What if…my parents hadn’t paid for college?

I am a huge fan of what ifs and spreadsheets. Sometimes I like to wonder where I would be if my parents hadn’t paid for college and if they hadn’t given me any other money either.

When I graduated from college, my net worth was $32,000. Let’s say that my degree cost my parents about $60,000, so assuming that I chose the same college regardless of who was paying and that I had made the same financial and location decisions throughout my degree other than contributing to retirement accounts, my net worth when graduating would have been about $28,000.

I always liked keeping a small amount of a buffer, so I’m going to assume that my net worth would have looked like this at the time of graduation:

  • Cash savings: $1,000
  • Student loans: $29,000

I’m also going to assume that I still spent all of the money that I received in the form of a relocation bonus. I probably spent it on less expensive furniture, a security deposit on my apartment and first month’s rent since I didn’t get paid until the end of the month, so my net worth between the time I graduated and the end of the month before I started working (Month 2) looked exactly the same (ignoring loan interest).

Let’s assume that the interest rate on the student loans is 5%, calculated daily and added to the balance monthly, and the interest rate on the cash savings and Roth IRA is 1%.

In Month 3, I saw a net income of $5,300 and a cash bonus of $10,100. Accounting for $3,000 in spending, I would throw $12,400 at the student loans, dropping the student loan balance down to $16,959.01.

With my paycheck in Month 4, I started contributing to my employer’s 401(k), enough to get the match. I would have made that decision even with the student loans, to get the match at least. That dropped my net pay down to $5,000 and meant I was throwing $2,000 each month at the loans.

In Month 5, I adjusted my W-4 withholdings and my net pay dropped to $4,900, leaving me with $1,900 to throw at the loans each month.

In Month 7, I saw a small bonus of $1,800. I would throw all of that at the student loans.

By the end of Month 11, my student loans were fully paid off and I had a positive net worth of $4,538.69. I would have redirected the money that I was throwing at the student loans each month to my savings account to build up a good buffer.

In the real world, I spent $20,000 on a brand-new car in cash in Month 11 because I was spending about the same amount per month on using a car sharing program as I would have with the car costs amortized over 7 years. Since in the student loan world, I only had cash savings of about $1,000 at the end of Month 10 and still had some student loans left, I probably would have kept on spending the money on the car sharing program and waited longer to buy a car.

In the real world, I maxed out my 401(k) in Year 2. In the student loan situation, I probably would have found the money to max out my Roth IRA with my $7,000 bonus in Month 13 since it wouldn’t be very many years before my income would be too high to do so. I probably wouldn’t have maxed out my 401(k) until after I had bought the car.

In Month 16, I saw a good raise, giving me an extra $500 to save each month.

Almost one year later than in the real world, in Month 22, I would have bought the car $20,000, leaving my cash assets at $17,600, $5,000 in my Roth IRA, and $8,700 in my 401(k) for a total net worth of $31,288.43.

At the end of Month 22, just under two years after I graduated from college, my net worth would have looked like this:

  • Cash: $17,588.43
  • Roth IRA: $5,046.77
  • 401(k): $8,700.00
  • Student loans: none
  • Net worth: $31,335.20

That net worth is pretty close to what I graduated from college with in actuality ($32,000), so I’m going to conclude that my parents paying for college put me just under two years ahead financially than where I would have been had I paid for college myself. But then I did some more forecasting and found that the gap eventually narrowed, though it did take 9.5 years for the two to reach even (according to my wildly different calculations for the two situations).

But had I paid for college, I still would have come out with a small enough amount of loans that I could have paid them off within 10 months of graduating and my forecasting with the below spreadsheet put the post-graduation time to a six figure net worth at 36 months, rather than the 24 months that it actually took. That’s not a terrible difference. Graduating with a job offer in line for a job paying me six figures, as well as having paying internships in college and going to college in a city with a pretty low-cost of living certainly helped.

