Rich kids pushed to pay bigger share for college

September 22, 2011

Bad news for the coddled college masses who are waiting for a check from mommy and daddy: You might have to get a job. Your parents may not be willing or able to keep paying all those skyrocketing school bills.

According to a new study from Sallie Mae, in the last two years, high-income families have slashed the amount they chip in for their kids’ college education from 51 percent to 43 percent of the bill. Meanwhile, students from those families have had to pony up almost double what they used to, now covering 10 percent of total costs.

In terms of percentages, according to the Sallie Mae study, parental borrowing by high-income families is down, student borrowing is up, and the use of scholarships and grants is spiking. The inevitable conclusion: Many parents are tapped out and are saying enough is enough.

Clearly, the Bank of Mom and Dad is tapped out.

Not that there’s anything wrong with that. After all, if education includes setting your kids up for a lifetime of sound financial decisions, then having them aid in college expenses — even if just a small portion — can be a wise long-term strategy.

The new normal is thanks to a confluence of factors: Parents’ withering portfolios, relentless tuition increases, and the belief that well-heeled offspring should absorb real lessons about personal finance and responsibility. With some skin in the game, they’ll be less likely to treat college as four years of tequila-swigging and class-skipping.

“The economy is forcing even wealthy people to have a more difficult time paying for college,” says Rich Morris, founder of ROI Consulting and co-author of Kids, Wealth & Consequences. “More parents are making the case that if you really want kids to appreciate their education, then have them work and pay for at least part of it on their own.”

That’s what Sarah Williamson did. The divorced mom is a successful accountant in Seattle, and could have paid all her son Michael’s college bills at Santa Clara University if she’d wanted to. But by having him come up with much of his spending money on his own — she covered the essentials like tuition and books — she was able to impart some real-life money smarts on top of all the college credits.

“I think the economic downturn is teaching families how to get everyone involved in paying for college, regardless of whether the parents can cover it all themselves,” says the 54-year-old. “People used to think that just giving kids money was the best thing to do for college, but the more they have to make personal choices, the more skilled they become at managing money.”

The tough love seems to have paid off. After Michael worked summers in high school and college — including running a car-detailing business — the 23-year-old graduated earlier this year with a degree in finance, and secured a job with Credit Suisse.

Judging from the numbers, more college students are going to have to become like Michael and help pay their own way. Private, four-year colleges now charge over $27,000 annually in tuition and fees alone, according to the College Board. And with the Great Recession wiping out trillions in household wealth in the U.S., one result is that high-income parents are now covering only $11,204 a year in college costs from their income and savings, down from $15,076 in just a year.

That’s not to say that we should return to some Dickensian moment, of squeezing as much work out of kids as possible. Over-burdening them with work hours during the school year is no recipe for a successful college experience, either.

“Because college is so expensive, you want to make sure they get all they can out of it,” says Morris. “I would encourage kids to work during the summer, put that money towards their education, and then limit the amount of hours worked when they need to concentrate on school.

Accountability has the possibility to make everyone happy. “I can’t tell you how many parents have said to me, ‘Why didn’t I ever teach my child how to manage money?’” says Williamson, who created The Real-Life Money Game to help kids grasp the fundamentals of personal finance. “Now parents are finally starting to pay attention.”

4 comments

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Might be the worst real world example you could come up with. Mom forking up all the tuition and book costs doesn’t exactly relate to the real issue. thousands of upper middle class youths who’s parents got absolutely hammered by the housing bubble are forced to come up with all the money for school. working full time and going to school full time might be the second hardest thing to do in this country besides raising kids which parents don’t take seriously any more. While these parents spent hundreds of thousands on taxes so that people could take advantage of the system, go to school for free, and in some cases even get paid for it, poor little johnny is forking up all his money and putting himself in debt just to better himself. It makes zero sense to punish kid’s because there parent decided to be productive members of society.

quit crying if your poor and do something

Posted by at0818 | Report as abusive

all i can say is….awwwww……poor babies

Posted by brin3m | Report as abusive

It is most important to keep student loans as low as possible, because exorbitant monthly payments after graduation will only limit the jobs we shall be able to choose from.

Good public schools still deliver most bang for the buck, at least for in-state students.

Read more here:
http://brainmindinst.blogspot.com/2010/0 7/value-of-education-economically.html

Posted by PeterMelzer | Report as abusive

This article completely misses the most important point: how the hell does the university system justify their outrageous price increases?

Both healthcare and college have grossly outstripped all other sectors for price increases over the last two decades. Healthcare we all know is screwed up, but at least it can make an argument that technology has played a part. What’s ‘College’s’ excuse? If you raise your prices consistently faster than inflation in the country then you’d better have a damn good reason.

Posted by PapaDisco | Report as abusive