Settle this- Who is right here regarding college money?

[TranquilMind]

I have a family member who is arguing that if parents have money set aside for college, said parents should simply hand the lump sum over to the teenage Freshman college student to handle for the duration of college, stating that it would be an excellent way to hone and demonstrate money management skills.

 

Another family member states that this is not sensible, that parents pay tuition and living expenses on an as-needed basis, and never simply hand over the lump sum to the teen to handle.

 

So how do you do it? If you have money set aside would you give it to the teen up front to manage through college?

 

Or do you think that is crazy, and you would dole it out on a semester or a year basis?

 

Or anything in between? Help!

[Catalytic]

I'd pay it as needed.

[Melissa in Australia]

If we had money saved up we would pay as needed.

 

 

However we don't. We live in a country that views investing in education as a priority, so university is subsidized and there are interest free government student loans. The repayment of the loans is garnished out of your wages after you earn over a specific amount of $$$.

Edited June 16, 2016 by Melissa in Australia

[Guest]

They can demonstrate money management in smaller ways, like keeping their credit card or cell phone paid off with a part time job. That sum of money? It's a check directly from my wallet to the mailbox of the financials and billing office.

[frogger]

Well, if I were to have a tranquil mind :) I would dole it out as needed and earned by keeping up grades etc. ;)

 

I'm not one to talk though as my children will have to pay for their own schooling though I'm not adverse to helping them out at times.

[Tap]

I would pay as needed and make payments directly to the college/landlord etc.  I have known several people who lied to parents about dropping or failing out of college and they kept living on the savings until it was gone. The parents found out when they were out of money and there was no college degree. VERY bad situations insued. These smart, and good kids who got a little to far into the party scene in school.  Or kids who left home with a manageable bit of anxiety, that spiraled downward into full on clinical depression.  Had the parents had the purse strings a bit tighter, the family may have been able to get the student help.  But instead, they have broken family ties.

 

 

 

[displace]

Per semester- fees and expenses. That is how student loans are arranged and probably good for a student to learn about.

 

Or monthly expenses to be kinder. Not having temptation around is smarter.

 

Or even kindly describing how that money was saved and earned by someone else and if they don't like the stipulations of FREE money for college, perhaps they could work or take out loans and pay them off for a decade. 😉

[Joules]

Oooh, if I had that much saved...(trip to dreamworld)...

 

I guess it would depend on the kid.  I think I'd start with a semester at a time.  Maybe put all of the money he would need (tuition, fees, discretionary) for a semester in his account.  If he reliably didn't run out by the end of the semester a couple of times, the rest could be transferred junior year.  

 

There are more factors at play than just kids-gone-wild though.  Fraud is an issue and how much energy does a college student have to be diligent about watching an account with that much money.  Right now, mine prefers for me to handle the details and the big stuff.  He'll have a credit card and small checking account for discretionary expenses to learn the basics.

 

 

[Sherry in OH]

Parents pay college directly, usually on a semester basis.  Discretionary spending money is deposited in child’s bank account on a semester, monthly, or other basis. 

 

 

[DawnM]

Hand it over to the child?  Let me know how that turns out! 

 

Honestly, I don't care how carefully you have gone over budgeting, handing an 18 year old 4 years' worth of funds and saying, "manage it" is not wise.  Most adults wouldn't handle that well.

[bettyandbob]

Pay as needed. Payments made directly to school accounting office.

 

Student can learn budgeting on a small scale, by working and managing social expenses, money for study abroad or covering unpaid internship costs.

[nd293]

Pay as needed and pay directly to school or landlord. If they're getting money for day to day expenses like food and clothes I would pay that to the child monthly. They can hone their money management skills with smaller amounts, much safer that way!

 

But I'll second Melissa in my grateful thanks to the Australian government for making this an issue we don't have to worry about.

[Joules]

Probably a stupid question, but would there be tax implications?

 

If ds paid for everything from his accounts, would dh and I still be able to claim those tax deductions and tax credits ourselves?  Does anyone care what account it comes out of if he is still our dependent?

