Why We Don’t Have College Funds for our Kids

posted by Andrea | 03/14/2017
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college funds

Almost immediately after Nora was born, I was asked if Dave and I were planning to set up a college fund for her and for any future children.

Now, after 2 more children, we still get asked this question quite regularly.

The short answer:

No, probably not.

The longer answer:

Our kids are still really young and it will be many years before they will be going to college. We have LOTS of financial goals to reach before then, and we feel those goals are more important than setting up a college fund for our kids.

Obviously, we will continue to evaluate this decision year after year, and we might very-well decide to start college funds for our children, but at this point, we just don’t feel like it’s a great use of our money.

Oh, and I should mention that although we aren’t planning to set up a formal college fund, we DO plan to help our children with at least a portion of their college tuition if/when that time comes.

The “WHYS” to our answer:

I realize many of you probably think we’re crazy for not setting up college funds for our kids — but we’ve actually given the topic a decent amount of thought and we have some pretty specific reasons WHY we don’t currently have college funds for our kids.

1. We want to pay off our mortgage.

One of our goals has always been to pay off our mortgage before our oldest child starts Kindergarten… and the amount of interest we have saved by aggressively paying off our mortgage so quickly is in the tens of thousands of dollars.

This is most likely more than the interest we’d make by keeping our money tied up in a college fund for our kids — plus we have the peace of mind knowing we have no debt and no one can take our home away from us.

2. We want to invest our money to make more money.

As our disposable income increases, we would like to get a little bit more aggressive with our investing and work with our financial person at Edward Jones to help us make money from our money.

At this point, neither Dave or I are very “investment savvy” but we trust our financial investor and he hasn’t steered us wrong over the past 8+ years… and this is currently more important to us and our financial future than saving up a bunch of money to hand our 18 year olds a free college education.

3. We want to send our kids to a Christian school.

Nora is “just” in preschool right now, but starting next year, we’ll be paying full Christian school tuition — and that amount will only continue to increase as our children get older, as we have more children in school, and as tuition prices increase.

For the next 20+ years, we’ll be paying Christian school tuition (no, Dave doesn’t get a discount because he’s a Christian school teacher) and that is more important to us than paying for our kid’s college education.

4. We want to have plenty saved up for retirement.

At this point, Dave and I have been fully-funding our Roth IRA’s each year since we’ve been married. We plan to continue doing this every year until we retire as we feel this is a very important use of our money.

We don’t want to be working when we’re 75 — and since the life expectancy is getting longer and longer, we want to try to be as prepared as possible for our retirement days.

We also don’t want to be a financial burden for our adult children because we failed to save enough to live comfortably in retirement. I have a feeling they would appreciate that more than money for their college tuition 🙂

5. We want our kids to EARN their education.

Dave and I went to a fairly expensive private college, and we both lived on campus. It would have literally been impossible for us to pay for our education by just working and getting scholarships… so we were both thankful that our parents agreed to help us out with SOME financial assistance.

However, we both worked multiple jobs and applied for TONS of scholarships, grants, and special funds to help offset the cost of our tuition. We also both took out student loans each year.

As I mentioned above, we DO anticipate helping our children to fund PART of their college education; however, even if we have the means to fully pay for their entire college education, we probably won’t do it.

I saw too many college students who slacked off because they didn’t have anything invested in their education. They got a “free ride” from mom and dad (who sometimes took out a 2nd mortgage to pay for the tuition). Meanwhile, Dave and I worked our butts off to keep our grades up and keep our scholarships. I know this isn’t always the case, but I did see it happen often.

6. We’re not against student loans.

I know loans aren’t ideal, but the fact that Dave and I had student loans (and then paid them off really quickly) actually did a lot of good for our credit score and our own personal savviness!

Although we were both initially stressed out about how we would pay off our student loans, the whole process taught us a lot of financial responsibility — something we would not have necessarily learned if our parents had simply paid for our college tuition.

