Paying for College: 3 Things Divorcing Parents Should Do
Your child has met the college application deadline and the acceptances are rolling in… but for divorcing parents there’s another worry: How are college expenses to be paid and by whom?
States do not impose an obligation on parents to pay for their children’s college expenses and these costs are not normally included in child support orders. However, courts will enforce agreements that obligate one or both parents to pay for college and can include such agreements into a divorce decree.
Here are three tips for addressing your child’s college expenses upon divorce.
1. Talk about what makes good financial sense for your family.
Talking about finances is challenging at best for most couples going through a divorce – so don’t be afraid to get help with this important conversation. Together, in mediation, my clients effectively discuss and consider questions like these:
- Can we afford to financially obligate ourselves to our children’s college expenses? Generally, financial experts discourage parents from incurring substantial debt to pay for college, particularly in the absence of funding their own retirements. The reality is that your children may benefit most from taking out student loans. In the long run, they will appreciate your ability to maintain your own financial security.
- What other resources can be drawn upon? Often parents will agree that they will fund college expenses that exceed other resources first: 529 plans, scholarships, and loans will be drawn upon first. It may make sense to establish expectations for students to take on jobs and pay some portion of their tuition or living expenses.
- What college expenses will we be obligated to cover? Tuition? Room and board? Books and supplies? Transportation? Student allowance? Be clear about what’s covered and what’s not. Once you are clear then you can help your student have appropriate expectations.
- Will there be a cap on expenses? Will tuition be covered regardless of whether it is $10,000/year at a state school or $45,000/year at a private college? Frequently, parents will agree to contribute “up to the cost of in-state tuition.” Knowing what to expect provides a reality check to apply to appropriate schools.
2. Specifically address college expenses in your Marital Separation Agreement.
Once parents have discussed the considerations above, here are some of the common ways my mediation clients agree to handle college expenses:
- Split 50/50%. This is a typical outcome when parents share similar educational values and have sufficient levels of income and assets.
- Split proportionally to income. This arrangement can take significant disparity in income into account, so long as both parents are financially able to contribute.
- Use a dedicated college savings account. Instead of agreeing to pay a proportion of college expenses, parents may choose to contribute specified dollar amounts or proportions of income into a savings plan. Funds may be paid into custodial accounts, qualified college funds like 529 plans, or into an escrow account. The accumulated savings comprise the parents’ contribution toward college expenses.
- Use a dedicated asset. Rather than divide all assets upon divorce, parents may agree to dedicate a joint asset to fund college. For example, parents may agree to transfer a stock portfolio into a trust to fund the children’s college education.
- Agree not to obligate. In some cases, parents may reasonably commit to contributing to education “to the best of ability.” Remember that there is no obligation to pay for college and folks who are financially insecure should not obligate themselves to do so. At the same time, by proclaiming your desire to contribute to a college education, you are purposefully leaving the door open to future discussion. Sometimes it makes sense to include a provision to negotiate specific parameters at a specified future date.
3. Start planning early and get good professional help.
Conventional wisdom dictates that we plan as early as possible for our children’s college education whether we are married, single, or divorcing parents. These are professionals who can be indispensable in the process.
- A financial planner to advise you on the best savings tools currently available, on the pros and cons of saving money in your children’s names, and on the tax consequences of various savings vehicles.
- A college placement advisor to help you find your student’s best-matched schools, including those with merit money to award, and advise on FAFSA applications, student loans, and scholarship sources.
- A professional divorce mediator to guide you through the decision-making process of your divorce, custody, and financial agreements. By avoiding the costly adversarial process, you will be in the best position to preserve more savings toward college.