 

And what about the gift tax?  If I gave him $100,000 as a freshman, wouldn't that trigger some sort of tax event, compared to just paying his tuition each term?

[TammyS]

I would never hand over a large sum of money to a young person, for any reason.  We even have our wills set up that the kids have to get money from the executor until they are 30.

 

For college, we require the kid to take out loans and we will repay AFTER they have completed the semester and received good grades.

[SparklyUnicorn]

Pay as needed.  If they didn't end up going to college, I'd give them the money.

 

 

[amy g.]

I think it is completely fine for parents to pay the school and landlord directly. We put one year worth of expenses in a joint account for our oldest. It is just easier for us that way and she is a super frugal kid. Dh told her that she can have more as needed if her expenses run high but I expect that she will have money left over. She is a transfer student, so older than 18. That probably makes a difference.

 

My 17 year old is spending the summer across the country. We just gave her a credit card. It is kind of nice that I can see when she buys fabric or has a latte from the receipts. I'm not sure I would have given her a lump sum for the summer, but I can see how doing so could be an important learning experience-a very expensive learning experience.

[Guest]

I pay as needed. For one thing, it doesn't make sense to empty out investment accounts of all the funds when they could be still growing on the portion not yet needed. Also, the automatic draft is made from my account, not my child's. So, what I do is liquidate a portion that will be needed, put it in my account and then it is drafted when necessary. I do put a few hundred dollars into DD's account so she can buy books and incidentals.

[kewb]

Absolutely not. My 18 year old may be an adult in the eyes of the law but he is not ready for that kind of money management.

He has been working since he was 15 and manages his bank account and minor expenses but I would not send him to college with a lump sum and wish him luck. To me, that is a set up for failure and I don't set my kids up to fail.

[TechWife]

We pay he university directly. Why in the world would we give a lump sum to a teenager? Not only would hat be irresponsible on our part, it defeats the purpose of a 529. The tax implications would be huge.

[happypamama]

I would not give a college kid a lump sum of their tuition/board money; I'd pay it directly.  That just seems like way too much money management to expect them to manage, with such big consequences if they managed it badly.

 

I would give the kid a semester's worth of cash for books, plus whatever other monthly or semester spending money I wanted to contribute.  If they spent the money poorly, they could always get a job to make some money, but it wouldn't be devastating like it would be if they spent next year's tuition money.

[Night Elf]

We pay directly to school. For dd, who will be living on campus, there is a program like a debit card that we will keep funded rather than her using her bank account. But no, we're not going to hand over a lump sum of money and expect her to manage it.

 

Personally I think the college funded savings is for the parents use, not the student's use. They saved it to help pay college. It has a specific purpose. If they had built up a regular savings that was for the kid only to use it however they wish, they can hand over the lump sum.

[lllll]

nm

Edited June 21, 2016 by _ ?^..

[TranquilMind]

Well, these answers are pretty consistent. Thank you all. I think it is a pretty crazy demand myself.

[AmandaVT]

Parents pay college directly, usually on a semester basis.  Discretionary spending money is deposited in child’s bank account on a semester, monthly, or other basis. 

 

This is how my parents did it. By sophomore year, I went to our state school and the dorms were overcrowded and terrible. My roommate and I got an apartment for a lot less per month than dorm fees would be. Dad deposited enough in my account every month for rent and utilities. Anything else (groceries, extras) I paid for - I worked part time.

[hornblower]

Pay as needed. It's in a special tax sheltered account & it's for both my kids (it's called a family plan). There are tax implications when withdrawals are made and lumping it out would be a bad idea financially. 

Even if it weren't, I would still not lump sum it out. It's not a trust fund or endowment or money the child comes into when they're 21 or anything. It's money for parents to pay for college.  

[poppy]

Yes, there absolutely would be tax ramifications. Since your child would be a legal adult, any gift over... $7000???... is slammed hard with taxes. If you keep the money and pay the school directly, you can claim that deduction on your taxes.

