The College Dilemma: Who Pays?

by Eileen Gallo, Ph.D.

Earlier this year, my husband, Jon, and I conducted a break-out session on “Raising Responsible Children In An Affluent Environment” for the AICPA Conference on Tax Strategies for the High Income Individual. During the Q&A session at the end of the presentation, one of the attendees raised the issue of kids graduating from college or graduate school owing many thousands of dollars in student loans.  Should parents pay for their children’s college educations or tell them to get student loans? What did we think?

In a vacuum, the issues surrounding how parents choose to finance their children’s college education would seem to be entirely financial in nature. In reality, the choices are modeling values and sending important messages to college age children. As Sue Shellenbarger pointed out in the May 12, 2006 issue of the Wall Street Journal: “Do student loans teach responsibility – or foster a lifelong overreliance on debt?  Are parents who pay their kids' way through college modeling self-sufficiency – or martyrdom?  Does requiring a student to get a job during the academic year instill a work ethic – or workaholism?”

My husband and I have strong feelings in this area that have been informed not only by our writing and speaking but also by our experiences as parents of three adult children. And those feelings have changed over time. We originally believed that parents should pay 100% of their kid’s undergraduate college expenses.  Over time we have reached the conclusion that the problem isn’t giving kids money for college; it’s failing to involve them in the money process. College age children who are involved in the economics of their education and pay part – even a small percentage – of their college expenses are less likely to develop a sense of entitlement and learn valuable life lessons that help them cope with adult life.

Let’s start with the question whether graduating from college with crushing student debt is the exception or the rule. According to the College Board, an association of more than 5,000 educational institutions and the provider of the well-known (and feared) SAT, about 60 percent of students attending four-year colleges pay less than $6,000 a year for tuition and fees. (While this column focuses on paying for a four year college education, two-year public colleges are a bargain that should not be dismissed. Forty-four percent of all college students are currently attending two-year colleges. The College Board estimates tuition and fees at the typical two year institution at $2,191. The average two-year public college student receives grant aid that reduces the average tuition to a net price of about $400.) Nationwide, average yearly tuition and fees at a four-year public college or university amounted to $5,491 in 2005. For example, the California State University website estimates the cost of tuition, fees and books for a full time student at the CSU campus in Los Angeles at $4,277 a year, while tuition and fees for the four-year program at City University of New York is $4,353 a year. A full time student at UCLA (part of the more prestigious University of California system) can expect average annual tuition and fees of $6,769 for 2006.

 On the other hand, the College Board reports that the average yearly cost of tuition and fees