The Surprising Amount That Parents Secretly Expect Their Kids to Pay for College

By Dan Kadlec

August 22, 2018

Parents tap kids to pay more of the bill

College costs have been front and center among financial educators for years. Kids leaving high school need to know what they are signing up for—before they sign. Yet painfully few have a passable understanding of how student loans work or the burden that comes with tens of thousands of dollars of education debt.

More than half of student borrowers do not know that interest on federal unsubsidized loans begins accruing while they are still in school, and one in 10 incorrectly believes they owe nothing if they fail to get a job out of college.

Such gross misunderstandings can lead a student to take on more debt than they should and leave them in a financial hole that takes decades to climb out of. In rare cases, individual student debts may tally $100,000 to $1 million. Compounding this problem: like many money topics, this one is not adequately discussed at home.

In some ways, the trend line is heading the wrong direction. Parents now expect their kids to foot more of the college bill—not less—and they often keep this expectation to themselves, according to a new survey from Fidelity Investments.

The average parent of a high school sophomore expects their child to have set aside $15,385 for college by high school graduation—up from $12,431 two years ago, Fidelity found. Just 49% of parents feel it is their obligation to foot the entire college bill—down from 56% two years ago. A whopping 40% of parents have not told their kids how much they expect their kids to contribute—up from 31% two years ago.

On the plus side, young parents are making a greater effort to save for their kids’ college costs. More are starting to save before their child is 2 years old—37%, up from 21% two years ago, the survey shows. Yet just 28% of parents with older children believe they are on track, which may be why they expect a greater contribution from their kids.

This isn’t the only college-related money discussion parents are avoiding:

–50% have not discussed how the financial aid process works, up from 40% two years ago.

–43% have not discussed how much student debt they may incur, up from 36% two years ago.

Why the avoidance? After all, many parents themselves…

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…have struggled with college loans and, having been through the process, understand how terribly wrong it can go. But many parents appear to be as confused as their children. Half of parents concede they do not know which college saving accounts make the most sense or how much they should set aside each month.

Financial educators can and should help fill these gaps. Student loans outstanding have reached a collective $1.5 trillion. This debt is holding back the economy as it sucks spending power from young adults that would otherwise marry sooner, have children, and buy a house and a car.

Consider creating college-funding lessons around things like 529 plans including accelerated gifting options, pre-paid tuition plans, the versatile Roth IRA, and custodial accounts through the Uniform Gift to Minors Act. Even financial advisers often overlook the value of a family discussion on these topics. By introducing them in the classroom you may stir this important talk and help keep students from walking into a debt trap that hobbles them for years to come.

More on student loans:

Why the Blame for Extreme Student Debt is Shifting

This State Sees Student Debt as Gateway to Financial Literacy

Student Loan Payback Assistance Will Be the Next Big Benefit

The Next Big Thing in Workplace Financial Education: Help with Student Debt

 

 

 

Posted in Youth on August, 2018