We don’t think it’s bad if our kids also have to take out student loans.

7. Our kids might not go to college. 

Obviously, we won’t deter our children from pursuing higher education, but the reality is that a college education is getting ridiculously expensive… AND there is currently a shortage of “blue collar” jobs like mechanics, plumbers, electricians, etc. because everyone thinks they MUST send their children to college.

So if we set up a college fund for our kids and they don’t end up going to college, there’s a chance that money would be stuck in the college fund until another sibling went to college, and then the child wouldn’t get the money anyway (we currently have friends with older children who are dealing with this situation right now and it has caused A LOT of tension among their children).

I know there are different types of funds and ways to save up for college expenses… but the potential hassle of having the money “locked away” until our kids actually go to college (assuming they actually choose to go to college) just doesn’t appeal to us right now.

8. We just don’t want our money tied up.

Dave and I are the type of people who would MUCH rather save money than spend it — and because of this, we don’t feel it’s necessary for us to have our money tied up for so many years just to make sure there is something left when our kids get to college.

By not having college funds, we can use and invest that money for the next 10-20 years, all while keeping college tuition costs in the back of our minds… and then deal with them when the time comes.

I fully realize this method would NOT work for everyone (especially if you aren’t naturally a saver) but that’s how Dave and I view the situation at this point.

These are just a few of the major reasons why we’ve chosen NOT to set up college funds for our kids at this point in our lives.  But like I mentioned above, we will continue to evaluate this decision as time goes on.

College funds are a great way to set aside money for your kids — and I definitely don’t think it’s bad if you DO have college funds set up for your kids.

However, if you are someone who is currently stressing about how you will manage to scrimp and save in order to set up a college fund for your children (or maybe you’re someone contemplating taking out a 2nd mortgage on your house to pay for their college) I hope that after reading this post, you realize that there are other options.

You should not have the sole burden of funding your child’s college education… so don’t feel guilty if you have other ways you’d like to use your money instead.

What are your thoughts on college funds?

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85 comments

  1. Jennifer

    03/17/2017

    I have only one child and we do save for his college fund. BUT I agree with many of your points, number 4 especially. I feel like one of the bests gifts you can give to your child is NOT having to worry about his/her parents in their old age, and you can borrow for college, but you can’t borrow for retirement.

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  2. Karla

    03/16/2017

    Love this post! I actually could have written it as we have the same perspective. Paying off our mortgage, getting ourselves set up for retirement and sending our kids to a private Christian school are all more important in my books. Just a question. I am from Canada. A basic bachelor degree costs around $5K per year here. (Tuition only.) How do the costs compare? From your post it sounds like it is a lot more!! I lived at home and easily paid all of my tuition with my part time job.

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    Mrs. A Reply:

    Hi Karla. In CA community colleges are out $1500/yr but UC, State and Private colleges can get very pricey (16k-70k/yr). Gasp…

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  3. Mrs. A

    03/16/2017

    Great post! We sent our two oldest children to a private Christian high school which in the end was $80k WHICH we have no regrets because their experience was wonderful. In saying that, we couldn’t invest in their college fund and couldn’t send them off to a college of their choice. So my oldest found a private college in Edmond that we could partially fund and she took out about $20k in student loans. Had she attended a the private college her at home (CA) she would have ended up with $80k in student loans. We don’t regret not having a college fund set up because we invested our money in paying our mortgage off. She got her education AND we have no mortgage. WIN WIN!!! Also, I have a friend that did open a college fund for both her children when they were babes and now with their oldest getting ready for college that fund will only pay for one year of tuition. That doesn’t seem like too good of an investment.

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    Mrs. A Reply:

    We also have funded our 401Ks and an HSA that we’re not touching and using it as retirement. I will add we’ve only been married 14 years and are in our 50’s so we felt that route was the better choice for us since we weren’t in our 20s.

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    Mrs. A Reply:

    AND we are debt free! So, I guess what works for your family is what’s best. Thanks for this great post Andrea.

