How Much Should Parents Contribute To College?

If parents have the means to pay for all college costs, should they? The answer will be different for every family. There are plenty of reasons for parents to pay for the full cost of college (assuming they have the ability to do so). But there can also be valuable lessons when college students have a little skin in the game.

Having your kids contribute in some way to the cost of their education can provide valuable financial lessons and prepare them for the real world. Hybrid approaches can help ensure graduates aren’t left with loads of debt too.

How much should parents contribute to college?

Most parents with the financial means to pay for the whole cost of college will do so (some even save way too much). College is a major expense, so covering 100% of it financially can help students focus exclusively on their education. It also means graduates won’t be burdened with student loans after getting their degree. And of course parents want to provide as much opportunity for their kids as possible.

Ultimately, how much parents should contribute to college will be a personal family decision. But some parents who can pay for all of college might wonder whether they should.

Asking students to contribute to the cost of college doesn’t have to result in saddling them with debt. In fact, involving young adults in consequential financial decisions and participating in real life outcomes can provide valuable personal finance lessons. Further, paying the full cost of college isn’t the only way to help your kids financially.

4 ways to have kids contribute to the cost of college

The most common financial objection parents have with the idea of having their kids help pay for college is the resulting debt. But depending on your goals, there are ways to structure an arrangement to ensure they also have skin in the game—but stopping short of leaving them struggling to pay bills.

1. Set a flat dollar amount and let your kids decide where to attend

One way is to tell your student how much you’re willing to pay for college. This can be a flat dollar amount, average cost of a private college, or perhaps the in-state university. If your kid decides to go to a more expensive school, they pay the difference. If they go to a less expensive school, you can consider letting them keep the difference.

This approach can help students quantify their wants versus needs and how decisions they make today can have lasting financial implications. And if young adults decide to pay up for the college of their choosing, it can help ensure they’re taking full advantage of what the university has to offer.

(And you can always help them out or pay off their loans later).

2. Skin in the game

The best way to ensure kids have some skin in the game while attending college is to require some type of financial contribution. This can happen in many ways. Perhaps parents cover 90% of the cost each year, set a flat cost-sharing amount, or even have the student pay the final year independently.

By forcing college students to contribute financially in some way (however small), parents can (hopefully) avoid a situation where education takes a backseat to extracurricular activities. It also reinforces the value of money (and an education).

After all, people act differently when they have a financial stake. It’s a lot easier to spend $100 at a casino when it’s not your money!

3. Pay for performance with a GPA target

Again, depending on the parent’s goals or possible concerns about their student, another option is to consider performance-based student contributions to college. For example, parents could pay for the full cost unless the student maintains a certain GPA. And if those conditions aren’t met, parents can consider a range of responses, from pulling their contributions altogether to having a probationary period to get back on track before the student needs to start paying too.

This approach can be helpful for students who may need extra incentive to push themselves to their full potential. Or if parents have concerns about their student attending class, taking academics seriously, etc.

4. Have college students cover only specific or controllable costs

Parents can also consider the pros and cons of asking their student to only pay for certain expenses. For example, parents could pay for everything but discretionary spending money, unrelated to education. So, if students want to eat outside of the dining hall, buy clothes, go out with friends, etc., they need to figure out how to pay for it.

This can be a great option for parents who want to teach their kids about wants versus needs, and the reality of what things cost. It’s easy to throw down a credit card if you don’t have to pay (or ever even see) the bill. Getting a part-time job can also help students put working wages into perspective: a $100 pair of jeans may not be worth it if you need to work five hours to pay for it. This can also help young adults grasp their own lifestyle expenses, which is important when choosing a major, career path, and evaluating job offers.

Options for students to fund the gap

When parents don’t want to commit to contributing the full cost of college, they can give their students some options to bridge the gap. Here are a few.

• Parent loan. One option is to loan your kids the money, charge interest, and set a payment schedule. Consider paying the school directly and consulting your tax advisor to discuss gift tax issues. If you do loan your kids money to help pay for college, it’s always best to have a written agreement and discussion on terms and expectations. There are various apps that can help with tracking and contracts.
• Unsubsidized loans. These loans are not based on financial need. There are annual and aggregate limits to how much a student can borrow, and they’re pretty low, which is something to keep in mind.
• Get a job. A campus job, part-time job, or summer gig can be a great way for students to contribute to the cost of an education. When parents communicate how much they plan to contribute early on, high school students can get a jump on saving.

Communication is key

As with anything in life, communication is key. Parents first need to agree on how much to contribute to the cost of college. This is usually hurdle number one! Then communicating that decision to students—and why—makes a big difference when there’s thought put into the messaging. Even if you decide not to ask your child to share in the expense, there are other ways to expose them to real life personal finance issues in college. Letting them see the bills before they’re magically paid is usually a good start.