Friday, June 15, 2007

How much do I owe my parents for my college education?

How much do I owe my parents for my college education? I thought we had this all figured out, but I'm not so sure anymore.

Right after I graduated college and started my first full-time job, I sat down with my parents to talk about finances. During my college years, my parents had paid their expected family contribution to tuition, room, and board after the financial aid grants were applied, partially through taking out $45,000 in loans. I had a work-study job and worked summers, and paid for books, entertainment, and other personal expenses, including my groceries and a couple hundred dollars a month towards rent when I moved into an apartment my senior year, plus I took on the $13,000 in loans in my name that the financial aid forms suggested. Now the month-to-month expenses were over, and we were all left with the debt, them a lot more than me.

My dad suggested I just pay "what you can afford, what feels comfortable to you" in any given month, but I said no way... I wanted something defined, a number I could think about and plan around. I didn't care what it was, but I wanted to us to settle on an amount we all thought was fair and stick to it.

So we decided I'd give them $16,000. It was elegant and satisfying-- together we owed $58,000, and half of that was $29,000, so giving them $16K on top of the $13K in my name evened things out. $16,000 sounded like a tremendous amount of money to me, and with our tentative $250/month plan, that meant over five years of payments, which felt like forever.

Fast forward to 3 1/2 years later, and thanks to some accelerated payments, the $16,000 will be paid off by the end of the summer. I'm really excited about the prospect of having another $250 a month to put into savings. But I'm also left thinking, is it fair for me to be done already, or should I offer to pay more?

  • On the one hand, I'll have accounted for my half of the balance. On the other hand, my interest rate is several points lower than theirs, so it isn't really half of the total cost.
  • On top of that, there's the fact that they paid much more out-of-pocket during college than I did. But then again, they were adults with jobs and I was a college kid making a couple thousand a year, and they were paying what the financial aid formula said they could afford. But the formula expects parents to spend a pretty large fraction of their income and assets, so I don't know if it's fair to just say "They could handle it."
  • If I stop now, they'll still be making big payments on those loans for almost another decade, with no help from me. Of course, I will still be paying for my own loan-- but that's only $70 a month, and the interest rate is under 3%, so I barely count it as debt.
  • I'm pretty sure I'm in better shape financially for my age than they are for theirs-- and they have retirement coming up in a decade or two. On the other hand, a lot of that is because of their own choices. But the cost of my college education is certainly a significant part of it too. But then again, they're hardly destitute, and while they have debt from paying for college for my sister and me (and are behind on saving for retirement), they have pretty high incomes-- and my sister graduated from college last month, which will really help their cashflow so they can catch up more quickly.
  • When I was applying to college, my dad told me, "Go to any school you want, and don't worry about how much it costs, we'll make it work. I had to give up going to the college I wanted because my parents said it was too expensive; I've worked hard all these years so that you don't have to be in the same position." (My mom was not as gung-ho, but they eventually agreed on my dad's take on it.) So I did, and there was never any real discussion or expectation about how much of the cost I'd share-- if I'd expected I'd have to pay for a lot of it, I might have chosen differently. But in the end, I did choose an expensive school, and just because they said "Go ahead, it's okay" doesn't make it any less costly to them.
  • When it comes down to it, there are just two issues: they're my parents... but it was my education.
What do you think? What would you do? How did you and your parents handle paying for college, if you went?


AD said...

My opinion: their $250 is more valuable then yours (only a parent knows). I would create a fund for them (your name or theirs) and keep putting $250 each month until you'll have your own family obligations. They helped you when you needed, would be nice to help them when they would need it. You avoid also lifestyle inflation and have a backup to help if needed (or a vacation together, or ...)

Patrick said...

I think by asking the question, you are answering the question. You feel like you should pay more. No one will begrudge you if you don't - you upheld your end of the bargain.