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  4. S

    03/15/2017

    I don’t understand #2 because it sounds like you are saying saving for college is different from investing. 529 plans offer lots of different investment funds (aggressive and more conservative). So your money will still make money, and there are no state or federal taxes when you withdraw it. So that’s even more money. I agree any state tax deduction is one-time and relatively minor, but never paying tax on the earnings is a bigger deal. So it seems like it’s more that you don’t want investments that are for a single purpose than that you can’t make money with college funds.

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    Andrea Reply:

    Basically I meant that we want to invest our money for US (not our kids). And yes, I also don’t want our money tied down for the single purpose of college education… especially considering the fact that some of our kids might not decide to go to college and then how do we access that money?

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  5. Jenni

    03/14/2017

    I really loved this post. We have a little saved in a college account for our oldest (who is 9) but not much for the other 3. We are in full debt-repayment mode right now – my husband went to law school after teaching at a Christian private school for 10 years, and with 4 kids there is not much left for anything else! To me, it is staggering that a college education now costs more than a modest-sized home in the Midwest. If it were up to us, we would encourage our kids to consider a trade as they are going to be demand in the years to come, and make a decent living. I would also encourage my kids to delay college if possible and work for a few years to either put money in their retirement straight away or save for a home before going to school. My husband had former high school students who didn’t go to college but instead went in to a trade and were making twice as much as he was in the matter of a few years. Imagine what you could do with that money if you saved it up first and took care of the most important things, all the while deciding whether or not you really need to go to college, and if you do, having your ducks in a row before you do so.

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    Andrea Reply:

    you know what Jenni — I honestly never even considered delaying college and working for a couple of years first. That’s actually a really great idea (especially if they lived at home to save up more while they were working).

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  6. Mary

    03/14/2017

    Love your insights! My parents did pay for most of my college education, but I went to a very reasonably priced but good school. I considered out of state schools, but we had so many great choices in state and my dad said I could go wherever I wanted, I’d just have to pay the difference vs instate. That made my choice quite easy! I also worked summers and small jobs through the school year as I was responsible for paying for books and any extracurriculars. I hope to do the same for my children, but we’ll be mortgage free and have a good retirement base. I do think it’s so valuable to make our children have some “skin in the game” – for college and many other aspects in life. It will serve them well in the long run!

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  7. Mrs.M in MI

    03/14/2017

    I agree but disagree. Both my parents and my husband’s parents paid for our undergrad degrees in full. However, then my husband went to a well-regarded, private law school and ended up with more student loan debt than our mortgage. We’ve been paying it off extremely aggressively, but it’s an amount of debt that changes the way you live your life.

    I won’t go into my opinions on how awful student loans are other than to say I would never want them for my children. So many friends are struggling financially because of student loans. And unless something changes, college will cost more than a mortgage in 20 years. The private liberal arts college you and I both attended cost $20,000/year in 2005, when I graduated. This year it costs nearly $32,000/year in tuition. At that rate, I can’t imagine what it will cost in 2025!

    We don’t neglect our other savings goals, but we do agree that paying for our children’s college education is important to us so they don’t start their adult lives under a mountain of debt.

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    Andrea Reply:

    oh boo — that’s a lot of student debt!
    I think the answer (for us at least) is that our kids can go to a local state college versus a private one. I know, I know — we have generations of “Calvin blood” in both Dave and my extended families, and although I wouldn’t trade the experiences or education I received, I don’t necessarily think it will be worth the cost in 20 years (considering how expensive it already is).
    I feel bad saying that, but I don’t think it worth me stressing out for years and years trying to save up for my kids to attend a ridiculously expensive college… and I agree with you that it’s not worth hundreds of thousands of dollars of student loans for my kids either. So a state school, community college, or trade school are all very viable options if they want to graduate with no debt. If they really feel strongly about attending a pricier college or university, we’ll help them apply for scholarships, grants, financial aid, etc. but ultimately explain that the student loans WILL change the way they live for a few years.
    Good luck paying down your loans 🙁 I suppose you can hope that his income will be higher as a result of the student debt to get a more advanced degree… maybe??