 

For us, the money is in education IRA's, which shields it from taxes as long as it is used for education expenses. We can't transfer the IRA's into their names without penalty.

 

OP, sorry, but handing the money over is a really dumb idea.

 

Tuition is excluded from the gift tax. Aside from tuition you can give up to $14,000 tax free.  And that's EACH parent, so a student with 2 parents could get up to $28,000 annually tax free.  If there are grandparents, they could also each give $14,000 annually also.

Edited June 16, 2016 by poppy

[Greta]

I was nowhere near responsible enough at that age to handle a sum of money like that.  I think it's a rare person who would be.  Pay as needed.  That will save everyone some heartache later on.

[TranquilMind]

Thanks, Poppy. Is it tuition only that is excluded from the gift tax?

[Bluegoat]

I don't think there is a correct answer to this question.  Most parents would do some version of the latter, I expect, but for practical reasons about money being tied up as much as anything.

 

OTOH, I can see turning over a lump sum to a kid who wasn't going to university, but, say, opening a business.

 

My younger sister was a student who largely handled her own funds, though I doubt my parents gave her four years at once, I expect the money was invested.  But in high school, she was given all her personal money on a yearly basis to manage on her own - so for clothes, toiltries, spending cash, dance lessons.  She used to keep an account book for that and what she earned at pt jobs, to keep track of what she needed to keep aside, adn spend on what, and so forth.

 

ETA:

 

I think they did give her a whole year's worth of cash at a time - they may or may not have paid the tuition directly.

Edited June 16, 2016 by Bluegoat

[TranquilMind]

Interesting that this is pretty much an issue of 100% agreement.

[SamanthaCarter]

That's crazy. It's your money, you saved it with a particular purpose in mind -to pay for your child's college. That is no different than buying the child a car or some other thing. You don't hand over the money and tell them to go get a car, you go out and buy one for them of your own choosing. You'd give them some input of course, but you are buying the car for them, it's ultimately your choice. 

[HRAAB]

We pay as needed out of the funds we have set aside.

 

However, my bil gave his son all the money he had set aside for his college, $50,000, and said, "here you are, be smart, it's all I have for you".  I have no idea how much college ended up costing him plus his living expenses, but he did it and was successful.  I would never do that, not even with $5,000, but depending on the kid, it appears it can work.

[chiguirre]

Responsibility aside, student's assets are assessed at a higher rate to determine financial need than a parent's so you would mess up your financial aid package if you did this.

[Janeway]

The family member who thinks the money should simply be handed over as a lump sum doesn't have kids, does she? Or he? Because that is a crazy, insane idea. That is the parents money that the parents saved to put the child through college. The parents will pay for college and if anything is left over, or the child drops out so money is leftover, then that money belongs to the parent. 

[creekland]

I pay the college bill.  It's mine.  We're paying for college except for the student portion (basic student loans and each kid contributes about 2K of their earnings each year).

 

My kids all have jobs on campus and keep their spending money.  They handle that 100% on their own.  It covers their expenses (and they learn to keep those expenses cheap!).

 

I buy books.  If they resell them later, they can keep the money they get.

 

When odd things come up (MCAT, med school apps, Greece trip), we discuss those and figure out who is paying based upon the situation at the time.

 

Hubby and I both feel we want to provide our kids with a college education (for the most part they have some skin in the game), so it's our bill just like any other bill we have (or had) for our guys from soccer to clothing.  It's not something they are paying, so why give them the money to pay it?  We didn't do that with soccer fees.  I just sent a check.  Their 2K they pay directly too.

[SparklyUnicorn]

I pay the college bill.  It's mine.  We're paying for college except for the student portion (basic student loans and each kid contributes about 2K of their earnings each year).

 

My kids all have jobs on campus and keep their spending money.  They handle that 100% on their own.  It covers their expenses (and they learn to keep those expenses cheap!).

 

I buy books.  If they resell them later, they can keep the money they get.

 

When odd things come up (MCAT, med school apps, Greece trip), we discuss those and figure out who is paying based upon the situation at the time.

