Many grandparents dream of being able to write a check for their grandchildren’s college tuition. However, is this financially possible, and if so is it desirable? Let’s examine what all grandparents need to consider before paying for their grandchildren’s college tuition.
The first thing to consider is your own financial security. The average retired grandparent would put his or her own financial situation in jeopardy by even paying for one grandchild to go to college. About 45% of seniors are in danger of being able to maintain their standard of living during retirement. Before you decide to fit the bill for your grandchild, first make sure you carefully examine your financial situation and make sure you are secure for the rest of your life.
Another thing to take into consideration is that the cost of college is already high and is constantly climbing. The gift of a college education right now can be at least $10,000 a year or twice that much for a private school. If you have a newborn grandchild the cost of a 4 year college education by the time he or she is ready to enter college could be about $100,000 for a public school and twice that for a private school. Make sure you are taking into account that the prices for college now might be a lot higher by the time your grandchild enrolls.
Many grandparents, no matter how much they love their grandkids, cannot pay for their college educations without compromising their own fiscal security. However, if you are a grandparent that can afford to cover the cost of your grandchild’s college education, you might be giving the best gift you could ever bestow on your grandchild.
College education still pays off in terms of high earnings, usually doubling the earning power of a high school diploma. College education is also a productive long term investment. A student graduating from college debt free will have a lot more options than a graduate that will need to spend the next years of his or her life with the burden of paying off student loans. Investing in your grandchild’s education can help them not only get a good paying job, but also give them the financial freedom to start saving for a down payment for a house, focus on retirement savings, and live a less stressed life.
If you can afford to pay for your grandchild’s education it is best to start saving now. There are many college savings plans out there, such as the 529 Plan. This plan is available in every state, but might look different from state to state. There are many advantages to a plan like this such as the money used for college expenses could be tax free, contributions can be tax-deductible and may qualify for a state income tax break, funds can be switched to a different beneficiary, and this money is typically not figured into a college’s financial aid computations.
For the small portion of grandparents who can afford to pay for the college education of their grandchildren without jeopardizing their financial security, it can be both a loving and smart thing to do. For the rest who cannot afford to pay for college, staying involved in your grandchildren’s college education can still be done. Sending care packages during exams and lots of love and encouragement through rough semesters can go a long way for grandchildren navigating through the college world.