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  8. Angela

    03/14/2017

    We have two daughters 20 and 18. Like you, we did not put money in RESP’s (Canadian equivalent of a College Fund) and we have NO regrets. Our oldest daughter attended her first year of university starting September 2015. Tuition and Books = $8,000 paid by $2,000 scholarships $1,500 grandparents $2,000 loans $1,000 her own money $1,500 us. Luckily she attended a university in our city and could live at home, essentially saving approximately $10,000. Imagine how relieved I was that the tuition fees weren’t paid out of a long saved for “college fund” when she decided at the end of the school year that she didn’t like her program and was planning to switch into a program where only 4 out of the 10 credits would count….BUT THEN decided she wasn’t going to continue at this university at all and in fact wanted to study in Europe. All that money paid for the first year wasted. She worked and saved hard to have the opportunity to study in Europe and left this past September (2016) All this to say… Not being 100% responsible for the cost of your child’s post secondary education takes out the element of frustration and disappointment as a parent when things don’t go according to plan. It was not a financial loss for us and therefore I believe it allowed us to think a little clearer and be a little more supportive with her decision to have this adventure. We help her a little here and there, but the burden is mostly hers, that way she is invested in her own education. When the time comes to start paying down her loans we will be mortgage and debt-free and in a position to help her with her payments. Now on to daughter #2….No RESP for her either….it will be interesting to see how her story unfolds. P.S. Love your blog. Loved this post. In our circle we are the only ones who didn’t invest in RESP’s … we are doing it our way and it’s working.

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    Andrea Reply:

    wow — what a story! And yes, I can totally understand how freeing it probably felt to know that YOU personally didn’t waste your own money and that you could help your daughter make these tough decisions without a financial investment weighing your opinion.

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  9. Kim

    03/14/2017

    Once again, I could not agree with you more…………………(on every point except #6. But, the way you will raise your children to pay off loans quickly will keep that within reason.)
    Seriously, I could have written what you wrote almost word for word. Fabulous thoughts! This is exactly what we did with our two girls. You rock!!!!

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    Andrea Reply:

    Thanks Kim 🙂
    I have a question though — if you’re not OK with student loans and you don’t pay for your kid’s college education, how do they make it? The college I went to was about $30,000 a year — there’s NO way I could have paid for that by working a couple part time jobs and getting a handful of scholarships.

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    Tina Reply:

    We just had to make adjustments-go to a local college, work, live at home etc. It was only $3,000per year vs $30,000 if I would’ve stayed on campus. My parents could not afford to pay for any of our college expenses so we all had to compromise. It worked out fine in the end and taught me a lot about contentment.

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    Andrea Reply:

    what! $3000 for the education and $30,000 to live on campus! That’s insane — and obviously an easy money-saving move on your part!