If I had not taken any paid internships, I would have had to take out quite a bit more in loans because I probably would have had much lower paying full-time jobs on the non-school terms. If I had taken out a lot of loans, I could have taken out enough loans that I would have paid off in 15-18 months. Even if my parents hadn’t paid for college, I still would have gone. I might have made some different decisions throughout college, but I still think I could have paid my loans off within a year of graduating and I would have. I don’t think that having to take out student loans would have changed the part of my personality that doesn’t like debt.

Here’s a snapshot of the spreadsheet I used to generate the above numbers: (click on the image to enlarge it)

There are obviously a lot of assumptions in here and the person described with student loans isn’t in that bad of a position after graduation, since she had a high-paying job lined up. I’m not going to do the math for a lower paying job since that’s not the example I was trying to illustrate. That said, I am incredibly grateful that my parents were able to afford to pay for my college education. My parents paying for college has granted me a lot of flexibility in how I save and spend my money and definitely supercharged my net worth. I mean, I have an almost $160k net worth in under three years after graduating from college and my income is only going up.

My parents didn’t have a lot of money when I was a kid, but we did okay. My dad worked hard and grew his career and by the time I went to college, they were able to afford it. I don’t think I ever thought about how much it would cost, nor did they have much of an idea really until I got into it and we saw what it cost as I went.

Readers, if your parents paid for your college education, would you have gone had you had to take out student loans?


33 thoughts on “What if…my parents hadn’t paid for college?

  1. Gee, my net-worth leaving college was somewhere between 2-3K. DH’s was -10K (at 8.5% unsubsidized… which is why I stopped being able to digest meat my first year of graduate school).

    My college ended up costing a lot less than my parents thought it would because I went to a well-endowed and generous school. My entire senior year was free. Because my parents were low-income I got quite a bit of financial aid and qualified for low interest loans (that they took out and paid off as soon as they came due). So I don’t think my debt package would have been too onerous, unlike my sister’s. (She went to a less well-endowed/less generous school.) We would have had to put off paying my loans most likely and would have paid them off as we could rather than saving for a down-payment in graduate school. (And probably would have ended up renting for a year and then buying a smaller house once we got grown-up jobs.)

    • My parents made me work part-time in high school and then full-time in the summers once I was old enough, even though they were paying for school. So I started college with my net worth around 5K. I hardly spent any money, maybe $1,000 max per academic term including food. I was more cheap than many of my friends who were taking out student loans. I made good money during internships and saved a HUGE chunk of it. My “budget” was $500/month after rent. I sucked at spending money and balance.

      8.5% unsubsidized? That is insane.

      • I made money over a couple of the summers, but more like 3K, and had to pay for summer housing out of it. But it was good experience for my future career.

        I agree 8.5% unsubsidized is insane. It was even insane back then when interest rates were higher. I don’t know what his parents were thinking! I don’t know what DH was thinking not paying that kind of thing down with his summer salaries.

        • I made more like 3-6K per month on internships, except my first one when it was like 1.5K per month.

          My college town also had insanely cheap housing. I managed to do one internship there and pay $270/month for a room in a non-complete dump! I paid $300-350 per month including utilities my last year and no more than $500/month with utilities ever.

          I am so thankful that my parents didn’t make me think about student loans when I was 16. That would have been scary and confusing.

  2. My parents didn’t pay for college (at all, not even a little bit) and I still went. It’s expensive but worth it. I wasn’t lucky enough to get any sort of financial aide, either. It’s been tough but whatever. I do envy those people who got a free ride, though.

    • I don’t like the term “free ride”. It makes me think of the people who partied their way through school, failed many courses and had to re-take them.

      I took six courses per semester, took summer courses and courses while doing internships, studied from 8-8 six days a week, ran a club for three years, completed two majors, received an honours degree with distinction, and graduated with an awesome job contract signed with a company I still love working for. I worked still worked hard – just not with jobs during school terms.

  3. A fair question is, would you have wanted to work more during college if you’d been taking out loans? I presume you had some semesters before the internship completely focused on your studies. You wouldn’t have known that you’d get an awesome paid internship and a great job… would you have turned down the sure money of working from the get go? Even if you’d done that first part the same, would you have been more stressed/distracted during the internship if you’d had the loans to fret about?
    Also, it’s a bit weird to assume that you would have gotten unsubsidized student loans (no interest accumulating during school) given your parent’s financial position.

