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3 reasons not to save for kid's college

If you plan to foot the bill for your child's higher education, you may be shortchanging your child and yourself.

By MSN Money Partner Aug 22, 2012 3:42PM

This post comes from Xin Lu at partner blog Wise Bread.


Wise Bread on MSN MoneySince I had my son, I have often heard from family and friends that college is going to be extremely expensive, and it is best to start saving now. After much research I decided that I wouldn't put too much into a college fund.


This may be against the usual advice of saving for the future, but here are some sane reasons why parents should not pump too much money into their children's college funds. (See also: "How to save money for college.")


1. A large college fund can lower financial aid.

Image: Graduation cap (© Stephen Wisbauer/Getty Images)This is mostly due to how financial aid offices calculate need. Most public schools use the Free Application for Federal Student Aid or FAFSA, and many private schools use a combination of FAFSA, CSS/Financial Aid PROFILE, and their own formula. Regardless of the method used, generally parents and students have to list their assets, and more savings means less need.


So it is actually possible for two families with equal incomes to receive different amounts of financial aid, and the family with less savings would receive more. Retirement accounts are usually excluded from these calculations, so it is to the parents' advantage to sock away more for retirement rather than a child's college fund. The calculations also usually count a student's assets fully, so if you put a college fund under your child's name, that would hurt your financial aid numbers as well. (Post continues below.)

2. Working during college can be beneficial for students.

Research from the U.S. Department of Labor (.pdf file) showed that young adults who had to work and pay for at least part of their college actually did better in school than those who did not have to work. This is not that surprising because the kids who have to work and study at the same time are more invested in their education and are generally more disciplined to be able to manage work and school.


Those who have to work probably value their education more than those who don't. Additionally, students who have work experience usually fare better after they graduate in their job searches because any job experience is better than none in the eyes of employers.


3. College isn't the right choice for everyone.

There are many college graduates with no marketable skills who are not doing better than those who pursued an apprenticeship in a trade. If parents put away a lot of money in a college fund like a 529 plan and later find that their children no longer want to go to college, then they would have to pay a tax penalty to take the money out for other uses. I think it's best to wait and see what a child's pursuits and talents are before deciding that college is the best path.


My son will be college-bound in about 15 years. I don't yet know what he will do, but if he decides to go to college, we will definitely support his decision. For now we are putting $100 per month into a 529 account. In 15 years it will grow to a significant amount, but it probably will not be enough money for four years of college given the rate of increase in higher education costs.

However, we're not that worried about it, because ultimately I think young adults should start taking responsibility and shoulder at least some of the costs of college. I think the whole point of raising and educating children is so they can be independent and survive on their own, and it would be good for my child to learn that as soon as he is able.


What do you think? Are you currently saving a lot for your children's future college costs?


More on Wise Bread and MSN Money:



Sep 5, 2012 12:36PM

why is it moronic to say college isn't for everyone?  College simply isn't for everyone.  There are plenty of trades that do not need a degree.  Cops, Fireman, EMT, Barbers, Carpentry, Tool/Die, machinist, HVAC, Sheetmetal workers, Electricians, Plumbers, Painters, Military, Artist, musician, How about owning a business?  Don't need a degree for that. 

If you force all of them into college, and rack up 100k in debt.  They will be paying that off for the next 25 years.


I agree that education is key...but it doesn't need to be college.

Sep 5, 2012 10:06AM
I believe there needs to be a balance in the student and parent responsibility for college.  Our oldest child just left for college this fall.  She is attending our state University at $18,000 a year.  We were very realistic with her and told her that as parents we couldn't let her attend an expensive, private university at $30,000 a year when she could get just as good of education at half the price and that we wouldn't be doing her job if she was in extreme debt before even getting a job!  We started a 529 plan the first year our state offered the plan and have about $25,000, which isn't near enough.  However, she has worked since she was 15.  Half her wages have always gone in her savings account for college.  She worked hard in high school and earned a scholarship at the University that pays her tuition as long as she maintains a 3.5 GPA.  We have told her that her scholarship is her job during her freshman year and that after that she can look at getting a part time job if all goes well.  We are keeping her expenses at a minimum by not allowing her to take a car to college.  With her scholarship, the 529 plan and her working and saving during the summers, she just might be able to earn a bachelors degree with no debt.  She was lucky and earned a scholarship.  Without that scholarship she would have loans.  We have a second child who is a few years off from college.  We have been doing the same thing with him.  He's tired of half of his birthday and lawn mowing money going into his savings account!  It will be worth it in the end.
Sep 5, 2012 5:52AM
And the government wonders why people don't save more!  Why should you, as it lowers the financial aid your kids can get for college.  They tell us to do one thing, then support the other.  I'm sick & tired of footing the bill for people who live it up & then can't pay for their necessities.
Sep 5, 2012 10:09AM