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  10. BB

    03/14/2017

    We DID pay for our daughter’s college education, but the school she attended had a company they did business with that accepted payment plans for each semester for tuition, housing and cafeteria plan. This worked out well as we were not crazy about having our daughter saddled with student loans when the field she was getting her degree for would be working with autistic children – a notoriously low paying job like social work, albeit very satisfying to the person doing it. Our son, however, was not interested in college, although he acquiesced to our request to go to the local community college, he proved to us that he really was not interested by failing his courses or skipping classes. So we put a stop to that and told him to go get a job, as he was also not interested in trade school, either. They are both good kids with jobs, although our daughter ended up only working with autistic kids for a year, then the realization that this occupation could not pay her bills in the high-cost area we live in, she got a better paying job and has since moved up from there, has gotten married, and has a 2 year old daughter and can now work from home with her job. Son worked at three jobs before settling into the one he currently has, which does not pay enough to allow him to live on his own in our high cost area, so he lives at home with us after venturing out and discovering for himself living in an apartment for a year that his pay was not enough to do that. He is a joy to have around, and we have plenty of room, so him living with us is not an issue for us. He does pay a low rent to cover utility costs of a third person in the house for water and electricity as well as his cost of being on our cell phone plan (way cheaper for him than having a separate, ridiculously expensive single-person plan). As parents, you do what you think is right for each of your kids and things can be very different if you have more than one kid for what your expectations might be as they are growing up. You just have to roll with each kid as per their desires and how to get there, or reality sets in and you and the kid have to deal with it as it presents its pros and cons. BTW, we had the same thoughts/fears as to putting money into a govt college fund (509? 529? whatever its designator was) as we realized that if one or both kids did not end up going to college, then how do you then get the money back out of it? If we’d have chosen to save, it would have been better to put the money in a savings plan that you could access at will when it was time rather than have to jump through hoops to gain access to your own money. Then at least you could do something else if they didn’t go to college – like help your kids when they bought their first home to get their portion of it for a down payment or some such. Hubby and I have a well-funded personal IRA as well as hubby’s work 401K as we figured Social Security would be gone by the time we retired and we needed to be responsible for ourselves – another point to consider in this age of employers letting people go before retirement and they don’t get that retirement money. Horrible, despicable practice!

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  11. Julie

    03/14/2017

    I have already told my 4 kids that we will not be funding their college education. We will help if/when we can and depending upon our situation at the time we may not be able to help them all the same amount. But we will take care of our retirement first. I don’t see it as my responsibility to pay for THEIR education. If they want it bad enough they will find a way to pay for it. Besides…the way I see it they can always take out a loan for their education, but we CAN’T take out a loan on retirement and we don’t plan on working until the day we die. We have invested their birthday money or any gifts of money for them as well as any money they have made from any of their jobs. At this point 3 of my 4 kids don’t even want to go to college so time will tell. I hope they will consider furthering their education some way either by technical college/trade school or 2 or 4 year school. We will help but the brunt will be on their shoulders for all of the reasons you expressed and more. So glad there all lots of options for us as not everyone is in the same place in life.

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    Andrea Reply:

    I like that you were up-front about it — and very honest that each child might not get equal help. For some reason, it really bothers me when parents worry about being so super-duper “fair” in everything. Like, we spent $25 on one birthday gift but only $24 on another — we must buy $1 more of something to make it even.
    Honestly, who cares — life it’s equal and fair!

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  12. Alicia

    03/14/2017

    This post brought up a lot of great points! Our financial situation is very different from yours for many reasons (as in we are not as financially prepared!), but we have the same line of thought when it comes to saving for our kids’ college tuition. We need and want to get to a better, more financially prepared place, and I also think its very important for our kids to EARN their college tuition, not have it handed to them. We will probably do what we can to help them when the time comes, but we will also expect them to contribute. And we still will, even if we ARE able to pay for their entire college tuition!

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  13. NWMomof2

    03/14/2017

    First time commenter here but almost daily reader. I get a lot out of your blog, but more on that another time!
    You raise many inportant points, especially about putting financial security ahead of paying for college. Even among kids who have to pay 100% of their own way (which I know isn’t your plan), the kids whose families are financially stable, and who have seen their parents model thoughtful saving will be far better off than others.

    That said, here are a few points that may be helpful to readers to consider. Many states offer tax advantaged college investment plans. They can vary in quality and benefits, but all else equal, deferring taxes on investment earnings and/or being able to use pretax dollars to invest is effectively a guaranteed return. Family finances permitting, one can certainly save in an all purpose, non-tax advantaged investment account, but the same investment would grow more in a tax advantaged account. (And for most people, a college fund should probably be invested, as opposed to sitting in a low interest bank savings account!)
    Also, state law varies, but a state plan may not be restricted to college. It may allow the funds to be used for trade school, training programs, a sibling or cousin, health care, or possibly true hardship. Check your state rules. You can usually withdraw the funds for some other reason too, but would have to pay back the taxes that were previously saved and a potential separate penalty. (Sort of like taking money out of an IRA or 401(k) early.)

