What if you can't, or don't want to, help your kid with college? People certainly pay for their own college educations these days, just as they have in the past. It's just tougher now. Consider:
Tuition inflation + stagnant wages = an uphill climb. Working your way through school is harder than it was a generation or two ago. College costs have risen far faster than incomes. The college inflation rate has been roughly twice that of general inflation. Meanwhile, real incomes for many Americans have stagnated; incomes for those without college degrees have fallen. So someone trying to work her way through school is likely to face higher costs and worse-paying jobs than in the past.
Loans have replaced grants. A couple of decades ago, financial aid packages consisted largely of grants, which didn't have to be repaid. Now they consist mostly of loans, which do. Although free money is still available, particularly to the neediest students, many students discover their colleges expect them to borrow -- and perhaps to borrow a lot.
"Independence" isn't likely. Previous generations of students could declare themselves "independent" and often qualify for more financial aid, with relative ease. As long as their parents didn't claim them as a dependent on their tax returns for two years, many schools would base financial aid packages on the student's income and assets, rather than the parents'. In 1992, however, the rules changed. Financial aid administrators can make exceptions, said Mark Kantrowitz of FinAid, but typically do so only in extreme cases, such as abandonment by parents or a "documented adversarial relationship," with court orders or other paperwork documenting abuse. Now to be independent, students must be one of the following: 24 or older, an orphan (both parents deceased) or a ward of a court, a U.S. military veteran, a graduate or professional student, married, or someone with a legal dependent other than a spouse.
Financial aid administrators can make exceptions, said Mark Kantrowitz of FinAid.org, but typically do so only in extreme cases, such as abandonment by parents or a "documented adversarial relationship," with court orders or other paperwork documenting abuse.
If a student isn't independent, his parents' income and assets help determine how much aid he gets -- regardless of whether the parents are willing or able to contribute.
The dropout rate is high. The other problem with cutting your kids loose is they're more likely to fail. Public Agenda surveyed college dropouts as well as college graduates and found the dropouts were far more likely to be "going it alone" financially. Nearly 60% of students in the study who left college without graduating said they had to pay for college costs themselves. Meanwhile, more than 60% of those who had completed their degrees said they had at least some help from parents or other relatives to cover the costs of school.
That doesn't mean kids can't successfully work their way through college. Writer Zac Bissonnette did, and his book "Debt Free U" would be a good primer. Your kids also could get help paying for their educations by joining the Air Force, Army or Navy Reserve Officers' Training Corps in college or by serving in the military and then taking advantage of the GI Bill.
Whether or not you contribute financially to your child's education, you should:
- Familiarize yourself with the financial aid process so you understand what help is available and can assist your child with the paperwork.
- Use tools such as the net price calculators to compare likely costs.
- Talk to your child about the importance of limiting debt. A good guideline is to limit total borrowing to no more than what the student expects to earn the first year out of college. If at all possible, the student should limit her borrowing to federal student loans only. Federal student loans offer fixed rates, flexible repayment plans, consumer protections and the possibility of forgiveness; private student loans do not. But the maximum you can borrow as an undergraduate is $33,000.
- Encourage your kid to finish. A college education is almost always economically useless if the student doesn't earn a degree. Drive that point home. The Public Agenda study found most parents told their kids that a college education was important. But those who finished college were more likely to say their parents strongly stressed the point, while those who dropped out said their parents were less emphatic.
Liz Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "The 10 Commandments of Money: Survive and Thrive in the New Economy" (find it on Bing). Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. Join the conversation and send in your financial questions on Liz Weston's Facebook fan page.