    • To be honest, knowing me, I probably would have worked part-time and only taken five courses per semester (versus the six that I did). I might have also spread my last year of high school out over two years and then I could have graduated at a normal age with more money in the bank. I might have also been a RA to save on housing costs, though my rent in my last couple of years was only $350/month.

      I have no idea about subsidized/unsubsidized. I just threw a random number out there for the interest rate and went with that on my math. I don’t know much about how student loans work.

    • I *am* a math nerd! I totally stayed up late doing the math for this post when I did it. Math almost makes me as giddy as boys do, haha.

      I saw a variety. Some of my friends whose parents paid were so crazy disciplined that it didn’t matter. Some, debt would have been better for them. Some of friends’ parents only paid for part of their education, e.g. tuition and then they were responsible for living expenses.

  4. Wow nice analysis here! My parents paid for my tuition too (and VA paid for the other half, so I was lucky to get some assistance there). My school was a State school so it wasn’t too expensive.

    I would have still taken out loans no matter what, since college and education are important to me and they always have been. What I liked is that my parents made me work during college (even though I should have focused on my studies more) and from this I was able to learn about spending and earning. I still spent all of my money though, and if I had taken out loans I honestly sometimes think that I would have saved more money because I would have those loans as an obligation to pay back after graduating. Since I had no debt, I was always spending my hard earned money.

    I basically graduated with a negative net worth and after 2 years of working, I have build up my NW to $41k. I’ll be going back to negative since I’ll be taking loans out for law school.

  5. My parents offered to pay for my tuition and living expenses if I decided to go out of state. However, the scholarships available to Kentucky students staying in-state were too good to pass up (Full-tuition + room/board + living stipend). I’m glad I made that choice instead of going to a higher tiered school. I graduated with a net worth of about 20K since I got to pocket the gift trust money that they set up to help pay for college. I learned to be a lot more financially independent and had my college years to learn how to manage my own money. If my parents gave me a blank check and their credit card, I would still be debt-free but probably a lot less financially savy.

    • Those do sound like pretty awesome scholarships! I too pocketed some money that my parents had set up to pay for college and that has been an amazing boost to my down payment savings account :)

      I definitely feel like college was a good transition to adult life. I was managing _some_ money, but not really responsible for all of it. My parents paid the tuition directly, so I never saw it, but I was definitely aware of how much it cost. I took an extra course each semester, which meant I was able to graduate a semester early and then save my parents a full semester’s tuition, books, and rent and for me, to start working earlier.

  6. OK, I find you hilarious! The spreadsheets!

    I think this is a really good exercise though for high school seniors entering college – looking at the expected debt load vs. (realistic!!) expected starting salary for their desired career. I’ve heard a rule of thumb that your loans shouldn’t total more than 1 year’s salary right out of college. This will help them both with their choice of school as well as choice of major/industry.

    I had about 17k$ in loans leaving college and no cash (thanks to my parents paying the vast majority of the bill). My first job paid 24k$/yr (because it was an “educational fellowship”) so I guess that was OK. If I had gotten a real job in my field (physics… or at least engineering!) the debt load would have looked fairly insignificant.

    If my parents hadn’t paid for college, I would definitely have gone to college but not private school. The flagship university in my home state costs 24k$/yr now, so maybe it was about 20k$ when I was in school. If I were taking 80k$ out in loans I would have been way more motivated to work during the summers, but I might have majored in engineering instead of physics, which I see as more reliably marketable. And given that not all those loans would have been federally subsidized, I probably would have worked to pay down some or all the loans before starting my PhD – although given that I would have attended a different university, it’s quite possible that I would not have had aspirations to get my PhD. Also I wouldn’t have met my husband. Basically, my life would be completely different so I’m glad my parents supported me!

