College studnets gathered around a desk, studying

If you are struggling financially, especially if you are still paying off your own student loans, it’s hard to contemplate having to help your children pay for college. But most parents are willing to do just about anything to benefit their children. Here are the pros and cons of helping your kids, along with what you need to do to achieve your own financial balance.

Pro: They Won’t Come Home to Live With You…Again

When your child has acquired a significant amount of debt, they’re more likely to come back to live with you while paying off their student loans. If you can figure out a reasonable amount for each of you to borrow before they are in this financial state, you can help limit the possibility of the return of permanent residents in your home. You will also still have time and resources to save for your own retirement. 

Con: They Have Years to Pay Off Student Loans, While You Have a Set Number of Years Before Retirement

The eternal debate for most parents is: Do I guarantee my child’s future at the risk of my own? Your kids may not want you to live with them when you’re older, just as much as you don’t want them to live with you after their college graduation. I’ve had parents come to me who are laid off, but still want to cash in their retirement accounts so their children don’t have college debt. Before you make an incredibly significant decision, talk to your financial advisor about financial moves that benefit the entire family. 

Pro: Helping Pay for College Doesn’t Mean Emptying Your Bank Account

I’ve known parents who helped their children most effectively by becoming scholarship watchdogs. For instance, one family matched dollars and college savings for their children since they started entering essay contests in kindergarten. Yet, they didn’t need a penny of their college savings account. Their children were motivated from an early age towards community service, career exploration and general achievement. They both received full ride scholarships. While this isn’t a possibility for every child, parents encouraging their children’s interests and community service is possible. Always make an appointment with high school and middle school counselors to get guidance about scholarship research and how to guide your children’s career paths.

Con: Students Have Access to Income-Driven Repayment Plans

Your child could get federal student loan payments as low as $0 based on their income after graduation. The United States government has a formula that weights income to discern what an acceptable student loan payment is. Depending on income levels, that payment could be anywhere from $0 to the 10-year monthly repayment amount for a 10-year plan. Do you really want to risk your retirement if income-driven repayment is a possibility? Consider private loan borrowing carefully, because this is only an option for federal student loans. 

Pro: You Can Improve Your Budgets and Save Money Together, Without Changing Your Lifestyle  

You may not have the money to contribute to your child’s college savings account now, but you may be able to contribute if you had a lower car insurance rate. Go through all your fixed expenses and find ways to lower them by comparing costs, bundling insurance or calling utilities. Not only can you negotiate cellphone and cable bills, but some states offer a variety of electricity choices where one company may be significantly cheaper than another. You can also go through your child’s budget to help them spend and borrow less in college.

Con: Taxes Can Help You and Your Children Out With the Price of a College Education

I’m all about free ways to pay for college. How about getting money back from tax returns or saving tax-free money? When paying for college, you can get up to $2,500 back in tax refunds by paying for tuition and fees. It’s similar to a scholarship from the federal government. On top of that, you can deduct college costs from your state income tax through 529 college savings plans. Even if your state doesn’t have a state income tax deduction, you don’t have to pay federal income tax on earnings within the investment account. Thus, it grows tax-free. The only exception is if you withdraw money for a non-educational purpose.

For some people, the pros outweigh the cons when it comes to helping your child pay for college. Ultimately, the best answer to whether or not you should help your child pay for college depends on what you can afford based off of your own financial well being. Just remember there are ways to help pay for college in an economical fashion, including the scholarship search process.

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