 

Hubby and I both feel we want to provide our kids with a college education (for the most part they have some skin in the game), so it's our bill just like any other bill we have (or had) for our guys from soccer to clothing.  It's not something they are paying, so why give them the money to pay it?  We didn't do that with soccer fees.  I just sent a check.  Their 2K they pay directly too.

 

When one gets financial aid, the money is generally sent straight to the school.  Back in the olden days I was called in to sign the checks over to them (I assume they do that a different way now).  So, no not even banks just hand that money over to students.  Sometimes they would give me money above and beyond to cover other expenses, but definitely not the tuition money. 

[Kalypso]

I agree with all of the previous posts that say the parent pays as the expenses occur. I also think that college money set aside for a child's college education is money that belongs to the parent, not the child.

[gardenmom5]

I have a family member who is arguing that if parents have money set aside for college, said parents should simply hand the lump sum over to the teenage Freshman college student to handle for the duration of college, stating that it would be an excellent way to hone and demonstrate money management skills.

 aren't teenagers so entertaining?  lol.​ because that is *obviously* not something said by a responsible adult.

 

Another family member states that this is not sensible, that parents pay tuition and living expenses on an as-needed basis, and never simply hand over the lump sum to the teen to handle.

 

So how do you do it? If you have money set aside would you give it to the teen up front to manage through college?

 

Or do you think that is crazy, and you would dole it out on a semester or a year basis?

 

Or anything in between? Help!

 

it's the parents money - not the teen's.  they parents are still parenting the teen - and that includes making sure the bulk of their college tuition/etc payments are made.   

 

with that sort of "give me the money" attitude, I'd expect it to be blown by the student.  the student needs to get a part time job/ and work between quarters/semesters.  THAT will be a far greater lesson to them in handling money.  because they will learn how their own actions bring in the money they want to spend.

[Granny_Weatherwax]

Interesting that this is pretty much an issue of 100% agreement.

This is a rare occurrence and should be memorialized somehow.

[Monica_in_Switzerland]

Isn't it possible that both options could be right?  Some people follow (is it Ramsey?) teen money education plans that have teens getting larger and larger lump sums with which to budget for a half year or more at a time their play money, clothes money, toiletries, and any number of other things.  A teen raised this way might be very capable to accepting a lump sum, perhaps investing some of it while saving some while spending some, and learning a lot during college.  

 

A child not prepared in this way, might squander it all and cause a huge mess.  

 

 

[Reefgazer]

Hand over a huge lump sum to a teenager!?!?!  Not a chance.  We'll pay on an ongoing, as-needed basis because our paying is contingent upon satisfactory (as defined by us) success.

[vonfirmath]

Hand it over to the child?  Let me know how that turns out! 

 

Honestly, I don't care how carefully you have gone over budgeting, handing an 18 year old 4 years' worth of funds and saying, "manage it" is not wise.  Most adults wouldn't handle that well.

 

Most adults DON'T handle that well -- inheritances. Bonus checks. Lotto winnings.

 

Even going from being paid weekly/biweekly to monthly can be a huge adjustment.

 

 

Edited June 16, 2016 by vonfirmath

[Tita Gidge]

I have a family member who is arguing that if parents have money set aside for college, said parents should simply hand the lump sum over to the teenage Freshman college student to handle for the duration of college, stating that it would be an excellent way to hone and demonstrate money management skills.

 

Another family member states that this is not sensible, that parents pay tuition and living expenses on an as-needed basis, and never simply hand over the lump sum to the teen to handle.

 

So how do you do it? If you have money set aside would you give it to the teen up front to manage through college?

 

Or do you think that is crazy, and you would dole it out on a semester or a year basis?

 

Or anything in between? Help!

 

I think it depends on the kid.

