Weigh the Pros, Cons of Having Your Children Help Save for College

Deborah Ziff

Even though Kelly and Paul Brewer put aside money in college savings accounts for their 17-year-old twin daughters' educations, they still expect the girls to help save for college.

That will probably mean taking out some student loans, Kelly Brewer says, but it will also mean saving money from part-time jobs in high school and working during the summers in college -- possibly even more than one job.

[Learn how to get a jump-start on three careers in high school.]

"It teaches them maybe a little bit earlier on that almost everything has a price, unfortunately," says Brewer, who lives in Holden, Massachusetts. "You have to be willing to make a sacrifice to realize something that you value highly, in this case a college education."

Whether by choice or necessity, the vast majority of parents agree that their children should help contribute to college -- about 85 percent, according to a study conducted last year by Fidelity Investments.

Experts say that there are plenty of good reasons to ask children to help save for college -- learning life skills and financial responsibility are two examples -- but there are a few pitfalls to look out for as well.

-- Pro: The child can learn financial responsibility. For the Brewers, their own experiences contribute to the feeling that their daughters should help save for college. Paul Brewer, one of six children, paid his own way through school. Kelly Brewer had help from her parents, but still took out some loans and worked two jobs most summers in college, she says.

And while they don't want to overburden their girls with student loan debt, they view paying for college as a collaborative effort.

"We've had conversations all along that Mom and Dad are not footing the whole bill. They are expected to contribute," Kelly Brewer says.

[Discover four ways to kick off the college savings talk.]

When children are asked to use their own savings for college, it can help them appreciate the value of their education. It can also be a motivating factor for understanding the consequences of taking out student loans, experts say.

"Generally speaking, I think when kids have a job, they have more respect for what $1,000 means," says Jennifer Harper, a certified financial planner at Bridge Financial Planning LLC in Chattanooga, Tennessee and founder of Common Cents Financial Literacy, an education program for kids ages 16 to 22. "Taking an extra $1,000 or $2,000 or $10,000 from a loan isn't a number, but a real thing."

Working also helps teach valuable life skills, such as time management, says Tim Higgins, author of "Pay for College Without Sacrificing Your Retirement: A Guide to Your Financial Future." Students have to figure out the "right balance" between studying and work, he says.

-- Con: Working takes focus off of school. Working too much, however, can have dire consequences for graduation prospects. Students who work full-time jobs in college are half as likely to graduate and likely to spend more on tuition, according to Edvisors, a higher education resource site.

"There are students who absolutely need every opportunity to focus on their studies to do well in school," Harper says. "If you added work on top of that, they wouldn't succeed at either."

About 12 hours of work per week is not detrimental. After that, graduation rates decrease proportionately with every additional hour of student employment during the academic year, according to Edvisors.

"Now the costs of that extra year are exceeding whatever you can earn," Higgins says. "You need to have balance, no doubt about it."

-- Con: Student savings can work against financial aid eligibility. A student's assets can affect student financial aid eligibility on the Free Application for Federal Student Aid, called the FAFSA, more than parent assets, but it depends on the savings vehicle.

A regular savings account in a student's name, for example, reduces aid eligibility by 20 percent of the asset's value. Parent assets reduce aid eligibility on a much smaller scale.

[Understand four college funding sources and how they affect financial aid.]

However, if a student is saving money in a 529 college savings account, which has tax advantages, it counts as a "parent asset" on the FAFSA. That's true whether or not it's in the parent's or student's name. Higgins says that students can even start putting money in a retirement account, like a Roth IRA, which is not counted on the FAFSA.

Some families won't qualify for need-based financial aid, such as Pell Grants or subsidized student loans, at all, says Higgins, the author. In that case, students are only eligible for merit aid, and their savings won't count against those awards.

"What that also means is students need to be aware of how financial aid works, and, if they're qualifying for it, educate themselves on the impact of not only income but savings and how to best handle that," he says.

-- Pro: Student funds may relieve parent burden. Asking a student to help contribute by using his or her own savings takes pressure off parents who are simultaneously trying to save for retirement.

"It used to be parents with college-aged children were in their mid-to-late 40s," says Harper, from Common Cents Financial Literacy. "Now parents of college-aged children are in mid-to-late 50s. They're that much closer to retirement, but they're that much farther away from retirement goals from a money standpoint."

She adds: "There are a lot of ways to pay for college, but there's only one way to pay for retirement. Nobody's going to give you a loan for retirement."

Trying to save for college? Get tips and more in the U.S. News College Savings 101.

Deborah Ziff is a Chicago area-based freelance education reporter for U.S. News, covering college savings and 529 plans. You can follow her on Twitter.