    A good by-the-hour financial planner in your state should be up on your state’s pros and cons, but a commission-based advisor might or might not be. I have met commission based advisors professionally whom I really respected and would trust. But keep in mind that a commission-based advisor makes money by selling certain investments, and a state plan would not likely provide them a commission. (Make sure you understand how your advisor is paid!)

    State plans aren’t perfect. My own has annoyingly high fees for a basic index fund–the tax advantages still make it an easy call for us, but it should be better. (That is, the same index fund product is cheaper if I just call a company like Vanguard or Fidelity and invest outside the education account, but since I am deferring state income taxes on the earnings in the tax-advantaged investment account grows faster.)

    None of this is to suggest you should change course! I suspect that when your children are old enough to understand and appreciate the careful thought process you are going through, weighing pros and cons and your family’s values, that example will be worth at least a college class to them My husband and I were fortunate that family paid for most of our private colleges. But costs have gone up so much I do not know whether the same schools would be worth it for our kids. And even if I had four times the cost of college saved, I think I will want them to take responsibility for some of it themselves!

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    Andrea Reply:

    Thanks so much for this super thoughtful comment (and for your long-time readership)
    There are many good points to consider here. I’m sure it will be helpful to many readers!

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  14. Alison

    03/14/2017

    When our boys were done with preschool we started putting that modest tuition amount away in a designated Roth IRA (our Roths aren’t maximized because the bulk of our retirement savings is done through other vehicles). In our mind that is educational expenses (i.e., college costs). Having it in a Roth gives us much more flexibility. If the kids don’t need it because of scholarships, choosing not to go to college, living at home, etc., the money will be there as a bonus for our retirement. If we need to use it, educational expenses are an allowable disbursement. I would like my children to only attend college if they can get out debt free. There are many lower cost options to consider if they don’t qualify for aid at more expensive schools.

    We are only a few years away from our oldest starting (we anticipate full-time community college enrollment at 16), so we’ll see what happens.

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  15. ShellyL

    03/14/2017

    We DO have college funds set up four our three children, but there is only a small amount in each one. My oldest (11) has announced her plan to go to a very expensive private college and it has been stressing me out. I am going to use your reasons as reasons to “calm down” about the whole situation. She makes great grades and plays sports but I have still been stressing out. Thanks for some perspective this morning.

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    Andrea Reply:

    oh no — DEFINITELY DO NOT STRESS about this! She’s only 11 — she’ll probably change her mind 20 times before she’s 18. And even if she doesn’t change her mind, it’s really not YOUR problem. I know that sounds harsh, but if she chooses an expensive college, she needs to be prepared to take out loans, work, get scholarships, etc. 🙂

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  16. Avia Thompson

    03/14/2017

    We pretty much feel the same way. It’s nice to know we’re not the only ones!

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  17. Linda

    03/14/2017

    I totally agree with your post, Andrea. Like on an airplane, you must put on your own oxygen mask before helping others. With college, the parents should be mortgage free, have their retirements fully funded, and have at least an emergency fund if not other investments before they even consider paying for college for their children. As a child who has had to financially help out a parent several times over the past 20 years, I would much rather she be financially secure on her own rather than have paid for my college…not that she did.

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  18. Kellie

    03/14/2017

    I love your points! And I think you’ve given a wonderful perspective and have pushed the point that circumstances can and will be different for everyone and how nice that they are! Something that my parents have done for us that gave us incentive to do well in school: my parents made us apply for all the scholarships and grants we could and THEN take out a loan for the remainder. They would then pay back each semester the classes that we earned A’s and B’s in, but said that their contributions would discontinue after 4 years! It quickly made us desire to do well in school and make the most of each semester. Just a thought.

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