Running head: Saving for Their College Education 1

Saving for College: Should Parents Save for Their Childrens College Education?

Carly E. Hall

Brigham Young University-Idaho

February 8, 2017
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Abstract

Parents shouldnt be financially responsible for their childrens college education,

because it is harmful to their financial aid possibility, it will teach them to be responsible and

decrease entitlement, and protect themselves from going into debt because of the lack of

disposable income. While there are many different options provided by the government to help

families save for their childrens educations, the amount saved probably wouldnt ever amount

enough to keep up with the ever-increasing rate of tuition. Also, the amounts saved in these

accounts are likely to count against the students in state financial aid calculations. Also, research

studies have shown that aid provided by parents will not only harm the students GPA, but also

the likelihood of graduating. Parents, too, have financial responsibilities which include more

dependents than the students themselves. With obligations such as mortgages, insurance, car

payments, utilities, retirement, etc., paying for their childrens educations may be more harmful

to their own financial situation and more people than the students themselves. In this case,

parents shouldnt be solely responsible for their childrens college finances.

Keywords: College, Moral Hazard, Savings, Financial Aid

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Introduction

Its a popular theme in todays culture to find any way one can to get something paid for,

especially when it comes to college expenses. In the past ten years, the cost of a college

education has increased dramatically (Baum, 2016). Whether the aid comes from grants,

scholarships, loans, or even parents, students will take whatever they can get to attain an

education. But what happens when a student has no access to any aid with the exception of

loans? Does the financial burden fall upon the parent? Should the parents be financially

responsible for their childrens college education? According to research, parents who take on the

financial responsibility of paying for their education are actually doing more harm to themselves

financially and their childrens academic potential than helping either side.

Background

Further on in this paper, one discussion leads to the topic of the Theory of Moral Hazard.

In terms of the topic of this papercollege fundingthe Moral Hazard Theory suggests that one

[college student] will take more risks, or less consideration of their decisions, because the

consequences of their actions will be borne by someone else. Thus, giving them a sense of

insurance (Hamilton, 2012). There are also government-provided financial plans discussed in

this paper, which include the 529 college savings plan. According to Margaret Clancy (2010),

College Savings Initiative Director at George Warren Brown School of Social Work, a 529 plan

is a prepaid or college savings plans. In a prepaid program, one purchases tuition credits for

higher education expenses, whereas in a college savings plan, one contributes to an account for a

beneficiarys higher education expenses.

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Harmful to Aid Possibilities

First, while a parent might think that their savings plans are helping their child in the

future, they might actually be destroying any potential the child may have had at attaining

financial aid from the state. The government provides many different types of accounts for

family members to save over the years, such as Uniform Gift to Minors Accounts, Coverdells,

and 529 plans. These are not all the options available, nonetheless, it is suggested that accounts

such as these will count against the student in calculations for financial aid. Crane Buttell (n.d.)

states, In most cases, colleges assess money held in the childs name at a higher rate than assets

held in a parents name. This means some types of custodial accounts will hurt a student more in

the financial aid process than others. With the cost of college ever increasing, it is a great

possibility that the amount saved in any accounts would hardly make a significant contribution to

the amount required.

Value and Morals.

Another reason parents shouldnt be solely responsible for their childrens college

finances, is to teach them to value their education. In general, people consider what they earn to

be more valuable than what is just given to them. The same concept applies to college funding.

The behavior demonstrated by students in school with it already voluntarily paid for hints at

issues of entitlement among young adults who are used to having their needs met by parents.

These emerging observations raise questions about how far into the life course parental

investments continue to be beneficial (Hamilton, 2012). But how far is parental investment

considered too far? According to research conducted by Hamilton in the American

Sociological Review, she found that the aid provided by parents will not boost the students GPA

or the likelihood of graduating and may even prove detrimental to their potential for both
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opportunities. Hamilton concluded, As parental aid increases, student GPA decreases, even net

of sociodemographics, parental SES, family structure, academic ability, student characteristics,

and institution characteristics. She even took her correlations to apply in relation to the Moral

Hazard Theory, where it is suggested that parental aid can provide an educational disincentive for

the students. In contrast, students may direct more effort to school when they personally feel the

economic costs of poor performance.

No Disposable Income.

