In my last post, I discussed the sticker price of a college education and some of the ways to fund it. If you recall, the total expected cost for my daughter’s college education is $57,629.
Like me, you might be feeling some sticker shock! If you don’t have sticker shock, then at a minimum you can experience schadenfreude.
My goal in this post is to look at how I can create incentives to lower the expense of college without incentivizing bad behavior.
Story time. This past fall was an unusual time to be going to college. One difference was that following Thanksgiving, my daughter’s university moved all classes and final exams to online-only. Knowing this coming, we bought her airline tickets to come home right before Thanksgiving and her return flight in January, right before the next semester started. It’s been great to have her home for seven weeks.
Because she’s not at school, she’s not using her dorm room and meal plan. The university announced that students that were leaving early could get a prorated refund of their dining plan. But it took applying for the refund. Wanting to incentivize my daughter to apply for the refund, I offered to give her 30% of whatever refund I got back. We both felt like it was a win-win situation. It wasn’t a lot of money, $300 in total, but what college kid wouldn’t jump at $90 of free money. Mixing incentives, I paid out the $90 by making a contribution to her Roth IRA, something I’ve suspended for her while I’m paying her tuition and other college expenses.
Likewise, she could get a refund on her housing contract, and I offered the same incentive. But it would have required her to completely move out of her dorm room, a hassle she didn’t find worth it, even for a couple hundred bucks. It doesn’t bother me too much. If it wasn’t for the pandemic, I would have been out the money anyways. Besides, we got seven more weeks of her
Seeing how well incentives can work, let’s see if I can use them to bring down the total cost of her college education.
First, Do No Harm
Any proper incentive shouldn’t backfire, creating a situation where things are worse. Maybe I would accidentally incentivize my daughter to do things like finish as quickly as she can, loading up on an unreasonable credit load, bombing or burning out. Or maybe incentivize her to eat unhealthily because money is an issue. Either way, my incentives should be shaped to improve the experience and create a win-win situation.
The Five Year Plan
The first incentive to consider is capping how much I pay for tuition for only seven semesters. Putting a cap on the number of semesters encourages figuring out quickly what interests the student.
Why not eight semesters? One reason is that our homeschooling efforts really focus on preparing our children for college through the use of independent study and Advanced Placement courses. My daughter started her freshman semester with enough credit for her to almost be a sophomore. She can easily complete her degree in seven semesters with her preparation. I fully expect our other children to have the same advantage.
Additionally, in her final year, assuming she’s on her own after that, she could be set up to take advantage of the AOTC, reducing her tuition cost to next to nothing and something that she couldn’t do if I was paying the bill. It will encourage a strong launch.
Reducing my portion to only seven semesters drops the total expected bill by $3,261.80.
My expected portion expects four years in sequence. If she pulls that off faster, say by attending spring/summer semester following her freshman year, tuition would be paid at this year’s rate but she’d get credit for the following year. And pulling off graduation in six semesters would mean I would actually give her the difference, but probably only at 50%, since I don’t want to encourage reckless behavior like loading up on too many classes.
The next area to look for incentives is housing. My wife and I feel strongly about giving our daughter a strong start by paying 100% for the first year of her school. We are strongly discouraging working during that first year, preferring her instead to focus on her studies and getting in a rhythm with school.
In subsequent years, it’s almost assured that she will not live in the dorms on campus. We want to help her make the transition, but at the same time we want to encourage her to be frugal without sacrificing her health. We also suspect that she’ll be comfortable picking up work on campus, if she choses, otherwise dipping into her savings. Currently we’ve decided to drop our contribution in her first year to 75% of the dorm experience, then 50% in her second year and 25% in her final year. That seems like a reasonable glide path towards more and more independence.
I will likely divide the payment over the expected period so as to not drop a windfall amount of cash on my daughter, possibly encouraging problematic behavior. Probably not likely, but again, I’m creating a pattern for how things will be for the other children.
The housing tweak drops another $12,546.66 from my expected expense, leaving a total contribution from me of $41,821.30.
What if my daughter deviates from plan? There’s so many ways, but I’ll probably still need to make adjustments along the way.
Gap Years: If my daughter decides to take a gap year during her education, I’m fine suspending her tuition and resuming it later when she returns to her studies. But if she never returns to her studies, it’s forfeited.
Marriage: I got married young during my undergraduate, as were all of my siblings. There’s a moderate chance that one or more of them may follow my example. This could mean some big financial impacts on my children. My value for my children to be educated means I will continue to support them educationally.
Scholarships: It’s hard, if not impossible to qualify for scholarships as a homeschooler entering freshman year. But full or partial scholarships can be applied for after entering school. If my daughter scores an academic scholarship, she will still get the credit for any tuition paid this way, which translates to me paying her the difference.
Here’s an updated graph showing my new, adjusted annual college expense for my six kids:
The new total expected contribution is $299,901. Compared to $413,264, that looks a whole lot better.
I’d love to hear your thoughts about my incentive ideas. Any additional ideas you have? I’d love to hear about them in the comments.