    • Haha, thanks Emily! You’re not even seeing all of the spreadsheets :)

      I played around with some loan amounts and with my starting salary level (low six figures right off the bat), really even up to $40,000 of loans could have been paid off within about 12 months of graduating. $100,000 of loans would have been a bit stretching it in my books though. Even $30,000 seems scary.

      Sounds like you made some smart moves around choosing schools – I’m definitely a bit in envy of your school. A liberal arts science college?! That sounds amazing.

      That’s the problem I found with this what if too – I could have made so many different decisions along the line that it’s hard to do it cut and dry and do some math. But it was still an interesting hypothetical exercise.

      • Yeah, my college’s tagline is “the liberal arts college of engineering, science, and mathematics” or along those lines. When people ask me why I went all the way across the country for college I tell them the school is just that awesome. I made a way better choice at 17 than I was aware of a the time. Ugh, I really shouldn’t get started though… I’m proud of the school usually but right now I’m hyped up from our reunion last weekend. I think a lot of people identify strongly with their undergraduate institutions and are proud of them – a lot more so than their graduate institutions. The only way we strongly identify with our graduate school is through basketball, and probably only because our college was D3 so there were no competing loyalties.

        • I would hire a grad from my undergrad school over a graduate of pretty much any other school in the world, so I’m not exactly one to talk either :) I made a pretty awesome choice at 16 too! And there are zero sports involved in that. I don’t even know what D3 is, haha.

  7. I had to pay for everything on my own and it was hard since I was working 50 hours a week and had to take care of my own house and dogs. If it would’ve been paid, then there are plenty of things I would’ve done differently. I would’ve had a better 4.0 but instead I had a 3.85. I would’ve done internships and everything else. Oh well, I still love where I am in life. It is interesting to see how it would be differently.

    • Wow, I could not imagine working 50 hours a week while going to school. My program was pretty demanding and I don’t think I could have done that. Your GPA (at least in my field) doesn’t really matter after your first job though.

  8. My parents and I both paid for college. I worked a lot and took out some loans and they also paid for what wasn’t covered by my loans and financial aid. Grad school, however, was all on me. I am not sure I would have gone if it had required me to take out huge loans. Luckily, I had a great job out of college, saved a ton, and was able to foot 90% of the bill myself. The remaining 10% I took out in loans, which have since been paid off.

    I like your analysis. If nothing else, it shows how lucky you are and motivates me to keep contributing to my kids’ 529 plans!

    • My mom tells me that I should thank my dad for them paying for school more often! I think that he’s still on the fence for continuing to pay when I graduated with $32k banked… I think he saw it as that they should pay only so long as I couldn’t afford it.

      Your kids will be super lucky to have those 529s when it’s time for them to go to college!

      • Instead of paying off my sister’s loans after graduation like they did mine, my father gave my sister a (large) lump sum for the balance and suggested she invest the money since her subsidized interest rates were so low. My loans were pretty small so there probably wasn’t as much to leverage there. She also had more money from her summer internships since hers were industry and mine were academic. Ah, to be an engineer…

  9. If my parents hadn’t paid for college, I simply wouldn’t have gone. So that’s probably why they paid. Even now, I think I would have been better off with the $$ rather than have it invested in my joke degree.

    • I don’t think that my sibling would have gone either – I don’t think he/she is even sure what he/she’s going to do with the degree.

      Do you think that they would have given you the $$ instead though?

  10. My parents could have paid for my education without any significant strain. But from an early age, they told me they wouldn’t. As a result, I organized my lifestyle wisely and made effective choices. I worked really hard to get 90s in high school. I went to a uni where I was offered $0 tuition (because of the grades) and where I could live with family. I worked hard in university to keep said grades. If my parents had paid the whole show I wouldn’t have achieved as much. I might be a little more or less rich. But I definitely wouldn’t be as wealthy.

    • I got 90s in high school, but the university I went to didn’t really offer much in the way of scholarships. I think I got a $2,500 scholarship first term, which only covered half of tuition for that _term_… If I’d lived with family and gone to university, I would have had to commute an hour and a half to two hours each way every day.

      Sounds like your parents’ way worked out okay for you :) Congrats on actually keeping those grades all through university! That is commendable.

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