Paying for College
This is a topic I have been preparing for and thinking about for many years. With 6 kids who all have a desire to attend college, there are a lot of future expenses. How can we afford this? Should Lisa and I pay for all of their college, some of their college, none of their college? These are questions that all parents have to figure out for themselves and the answers can be quite variable depending on individual circumstances.
Family discussions
In our family, we expect that all of our children will go to college. We don’t talk about if they will continue their education after high school, we talk about where they should attend college and how it is going to be paid for. We had a fantastic family discussion about this topic a couple of months ago. Lisa’s brother and his wife wrote an incredible post on their blog about how they paid off more than $100,000 in debt. This post is so well written and details how to accomplish such a challenging goal as a couple. We discussed as a family how impressed we were with Mike and Carly and talked about the steps they took to get out of debt.
Then we discussed why we should not use debt as a tool for undergraduate education. Post-graduate education and specialty education like what Carly received is a different discussion, but Lisa and I both feel strongly that debt should not be used to pay for a normal college degree. This is not a commonly held belief in the United States today. As of February 2019, there are over 44 million borrowers who are a combined $1.56 Trillion dollars in debt. The average debt of 2017 graduates was $28,650. And it seems like the discussion regarding this serious national problem revolves more around how to forgive these debts instead of teaching our students to avoid the debt in the first place.
School selection
The number one decision that will help our children receive a college degree debt free is school selection. The importance of this decision needs to be made clear to our teenagers. Columbia University has an annual tuition of $59,600. This does not include books and fees, rent, and living expenses. I am sure this is a fantastic school, but there is no way the education there is worth 10 times more than what my son and daughter are receiving at Brigham Young University, where tuition was only $5,620 in 2018. The 2019 US News Best National University rankings put Columbia at #3 and BYU at #66. If we were to assume those rankings are critical, it might be better to compare BYU to Clark University, which is tied with BYU at #66. The annual tuition for Clark University is $45,730. According to the US News Best Value College rankings, BYU is at #11, still behind Columbia according to their criteria, but well ahead of Clark University. We are in a unique position in that we love BYU and our children love BYU, but it is such a hard school to get into that I am sure some of my kids will not get accepted there. Both Ryan and Katie were excited to attend BYU Idaho as their backup school, which has a similar environment and a similar cost profile. Other great options are in state schools or attending a community college for the first couple years, before moving on to a more expensive school. When future employers look at what school you graduated from, it is highly unlikely that they will know or even care if all 4 years were spent at the school that awarded your degree.
Parent versus child monetary contributions
I have discussed this with numerous people and feel strongly that we should not be paying for all of our kids college expenses, even if we are in a financial position to do so. I think there is a lot of value in saving for college from a young age, working during college, and in learning to live on a tight budget during college. This will set our kids up for future financial success. For our kids, we have decided to pay all tuition and housing for our children during their first year. They are responsible to pay for books, school fees, and to cover their other living expenses. After the first year, we will continue to pay for tuition, but housing will be up to them the rest of the time. There is also no blank check for tuition. If they decide to go to a more expensive school, we will probably only cover a portion of the tuition costs. Earning a scholarship is obviously a great way to cover tuition, and I encourage my kids to work hard in order to qualify for scholarships. But I don’t want them to think they are working hard to save me tuition money. So I have made a deal with them that if they earn a scholarship, I will pay them the money they saved me in tuition. Ryan is taking full advantage of this deal right now, since he earned a full tuition scholarship for 2019-2020.
GI Bill
Each of our kids will also receive 6 full months of college expenses from the military through the GI Bill. I earned this for them through my service in the Army, and it is an amazing benefit. They are paid tuition, some money for books, and living expenses at an E-5 rate for those 6 months. We have already cashed this in for Katie, and the total amount she received was $14,477.63. Ryan is saving his 6 months for graduate school, since that tuition will be higher and therefore the award will be worth more.
Other living expenses
We actually continue to pay for some other expenses that could be considered living expenses. For instance, we provided Ryan and Katie with a car to share at BYU, we pay the auto insurance for that car, we pay for their health insurance, and we pay for their cell phone plans. They do have to keep track of those expenses, however, so they are aware of the costs and can budget for them in the future.
Saving during childhood
Saving for college during childhood is important for many reasons. It is a constant reminder that they will go to college, it helps them learn how to save for future expenses, it helps them develop the skill of money management, and it gives them a sense of ownership when they help pay for things themselves. One of the many things our Dads taught Lisa and I was how to save money when we were teenagers and we have used this same method with our kids. Whenever they earn money, 10% goes to pay tithing. 50% goes into savings for mission and college. The remaining 40% is for spending. Our kids have understood from an early age how important savings are. Because of this, Ryan and Katie both had thousands of dollars saved for college.
529 college saving plans
We are also contributing savings on a monthly basis into a 529 plan for each of our kids. 529 plans are the best option in my opinion, in large part because the states are competing for our business which keeps costs low and investment options plentiful. I chose to use California’s plan and have been very happy with it. I am contributing to the plans with after tax money, but they will grow tax free similar to a Roth retirement account. Currently, we are putting more money into Emily and Megan’s 529 plans than Luke and Matt’s plans. After Emily graduates from High School, assuming we have met our savings goal for her, we will shift more money to the other kids. Now that I have paid for a year of college for both Ryan and Katie, I know exactly how much money I need in that account to pay for 4 years of tuition and 1 year of housing at a school like BYU. 529 funds can also be transferred to other siblings if they don’t need all their money because of scholarships or higher than anticipated returns on their investments. 529 plans can also be contributed to by the child or other family members like grandparents.
Graduate in 4 years
One of the other things we have discussed with our children is how important it is to graduate in 4 years or less. There are exceptions but in most circumstances, 4 years is plenty of time. Keeping it to 4 years not only saves tuition and other college expenses, but it also gets you into the job market sooner and this is really where the benefits come into play. Taking a 5th year to graduate with a Bachelors degree would increase costs by about $15,000, but the opportunity cost is much bigger if you could be out in the job market making $50,000 during that year instead.
Actual costs
This is approximately how much I will be paying for Ryan’s 4 years of college.
1st year of tuition at BYU - $5,620
1st year of housing at BYU - $5,196
Tuition for years 2-4 (inflation adjusted) - $18,000
This totals $28,816. This is not an insignificant amount of money which is why it is important to start saving for kids college as early as possible, especially if you can take advantage of the tax free growth from a 529.