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State of Student Debt in America

Should You Tell Your Kids How Much is Saved for College?

I had the most interesting conversation the other day with a parent of a senior in high school. We were talking about what her daughter was going to do next year after graduating and this mom got a look on her face that said, “it’s best if I don’t go there.”

“Not a fun topic in your home?” I asked.

“Let’s just say I have a 17 year old that thinks they know everything and I’m at a point where I know nothing.”

The conversation went on to the colleges or Universities she was looking into, what her thoughts were about community college, and whether or not she’d applied for any scholarships. That’s when the conversation led us to an interesting question:

Should I tell my child how much has been saved for college?

This woman’s daughter (and many other students I’ve spoken to around the country) had in mind that she could pretty much go wherever she desired because her parents had been saving money in a 529 Plan for quite some time. How much they had saved was there was somewhat irrelevant, she just knew they had money set aside for college.

To be very candid, it’s this is part of the problem in society today -- young people are sheltered from basic financial information that is exceptionally important for them to know in making educated decisions. If there’s $100,000 in the account, it creates vastly different choices and opportunities than if there is $10,000 in the account.

When her parents began talking about the actual costs of certain schools her natural response was, “why can’t I just go where I want?”

According to a survey done by Wakefield Research for Thrivent Financial, the majority of college students surveyed (70%) wished they’d talked to their parents more about college costs and funding.

(What the Wakefield Research didn’t share was how open the students would be to receivinge t the information shared by their parents about how much was saved or how college would be paid for.)

Shared ownership requires three things

Regardless, there needs to be shared ownership in the decision of where to go, how much to borrow, and what life will be like after college. And according to a brilliant man (my father), he’s told me thatThrough my experience, I’ve learned that shared ownership requires these three things:

  1. INFORMATION         
  2. DECISION MAKING             

The INFORMATION part of the equation, as it relates to making a decision around college, would include:

  • How much has been saved in a 529 Plan or other vehicle
  • How much parents will be contributing to the college costs (if any)
  • How much responsibility the student/borrower has when it comes time to make tuition payments or student loan payments
  • How much each school costs per year between tuition, room & board, books, and fees

Armed with that kind of information, it’s time to start the DECISION MAKING process. Some things you might need to decide are: around which school to attend, whether or not you take a year off to save money or travel, are you going to live at home to save moneywhere to live to save money, are you comfortable borrowing the kind of money needed to attend your dream schoolhow much you are comfortable borrowing to attend the school of your choice, are and thewhether or not your parents are willing to help out with month to month expenses, etc. As you might imagine, the decision making process looks radically different when the information is presented upfront.

And finally, for there to be shared ownership, the key is to understand the CONSEQUENCES of each decision. A young person that fundamentally understands how much more they’ll borrow at a private school versus a state University, AND what the ensuing lifestyle difference will be like, may make a more educated decision. Most importantly, because they had information,  and had the decision making power, and in addition to knowing knew the consequences, they’ll OWN their situation after graduation.

What I see quite often is a student that desperately wanted to attend a certain school, so their parents did everything they could to make it happen. With no information upfront about costs or how much was saved, the parents helped their student take out massive loans (on which they usually co-sign), and after graduation all parties are somewhat taken aback at the payments that are due and how to make it all work. No Without shared ownership, this can lead leads to blame, resentment, guilt, embarrassment, stress, and a whole host of other challenges.

What to share about how much has been saved

In answer to the first question about whether or not you should tell your child how much has been saved, the answer is yes… but…

What I’d rather recommend you not doavoid as a parent is share a blanket number, as in “we have $50,000 saved for you for college”. To the uninitiated soon-to-be high school graduate, you might as well tell them you have a bajillion dollarsunlimited funds for college. With no context to the number, they may perceive that is enough to cover all of their college costs and then some.

What I recommend sharing is specific information about how much is available each year. “You’ll have $12,500 per year towards schooling from us. At a state University, that’s about half of what you’ll need each year, the rest will be a student loancome from scholarships, grants, and loans.”

If there is a set number of, let’s say $20,000, it’s perfectly in line to say, “we have enough saved for one year of a state school, one semester of a private college, or two years at a community college. How you choose to use that money is your choice, but we need to talk about the consequences of each decision.”

The other reasonLastly, I recommend being very specific about yearly amounts instead of one large figure is to provide your student context. This way, your student might be more motivated to apply for scholarships. the less your student perceives is available, the more likely they’ll be to apply for scholarships to cover the rest. More information on that is available here.

Get help if you need it.

Choosing a college and understanding college funding is a HUGE deal. It’s a life-altering decision that will tilt your life towards opportunity or challenge no matter how you approach it. So, if you or your child are struggleing with understanding the options or how to pay, please get in touch with the Financial Aid office at your local school to talk to an advisor.

Just remember, Information, Decision Making, and Consequences make the rest of your life infinitely easier!

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