First of all, the Feds should not be "supporting" this "we guarantee" all student loans.  We've got alot of kids who have gone to college on this program that have received a "crap" degree and can't make a living doing what they studied.  So they are unemployed and can't pay back the loan.  Who foots the bill?  It damn sure as hell isn't the college.  Drop all the federally funded bank loan guarantee crap and you'll see the cost of an education drop like a rock.  Once again, the frickin' government gettin far too involved in a system it shouldn't be in.  The colleges and universities of this country need to be in a competitive situation for a limited number of students.  We can not fund this "utopian world".  Once again, the banks got Congress to set themselves up for loans that they knew a very large percentage of these kids would not be able to repay.  Fees and penalties all guaranteed by the government...the banks are laughing at how much money they are making.

The authors comment that too large of a fund can lower financial aid is horse hockey.  The above argument, if the colleges and universities were fighting for students, the aid would be flowing freely.  If they don't have to spend any of the money generated by alumni donations and other programs NOT FUNDED BY THE FEDERAL GOVERNMENT, guess what....they won't.  Last reason, college isn't for everyone.  That may be true, but if you wanted your kid to have a choice, wouldn't it be better to end up paying taxes on money you actually have saved when they decide not to go to college than to not have saved it and he/she not have a choice. 

Sep 5, 2012 8:57AM
The author did not follow his own advice.  He is saving $100 a month for college, so it appears he is not so sure of his plan.  I started saving $200 a month when my son was born.  As he is now on the college doorstep, it is a decent amount of money - but it is not even a year's worth despite our efforts.  Still, it is that much less which will not need to be found somewhere else.  In my opinion, planning, for anything, always trumps flying by the seat of your pants.  Stop letting the world take care of you, and do something to help yourself.
Sep 5, 2012 12:15PM
Well said. I couldn't agree more.  I was one of those students who worked her way through college.  I made smart decisions about the cost benefit of my education and chose a well-respected public university and a field that maximized my earning potential.  I have a few student loans, and it wasn't always easy.  In addition to earning a lucrative degree,  I learned how to be a responsible adult -  I learned how to manage stress and finances.  Those lessons are invaluable. 

I was surrounded by entitlement-minded, spoiled, drunken, wasteful, and lazy students.  They had no marketable skills upon graduation other than a degree (if they didn't drop out), and most of them didn't even have LIFE skills either - the parents didn't trust them to pay their bills, so the parents managed their finances, too.  There were so many who had little concept of the value of a dollar, and then they were thrust into society 4 years later as "adults" who still haven't learned how to be independent.  It boggled my mind back then, and it boggles my mind now.
Sep 5, 2012 8:24AM
We've saved, but only a small portion of the savings is in our kids' names.   I put myself through college and graduate school by a) working, b) getting good grades and academic scholarships and c) seeking out work/study opportunities.   It's not easy, but it can be done.   While we fully intend to help our kids through college, we would not foot the entire bill even if we had the means to.   It's an investment in their future and they need to share in that investment.   Our first is a senior in high school right now so we are starting the college search.    Depending on the school he chooses, the assistance we feel we can afford may pay half of his tuition and room/board.   The rest will be on him.   He is looking at scholarship opportunities for grades and athletics.   If those don't materialize, he will look for work/study or a part-time job.  Loans will be needed for any balance. We've done "the math" and figured out what student loan payments will look like after graduation at various amounts and we've shown him how those will impact his disposable income (or lack thereof). All of this is helping him to see that choosing a college is at least in part a business decision and encouraging him to seek out value in an education. I don't believe he'd be motivated to look at it that way if he didn't have a financial stake in it.
Sep 5, 2012 6:32AM

Aid should not be based solely on how much your parent's save or earn. It should be treated more like an investment, and based on the student's liklihood of graduating and course of study that would lead to a job.


I see too much emphasis and money given to students "in need" who either drop out after a year or two, or who are studying something that will not yeild a good paying job - not worth the investment in aid.