 

I'd have blown right through that money as a freshman. My baby sister (math major) would have budgeted it to last, and probably made more off of it by investing some. LOL

 

I'm not opposed to the idea of handing over the money, but I think it'd be more the exception than the rule. I agree that it's a great way to hone and demonstrate money management skills, but that it's such a MAJOR THING that for someone still working on those skills there are better options for honing and demonstrating proficiency. That is, college costs are too pricey and dicey an investment to LEARN ON. The same can be done with a job and paying for living expenses. Or, if a job is not desirable (by the parents) then an allowance and paying for living expenses. :thumbup1:

 

I'd compromise with the student and set up an allowance situation wherein (s)he is responsible for living expenses and social time, but I'd cover the tuition and related expenses out of the lump sum ... which would be re-invested in part, so it could grow over the 4-5 years the student is in college. And I'd call that the kid's first lesson in investing: I can make more with it than you can at this point, and you'll thank me later.

 

(We all had scholarships and our parents used their savings to purchase us homes to live in. These rental properties housed us and brought in passive income while we were students; they continue to bring in income decades later. That's just one example of how a family's college savings can be re-invested. A parent's account may accrue more interest than a student's, too - another way that lump sum can grow more. Kids don't necessarily think of or know these things.)

[Guest]

Interesting that this is pretty much an issue of 100% agreement.

Ha! I was going to note this...when the Hive is pretty much unanimous, it is safe to assume you have your answer.

[SKL]

Nice try, kid, but the money is mine until I give it to you.  :)  I would dole it out based on the amount of responsibility the specific child has shown and what makes the most financial sense.  (For example, if there is a discount for paying more up-front for something, that would make a difference.)

 

It is hard to imagine that my kids will be ready for the whole lump sum responsibility when they enter college at 17.  It might be more realistic that they are ready to handle the last 2 years when they enter their junior year.

[Cinder]

Like most here we've paid periodically. Tuition/fees are paid directly to the school. We allow them to charge books directly to our credit card. Gas and food allowances--we give them a monthly allotment. This has worked well for us. A couple years ago ds1 and his buddy rented an apartment. We gave ds1 six months of rent/utilities and food money at once, explaining in detail how we came up with the total amount. We felt he would manage it well; he did. I'm not sure we'd feel as comfortable with this approach for our other dc, though.

 

Even with our confidence is ds1's ability to manage money we would not have felt comfortable handing it all over to him at once at 18yo. There's just too much temptation to believe that just a little bit spent here or there won't matter to the bottom line, and it's easy to end up spending more than was meant.

[SKL]

Now if they earned the money themselves, then more power to ya.  Spend it all, just don't cry when it's gone.  :)

[Dmmetler]

Isn't it possible that both options could be right? Some people follow (is it Ramsey?) teen money education plans that have teens getting larger and larger lump sums with which to budget for a half year or more at a time their play money, clothes money, toiletries, and any number of other things. A teen raised this way might be very capable to accepting a lump sum, perhaps investing some of it while saving some while spending some, and learning a lot during college.

 

A child not prepared in this way, might squander it all and cause a huge mess.

My parents did something like this, where I got a monthly sum deposited into a joint account, and then wrote checks to pay for my own music lessons, etc, a deposit at the beginning of the school year to pay those expenses, etc. In college, my scholarships didn't come until after the semester started, so they deposited money the first fall into my account, which I paid back with my fall scholarship and used to pay Spring tuition, and so on. However, this account was separate from the one that I deposited my pay checks in for work study and summer jobs, and it was made clear that the money in the joint account wasn't mine, and that if I used it carelessly there would be hell to pay.

[JFSinIL]

Handing a lump sum over may affect FAFSA expectations of how much a kid can pay instead of getting grants, scholarships or loans. Either way, FAFSA will look at that money and it will affect EFC. (affect/ effect?)

I would let kid know there is x amount of money saved up towards the EFC and NOT hand it over. The FAFSA will tell you the parent how much you have to pay before any aid kicks in. Save the money for that. If there is money left over each year after EFC is met, you can dole it out if needed. Tell kid is any money if left after college, it can go towards a down payment on a car or apartment.

Edited June 16, 2016 by JFSinIL

[Lady Florida.]

Unless it's actually in the child's name, I'd pay as needed.