Education · Parenting

Examining College Expenses with Incentives

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.

Silver Lining

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.

Frugal Living

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.

Life Happens

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.

Hasta luego!


11 thoughts on “Examining College Expenses with Incentives

  1. This was the blog post I’ve been waiting for! Excellent job and analysis!

    I can’t say that I disagree with anything you are proposing, though I had to laugh a little bit at the prospect of the default (unlimited) meal plan on campus being the “healthy” choice. My one-gallon-a-day chocolate milk addiction or the 3x/day drinking unlimited soft serve directly from the machine in the cafeteria would strongly disagree with that assertion!!!!

    Back when I was an undergrad there was a cheaper meal plan that allowed for one meal a day in the cafeteria. A buddy of mine did this with me over spring term my freshman year. We gorged ourselves 1x/day to save money. That certainly brings back some great memories!!!

    Thanks for the TFB link! I wasn’t aware of that arbitrage before and am now adopting this to my “baseline” strategy.

    By the way, do your kids know about your blog? If so, do they read it? My kids know about my blog and a few even read it some times (at least my oldest at 13). I’m not sure how much they understand, but I find it to be funny.

    One arbitrage to be aware of. If your kids get married during undergrad (which is the norm in our culture, though I wonder if that trend is changing?), be sure they do so before June 30 of a given year. Why? If they get married on June 30, they can apply for the pell grant for the prior academic year and qualify as “independents” and get the free money. If they get married on July 1, the opportunity is forever lost. I botched that during my undergrad, costing us $10k or so of free money. I taught the above to my brother who learned from my mistake. I still have a picture of him and his wife in their wedding suit/dress in my parent’s office filling out the FAFSA to get their free money on the FAFSA due date.

    1. Also, what happens when one of your kids decides they want to go to Harvard? Are you still going to foot 100% of the tuition bill? Or are you only willing to foot 100% of a reasonably-priced-school’s tuition bill?

    2. Thanks for sharing your memory. I actually never stayed in the dorm, instead starting by rooming with my brother. So I never lived the “healthy” on campus option.

      My kids do know about my blog. I think my 13 year-old one day hit refresh a bunch of times just to mess with my site stats. Whether he read anything or understood anything, I have yet to find out.

      Thanks for the tip on the marriage. I too got married during my undergrad. I’m sure some of my kids will follow my example so they very well might hit the Pell Grant window like you’ve outlined.

  2. This is well thought out. I am way too black and white on this subject matter.

    I like the tiered approach. My wife and I have differing views on this and how much support to provide. This strategy could come in at a nice compromise. I come from the “less is more” camp while she prefers more support. Keep in mind, I still don’t know what it is actually like to have a kid, so I am sure my views will continue to develop.

    My wife ran cross country at the University of Arkansas and also worked in the cafeteria. She eludes to some regrets working while being a D1 athlete because her performance may have been impacted (hard time making ever making starting line up). I can’t disagree with her, and as a parent could certainly view athletic activity as a replacement for work experience (similar lessons).

    I thinking working it very important, but only because that was my experience. I worked all through school mostly driving trucks for DHL and always thought I learned a lot about the “real world” through that process. But I do not want to let my experience blind me. As I get older I am coming around to some flexibility, particularly in line with your thoughts about “year 1” being work free.

    Like the thoughts on the gap year, and the concept in general. Always thought being a dorm resident advisor would be a good idea as well. Nice work on the AP credits, another complicated subject. My wife teaches AP stats right now (remotely), absolutely loves teaching the course.


    1. Thanks for the comment, Max.

      I’ll admit that my wife leans more to the “parents pay 100% for it” than I do. This is already a compromise of sorts. Like your wife, I can see the value of having less working hours during the college years. I worked 100% of the time I was in school, but usually no more than 20 hours of work. Luckily, much of the work I did was foundational for my career, but there were a few jobs mixed in that go in the “things I did to make it by in college, but hope to never do again” bucket.

  3. Don’t ignore summer work opportunities that might fund a significant portion of college. I grew up near Hershey PA and delivered room service at the Hershey Lodge which turned out to be a great summer job (peak park season) during college.

    If I was smarter back when I wouldn’t of wasted most of my tips/paychecks stupid stuff and would of taken additional classes at community college (pretty sure online classes were a thing back then) but it is what it was…

    1. Thanks for the comment! My daughter plans on resuming work this summer as a life guard at the local pool. She’ll be taking a couple classes online at the same time. #SuperResponsible

  4. I caught wind of your blog through a FrugalProfessor post. Our approach to funding just one kid who will be gong to college has evolved as our wealth has grown in excess of expectations. We started with a target of funding most (roughly 3 years) of our kid’s college education at the flagship state university. The idea of 3 years was similar to this post whereas if our kid loaded up on AP classes, they could get out debt free by working summers and graduating in 3 1/2 years. We also felt if our kids excelled and got a scholarship and/or finished even earlier, he could get around 50% of the savings (its evolved to closer to 100% now, for use on approved items like a good reliable car, grad school or maybe a residence down-payment). As our wealth grew, it is becoming much more likely that our kid will either struggle monetarily during his early years just to eventually inherit a bunch of money (we want to do this so he can easily pay for care for his special needs sister using our funds) or have us fully fund all his college expenses so he can exclusively focus on study and the college experience. I am now encouraging my kid to go big with colleges, even if it means having to pay full freight at a top university. His current $170k+ college fund can be supplemented with additional $$$ if he gets into one of these “top” universities in a parent approved major (no basket weaving). Although I’ve never been able to come close to justifying the financial ROI on gong to one of these “top” private schools, especially for an undergraduate degree, the intangible value is something to be enjoyed, if you can afford it. We’ve been blessed that the market has been good so far. If conditions change, we will re-evaluate and State U may become the only reasonable option once again.

    1. Thanks for the comment, Phillip!

      I agree that it makes little sense for one’s child to rack up student debt and struggle financially only to inherit a bunch of money later. Sounds like your planning and diligence is paying off in your flexibility with whatever route your son takes. With six kids, we’ll probably have to stick with the cheaper route, with chances good that most of them will attend the same university that my wife and I both graduated from.

      Thanks again for stopping by. Glad you enjoyed my post.

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