Sep 5, 2012 10:00AM
Do your kids a favor- save for their retirement instead.  Figure out how to get money into a Roth IRA when they're young and let it build up for 65 years.
Sep 5, 2012 12:11PM
Actually, I just put three kids through college and the author is not that far off . . . Yes, most colleges will not talk to you about scholarships or grants until you have completed the FAFSA application . . . EVERY year-not just the first year, and NO, they do not look at your retirement as income!  They look at your AGI from your yearly taxes.  I believe what the author was trying to say is that parents should look into certain forms of IRA's/401k's/Retirement anuities that allow you to "borrow" from yourself against these funds, which when paid back actually pay yourself back instead of some financial institution.  Having your child work after he/she completes their first year and gets used to taking care of themselves away from home is a great idea!  I did the same with all three of my kids and they all told me it helped them to realize that money is a precious commodity and not to be taken lightly or squandered on a whim.  When they graduated from college they knew what a budget was and what it meant to "live within their means" - something I think a lot of young people could use a lesson about these days . . . . a lot of politicians too! That is not to say, we didn't save money for our children's college education while they were growing up, as well.  But, we encouraged working hard for good grades balanced with finding something they enjoyed doing outside of school, which is something else colleges look at.   
Sep 5, 2012 11:37AM

We did not save in advance for our son to attend college.  We still don't qualify for anything that I would consider to be real "aid".  The writer should point out that if a child has the unfortunate liability of a 2-parent, 2-paycheck home then the only "award" that he/she will recieve will be the opportunity to go in to debt with a Parent Plus / Student Loan combination. 

Sep 5, 2012 11:41AM
You forgot to mention scholarships. When my family immigrated here  from a foreign country 20 yrs ago, my dad had $8 in his pocket. I was about to start high school. I always knew I was college-bound  and I also knew my parents wouldn't have the money to send me. So I did the only thing I could and studied my butt off. I took advanced classe, got As and graduated 3rd in a class of 200 people and got a full academic ride to a local university. Filled out all my own applications, wrote essays, went through inteviews - it was not easy to get that money.  That's considering that language was a bit of a barrier in the beginning. I think If I could overcome the odds and get a free college education (no grants or loans), then certainly most American kids can at least attempt to do the same. It's no good raising your children to expect to be handed a college experience.
Sep 5, 2012 7:35AM

About 15 years ago I was given the advice not to save for college for our kids...because they might not go....or it won't cover it all so why save at all.  The alternative was to take the money out of our 401K or refinance our house.  Now our oldest in in college and we are struggling to pay for his college.  We have taken out student loans and parent plus loans.  It has put such a huge strain on our house hold.  If we refinance our house then we put our house at risk and if we draw from our 401K then we put our retirement at risk.  I worry about paying for our son to attend all four years let alone sending our other child.  The advice not to save for college was very bad and my decision to follow that advice I will regret for a very long time.  When we filled out the FAFSA (financial aid form) we soon realized that we would have to be almost at the poverty level to receive any "free" money or true aid.  The only aid we were eligible for were me that is not aid.  Just debt.  Our son will be working to pay for some of his college but we can't expect him to pay for $15K - $20K a year.  So to eliminate you laying awake most nights worrying how to pay for your child's now.  If you save in a 529 plan and your kid doesn't go to college then pass it on to your next child who will most likely go.  It is a small gamble but it will save you peace of mind in the future.  Save the money now!

Sep 5, 2012 2:58PM

Reasons no.2 and no.3 to not save for college makes sense in some situations.Reason no.1 illustrates the pitfalls of socialism. It rewards the lazy and financially irresponsible and punishes the industrious and financially prudent. 

Sep 5, 2012 11:16AM
I did not get one ounce of financial support from my parents even though they probably could have.  That was the best lesson i've ever learned and made be the person i am today.  I wouldn't have it any other way and this is exactly how i am going to treat my children.
Sep 5, 2012 1:55PM
I loved your article!  I worked and paid my own way through college and my masters degree.  I am still paying on it because of the fact that I worked all through high school and saved for my education and therefore qualified for absolutely no financial aid.  Our government system is so screwed up that they reward people for not working hard and it is so frustrating!
In the end, I graduated with a master's degree and a 4.0 and I make a whopping $11/hour.  *Awesome*
I'm so well-educated that I have to clean my parents' house for extra income in order to make the ends meet.  I'm not rich and I'm certainly not defined by my education, but in the end, I can say that I haven't taken government handouts and I've made it on my own. 
I don't resent my parents at all for not paying for my education.  I see people all the time who are the ages of my parents and can barely pay for their own living expenses because they're paying on their children's educations while their [pharmacist] children are living the lavish life!  It's ridiculous!  There is absolutely no reason for that!  Kids need to grow up!  They don't need to be on their parents' health insurance til they're almost 30 years old and have all their expenses paid for.  It's no wonder that people of our generation (late 20s) are still acting like immature morons!  (Please excuse the broad generalizations--I know this does not include everyone--including myself).
Plus, when parents pay for their children's educations, it's more difficult to let the kid "follow their own dreams."  If I'm forking out 100K per kid, I'm not going to be thrilled when they major in theater.  If they're paying for it themselves, they work harder, they manage their time and money better, and they value their educations much more!

