make this clear: NEVER CO-SIGN A LOAN FOR YOUR CHILD’S TUITION. If they die, you are stuck with the payments. If they default, you are stuck with the payment. If they drop out of school and default, you are stuck with the payment for a degree they didn’t even get.

I graduated college at 21 and started working 2 weeks later. I later got an MBA while continuing to work. So I have worked uninterrupted ever since undergrad, and I plan on retiring at 65, sooner if I do well on my investments. That’s 44 years of potential for full time work where I can earn enough money to pay my own bills. My parents are in their 60s and my dad is thinking about retiring within the next 2 years. Do you think it would have been fair for him to be looking down the barrel of 10 years of loan payments? Who can afford it the most? My father or myself? Even if I lose my job, I probably won’t be out of work for 30 years. My parents will be if they live 30 more years (which is not too far fetched because my grandma is 90 and my grandfather died at 94).

They have the rest of their lives to work and pay back their school loans. You have maybe another 15-20 max left of working and saving for retirement. How much blood pressure medication co-pays do you think your social security checks will cover after you’re done paying for your child’s student loans?

If you don’t believe me, maybe you’ll believe someone who already made the wrong choice on that one.

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