But if you feel even a slight bit of guilt, then it isn't worth ignoring the subject. If you feel like you should pay more, then you should sit down with your parents again and explain how you feel. They will most likely tell you they don't want anything else, but if you tell them it is important to you, they will understand your point of view.

I think it is an honorable position you are taking. As for deciding how much you might continue to pay, that is a matter of what you and your parents agree to. Good luck! :)

A Tentative Personal Finance Blog said...

I guess the answer depends on who's shoes you're wearing. If I were your parents, I would see that debt as a parental debt you take as a parent. There's an expectation that parents help educate their children and that includes college. I'm not sure I totally agree with that and I think I'll be advocating that my children pay for much of their own college expenses. It might give them a better sense of how important and worthy their education is.

On the other hand, if I were in your shoes, I would help them pay off the rest of the loan. They don't give scholarships or loans for retirement and with their situation impending... if they really need help.. give it to them.

Nice post.

MoneyChangesThings said...

Wow, M&V, you should be very proud of yourself for accomplishing this goal early, and your parents are no doubt very proud of you, too! Here is my take, both as a child and as a parent. My parents paid for 100% of college & never discussed finances. I assumed financial independence upon graduation. We borrowed money at no interest from them for a house, and paid it back ASAP because it bothered us that the terms were so vague. I now understand looking back that if you have financial dealings within a family, they need to be crystal clear, and that is hard in families which don't communicate very well (like my family of origin.) I doubt you know the details of your parents' finances, and they may not want to share them.
Fast forward. You sound more financially savvy than your parents and I have a hunch you are projecting financial anxiety onto them which they may not be feeling. You discharged your obligation brilliantly (paying off a loan as a 10-something, voluntarily, and early!). I doubt your parents think you owe them anything else financially. I think it is touching that you are even thinking about it. But there would be no limit. Surely you wouldn't feel the need to compensate them for all the food you ate or the clothes you wore, or their opportunity losses for caring for you when they could have been working!
I am sure, though, that they expect that as they age you will be available to them to provide lots of uncompensated services that elderly parents need.
If you want to do something nice for them to celebrate your completing the loan payoff, like taking them somewhere with you for a weekend or something, that would be a nice symbolic closure on the financial aspect of your relationship. I love it when my son takes me out for dinner!

Anonymous said...

I think that you have some guilt- by reading your post, I can tell that your parents are fantastic- but they also didn't HAVE to pay for your education. I paid entirely for my own, working 3 jobs- despite the fact that my parents were more than able to pay for my education. If I were in your situation though, I would stick with helping them pay down what loans are remaining- they are your loans afterall. Then again, this is just my opinion, and I don't know you or your parent's situation.

plonkee said...

Maybe you could pay something towards their retirement funds. You could maybe make a joke out of it - you don't want them becoming a burden on you - or something.

Talk to them, tell them that you feel that you can pay more to contribute. They might want you to use the money for something else.

Cheap Like Me said...

You and your parents are lucky they could help. I agree that if you want to help pay more, that might be fine -- but you ought to talk to them. They might be perfectly comfortable without your additional contributions, and in that case you can save more for your own future. If they ask you not to repay them, work on allowing yourself to be cared for in this way -- and thank them for giving you the skills and the values to be so financially successful already!

Cazi said...

I'm impressed how thoughtful you are towards your parents. My recommendation is to ask your parents if they want any additional help in paying off remaining college debt. If they tell you not to worry about it or refuse to take your money, take them on a cruise or some other vacation. That way you're going above and beyond just paying back the agreed upon ammount and it shows how much you really appreciate what they did for you.

Penny Nickel said...

Thanks so much for your comments, all of you. I really appreciate them and they are definitely helping me think this through...

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Mark said...

Maybe you should have joined the military instead of expecting a handout from your parents. Oh well, too late now. Just blog about it and ask everyone else what they would do about it and maybe you'll get an answer that will make you feel a lot better. You ought to be thinking for yourself by now after all of that college. Think, what is right for your situation. Only you know.