Sep 5, 2012 10:59AM

Gotta love reason number one - 'the more money you appear to have, the less you can get from the government'


The attitude of maximizing one's drain on greater society is sickening.


We didn't save at all for our children's college, in part because we had no "expendable income", and partly because they showed no interest in school. Now we have 3 of the 4 in college and they are doing quite well on their own. They learned that life is not handed to them and no one owes them anything. Two of the three that went on to college are studying to be doctors and the third graduated with a BS in nursing. The forth will be going into medicine as well and is currently working part time at a major hospital. By contrast, I did not finish one semester of college when my parents were paying the bill. It wasn't until I got into the real world that I decided that education was a good idea, and returned to get my degree.

Sep 5, 2012 8:17AM

My parents could not afford to put away for college for myself and my siblings.  I could not afford for my own kids either.  However, as far as I am concerned, I paid for a roof over my kids heads, clothing, food, education (supplies) and anything else my kids needed while they were growing up and I see no reason to pay for my childs college.  I paid for my own college, just the same as my brother and sister.  As a matter of fact - I have three associates degrees and a bachelors degree that I am paying for and I appreciate them and am proud of my achievements. 

There are many options for kids.  They could spend 4 years in the military and get the GI Bill to pay for college, which my son is currently doing.  Theres financial aid and student loans as well.  I am glad I put myself through college and didn't get college handed to me on a platter by my parents.  The difference between us and a family friend who is paying for their kids college is that we are more independent than the family friends kids.  Their kids feel entitled, where as, myself and my siblings do not think it's necessary and we value what we have achieved on our own and my parents constantly tell us how proud they are of us.

It's not irresponsible to not save and plan for your childs college.  Theres no law or rule that states it's the responsibility of the parent to pay for education beyond high school.  By the time your child graduates from high school, they need to be more independent, which is what they want anyways.  Free rides should start to dwindle.  Parents can help them by allowing them to remain living at home while they attend college and continue to pay for their food and utilities, but let them pay for college if that is what they want to do.  Thats as far as it should go for parents beyond high school years.

Sep 5, 2012 7:42AM

Although a college degree carries no guarantee of a job or career success, it has been shown time and again that a college degree is a significant advantage over no degree.   And I agree that college isn't for everyone (nor should it be).  But to not even try to save and plan for that possibility is irresponsible.


I feel that this author is a bit short-sighted and selfish, even if he doesn’t intend to be.  Excuse 1:  lower financial aid?  He’d rather let the rest of us pick up the tab for his kid’s tuition?  What happened to taking financial responsibility for your own offspring?  With today’s weak economy, how can you assume that there will be any significant financial aid available by the time your kid is old enough for college?  If your plans hinge upon somebody else picking up a significant part of the bill, and then find that aid unavailable, you may have lost your college opportunity.  Excuse 2:  work your way through?  Many of us have to do that, but it is an additional burden during an intense time.  Many students leave school because they cannot handle work and studies, or cannot earn enough to finance school.  Excuse 3:  college may not be the right choice?   That is true, but how do you know it won’t be the right choice when you’re making it while your children are so young?  If it turns out that your child doesn’t want college, what’s wrong with having college savings that could be applied in starting his or her adult life in another way? 


People worried that their kids might treat college savings as an unappreciated gift (party their way through school, etc.) need to nip that in the bud by raising their children to be responsible people.  Children can and should participate in saving money for college (or whatever comes later in life) – that way they are emotionally invested too.  Some of that babysitting or lawn mowing money needs to go into savings, not all spent at the Mall.


Will college be worth it?  Maybe, maybe not, but impossible to tell fifteen or so years in the future.  Starting to save now, even if you can only afford a few dollars per month, can yield possibilities that will not be there if you choose not to save.  But if you plan on letting others shoulder your responsibility then you may as well gamble your (and your child’s) whole future.

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