College students arent the only ones who suffer when parents provide funding. In fact,

parents might even suffer or sacrifice the most. Parents have other financial obligations, such as

mortgages, insurance, car payments, utilities, retirement, and in many cases other children to take

care of. There is no such thing as a retirement loan, says Sally Herigstad, CPA, author of

Help! I Cant Pay My Bills (as cited in Buttell, n.d.). You must balance the needs of the whole

family. Adequate insurance, your retirement plan and buying a house are a few things that may

take precedence over college savings. There is no reason that parents should put their familys

immediate and future financial obligations behind the financial obligations of their child. They

are adults. Once they leave the home, the reality of the real world sets in. Most people struggle

financially in paying for college. Paul Wrubel, Ph.D., of TuitionCoach, a business specializing in

college funding (as cited in Buttell, n.d.) notes, Few parents in the middle- and low-income

brackets will save enough early on so that the savings can grow to make a big difference in

paying for college. Also, many college savings accounts lock you into rigid investment options,

leaving your savings at the mercy of a mutual fund manager. If the parents financial

contributions wont make much of a difference any way, what is the point in putting their own

conditions in jeopardy?
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Opposing View.

Some families can afford to save and pay for their childrens education, or even prefer to

pay for it, and that is completely commendable. There are many plausible reasons as to why

parents should try to help pay for their childrens education. One reason is to protect them from

crippling debt. Over the years, the cost for college has increased much quicker than income, thus

has the difficulty to pay for college without incurring debt also increased (college-

education.procon.org). According to Sandy Baum (2016), In 2014-15, the 61% of bachelors

degree recipients from public and private nonprofit institutions who borrowed graduated with an

average of $28,100 in debt. Student debt like this also often forces college graduates to live

with their parents and delay marriage, financial independence, and other adult milestones

(college-education.procon.org). Its understandable and even okay for parents to want to

contribute to their children to help them get off to a better start when they graduate. However, in

this argument, I dont completely agree. In fact, according to college-education.procon.org, many

recent college graduates are un- or underemployed because college degrees do not guarantee

learning or even job experience. This is why companies now look at capability rather than

education accomplishments. Education does not always guarantee an understanding or aptitude

fit for the position.

It can even be argued that there are many savings plans available for those who want to

save a get a head-start for their childrens education. Some options, like the 529 plans, are

excluded from calculations for financial aid in many states. While that option may be available

and affordable for some, it was mentioned earlier that these options really arent the most

affordable due to higher rates if held in the childs name. Clancy (2004) claimed that less than

half of the states (44%) even exclude the 529 plan accounts from the state financial aid
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calculations. Also, according to Clancy (2010), The current tax structure of 529s does not

benefit the poor. Lower-income families, since they have little or no tax liability, cannot receive a

tax benefit. The purpose of the savings accounts is to help all families to be able to afford

college in the future. But the lack of tax credit for their contributions doesnt exactly favor low

income families. Another drawback for low-income families, is that the 529 plans dont always

have low investment fees. Combined with no tax credit, investing in a 529 plan just isnt a good

option for families who really need the help to save. Granted, there are other options available. If

a family can find an affordable one that works for them, then they could invest if they desire to

be financially responsible. In their case, it could be a better option.

In conclusion, I believe that parents shouldnt be financially responsible for their

childrens college expenses. Since the cost of college is increasing, it is most likely that no matter

what, someone will have to go into debt even if the parents have been saving for years

especially if they are responsible for multiple children going to college and trying to keep up

with their current and independent financial obligations. Students will learn to work hard,

become independent, keep their grades up, and value the things they earn as they work to pay for

college and study to earn scholarships. This period in the students lives is what is known as the

decade of decisions. Sometimes students decide college isnt for them; sometimes they change

their major or attend school more than once. They may even decide to go to graduate school. The

point is that the future is unpredictable, and parents cant always control their childrens

decisions. Why should the parents pay for decisions their children make?
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References

Armitage, S. (2016, March 24). An Argument Against Saving For Your Kids' College Education.

Retrieved February 08, 2017, from http://thevioletmoon.com/an-argument-against-

saving-for-your-kids-college-education/

Buttell, C. A. (n.d.). The Case Against Saving for College. Retrieved February 07, 2017, from

http://www.betterinvesting.org/Public/StartLearning/BI Mag/Articles

Archives/1207mfmpublic.htm

Baum, S., Ma, J., Pender, M., & Welch, R. 2016. Trends in Student Aid. College Board Trends

in Higher Education Series. Washington, DC: College Board.

Clancy, M., Lassar, T., & Taake, K. (2010). Policy Brief. (CSD Publication No. 10-27). St.

Louis, MO: Washington University, Center for Social Development.

Clancy, M., Orszag, P., & Sherraden, M. (2004). College Savings Plans: A platform for inclusive

saving policy? (CSD Perspective 04-25). St. Louis, MO: Washington University, Center

for Social Development.

College Education - ProCon.org. (2016, August 11). Retrieved February 08, 2017, from

http://college-education.procon.org/

Hamilton, L. T. (2012). More Is More or More Is Less? Parental Financial Investments during

College. American Sociological Review, 78(1), 70-95. doi:10.1177/0003122412472680