You know college is worth it--the experts have been saying so for years. You've scrimped and saved and even invested in a 529 plan. So imagine, if you will, how scary it would feel if your son or daughter dropped "the bombshell": College just isn't for them.
Now, initially, you might be tempted to put your foot down and insist that your child go to college anyway. But the reality is, college isn't for everyone. A few key questions can reveal whether skipping a higher-education degree is the right choice, and if your child takes a pass on college, there are financially savvy ways to offer support and still get the most out of their 529.
What research shows about the worth of a degree
As the Bureau of Labor Statistics reports, 2014 research from economists Jaison R. Abel and Richard Deitz indicates that, for the majority of individuals, college remains a good investment. They calculated that, based on inflation-adjusted analysis of wages earned between 1970 and 2013, workers with a bachelor's degree earned on average 56% more over four decades than those with just a high school diploma. That can translate into well over $1 million more over a working lifetime. For those with associate's degrees, the benefit is 21%, or as much as $325,000 over a working lifetime. But that's assuming your child can get hired. As Jeffrey Selingo of The Washington Post explains, thanks largely to the maturity of the tech revolution, the unemployment rate for recent grads is around 9%, with about half of graduates in their 20s being underemployed. Only 38% of students who graduated in the past decade strongly agree their higher education was worth it.
How do I tell if college is the right fit for my child?
Young adults who are trying to make a decision about college should be asking themselves questions like the following:
- Are you mature enough to handle college responsibilities?
- What do you want to achieve?
- Will college help you reach your goal?
- What is the estimated return of getting a degree (varies by major)?
- Are you capable of passing the courses in your target degree?
As your child examines these kinds of questions for themselves, you can lend a hand by offering objective observations and analysis of their behaviors and intelligence. Talk about comments from previous teachers or counselors, review documents like tests and report cards and give your child the opportunity to chat with others who did--and did not--go to college. But how your child feels has weight, too. If nothing you bring to the table makes them hopeful or joyful about college prospects, they might be wise to say no to college, or at the very least, wait. Your child likely will make more money if they go, but a bigger paycheck isn't going to guarantee they're happy.
But what do I do with the 529?
If your child stays firm in their desire not to attend college, rest assured, your hard-saved 529 money isn't going to go to waste. Your child can use it to get vocational or trade training at schools that qualify for financial aid programs administered by the U.S. Department of Education, for example. Another option is to change the beneficiary on the plan, perhaps shifting the money to a sibling or saving for potential grandkids. You may even be able to put yourself as the new beneficiary and invest in some education of your own if you want. Since plans may offer different features you should review the options available to you.
One option many people aren't aware is available is to withdraw the money in the 529 and donate it to a charity of your choice. By donating the funds, you possibly can take a tax deduction that will negate a lot of the 10% penalty and taxable income you'd have for withdrawing the money. You might also want to consider donating to local schools or community programs.
Of course, you might have other areas that could benefit from some extra money, too. For example, you could withdraw the money, accept the penalty and the tax on the earnings, and then put the funds toward home improvement, mortgage payoff, or the purchase of a more reliable new vehicle. If you truly want to keep the money focused on your child, you also could direct it to covering their security deposit and rent as they job hunt, health or other insurance premiums or tools they might need for work, such as a laptop or hairdressing equipment. It really all depends on your philosophies, personal needs and the opportunities available at the point when you withdraw.
You may want to consult with your tax advisor regarding your personal circumstances before deciding on a strategy to withdraw or donate the funds.
Not sending your child to college can be a frightening prospect given that a four-year degree essentially has taken the place of a high school diploma, with employers using it as basic screening criteria for jobs that don't necessarily require particularly advanced skills. But for some young adults, going to college honestly doesn't help financially and, in fact, can set them on a path to long-term emotional difficulty. Communicate openly with your child to determine whether they should enroll. If the decision ultimately is for them not to go, your 529 money isn't lost. With some redirection, you easily can use it to still support your child, other family members, yourself or others in your community.
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