CHARLOTTE OBSERVER

by Amy Baldwin

Should you pay for your child's college education?

It's a question many parents don't ask. They're more likely to wonder if they have a choice.

But there are two questions really. The first is financial. Can you afford it? The second is philosophical. Is it your parental responsibility to pay for Harvard, Duke, UNC Chapel Hill or Central Piedmont Community College?

In the height of the financial aid application season, these questions are worth studying.

Finance 101

Talk about a financial dilemma. College costs are running well ahead of inflation just as baby boomer parents are also staring down retirement.

"The reality is, not everyone has enough income to plan for retirement and pay for (even) some of the college costs," said Cynthia Block-Taylor, a financial planner with AXA Advisors, LLC in Ballantyne.

In inflation-adjusted dollars, college tuition and fees have risen 40 percent in the past five years, according to the College Board, which provides admissions, financial aid and enrollment services for colleges, students and parents nationwide.

The average total cost, including tuition, fees and room and board, for 2005-2006 at a four-year private institution is $29,026.

At public schools, this year's total tab averages $12,127.

As parents, you should not pay - for any or all - the college costs if you have to dip into your retirement nest egg or get a big loan that will mean you have to work forever, Block-Taylor said.

Newsweek personal finance columnist and author Jane Bryant Quinn agreed.

"It is really important to fund your retirement and then think of saving for college for your children second," Quinn said.

You're better off having your child take student loans, Quinn said. Often student loan interest rates are lower than those on loans parents take. Students also don't have to start repaying the debt until after they finish school (six months after graduating or leaving school for a Federal or Direct Stafford Loan and nine months for Federal Perkins Loans), whereas parents have to start paying back almost immediately. Plus, there's a saying: Some students can get scholarships for school, but no parents can get scholarships for retirement.

"(Parents) absolutely should not take a 401(k) loan. If their home is far from paid for, they cannot afford a home equity loan, because the only way you can make it through retirement is to have a paid-off home," Quinn said.

Quinn advised parents to be upfront with their children about what they can afford. That way the kids know what is expected of them - i.e. getting scholarships.

Parent Phyllis Sidebottom has had that discussion with her daughter Mandy Wheeler, a senior at East Mecklenburg High School.

"She knows I cannot afford it. I have talked to her about student loans," said Sidebottom, senior administrative assistant at Alexander Graham Middle School.

She plans to help Mandy, who wants to study radiology, to the extent she can, but she's not sure how much she can afford or where the money will come from. "I wish I could answer that, but I just can't," said Sidebottom, who recently attended a financial aid seminar at East Meck with Mandy.

Philosophy 101

The philosophical questions are harder. Is it your duty as a parent to pay tuition and room and board? Or will your kid take studies more seriously if he has some money on the line? Will your child be better or less equipped to handle finances if faced with student loans after graduation.

Tara McGehee, a stay-at-home mom in Waxhaw, believes strongly that children should pay their own way. She did. Her father co-signed a $60,000 loan and she repaid it, with interest, within five years of graduation.

"I Appreciated my education so much more, knowing I was paying for it. I worked harder to get scholarships," said McGehee, who majored in finance at Stetson University in DeLand, Fla.

McGehee would like for her three young children - Delaney, 7, Darcy, 3, and Duncan, 11 months - to pay for college because it builds the independent values she - well, values.

But her husband, Jim McGehee, a certified financial planner, feels differently - that it's the parent's job. He contributes to 529 college-savings plans for each of their kids, because he also believes tax-deferred college savings plans are good financial planning tools.

Tara McGehee has arrived at an intriguing compromise. She wants to make her kids think they are payi9ng for college. If they get good grades, she and Jim would give them a "generous present" that would pay for most or all of their college debts.

When beliefs don't cover costs

Often, philosophy and reality meet in a gray area.

In the Palcic family's house in Indian Trail, daily conversation centers on how to pay for daughter Amanda's college starting this fall. They discuss what the parents would like to do and what they can afford.

Parents Bob, 60, and Kathy, 58, aren't sure how much of their savings they can tap to pay for college and still have adequate funds for retirement. They know they have to factor in longer lifespans that their own parents and that neither is working right now.

Bob was laid off from a Northeast software firm three years ago and is working only part time in tax preparation. Much of the family's net worth came from the proceeds of the Boston-area home they sold last fall when they moved to North Carolina, seeking a cheaper cost of living.

Ideally, Bob said, he and Kathy would pay for whatever financial aid and scholarships don't cover. Bob has a financial background, having also worked in banking and leasing, and feels that young adults get off to a better start in life when they don't have big student loans looming over them.

But the reality is Amanda, who plans to major in communications, might have to take some student loans, especially if she goes to her first choice institution - Quinnipiac University, a private school in Hamden, Conn., where tuition, fees and room and board this year total nearly $35,000.

Ultimately, he said, the family will decide "as a team," where Amanda goes to college and how they pay for it. They first have to see how much financial aid and scholarships she gets.

If faced with big student loans, Amanda said she might opt for her second choice, Appalachian State University, where this year's total cost for in-state students comes to about $7,000.

"I don't want to be stuck paying off a ton of loans forever," Amanda said.