In the process of handling a divorce where minor children are involved it is not uncommon for the parties to at least broach the subject of contributions to an undergraduate degree or vocational training for a child following high school. This was once a pretty easy subject as Pennsylvania required separated parents to contribute to this form of enterprise from 1963 to 1992. But that abruptly ended when the Supreme Court of Pennsylvania found that lower courts had imposed this duty without the imprimatur of legislative approval. With the 1992 ruling in Blue v. Blue, 616 A.2d 628 college was only going to be ordered where the parties agreed.
The other driving force that had affected this area is the spiraling cost of college. This author graduated from George Washington University in 1977 at a time when a year of college was a $5,000 experience. Today, that same experience at the same university is 10x more expensive. And while recent alumni have been quick to remind me that the school has improved vastly in the thirty years since I was emitted, I feel safe in my retort that it certainly is not 10x better. Even when adjusted for the Consumer Price Index, the $5,000 of circa 1977 should today be just under $18,000 in 2010 dollars.
So, we live in an age when a commitment to send a child to college can easily be a $200,000 obligation. That will require roughly $300,000 pre-tax dollars, a fairly staggering sum for even affluent parents who are living together. It becomes all the more dicey when net worth and income have been subject to proceedings to dissolve a marriage. This means that agreements relating to support a college kind of experience need to be carefully considered and drafted if the commitment is to be something more than “We’ll do what we can.”
The easiest approach is to start the savings process early. Uniform Transfer to Minors Accounts is one device. 529 Accounts are a second. They come with different characteristics relating to accessibility but the key point is that the more you save now, the more will be available when college time comes.
But, what about limits on the contributions. There is a big difference between a college education and a child’s dream college experience. We recently litigated a case where a child with a C+ average and board scores in the 1000 range wanted her parents to underwrite a $45,000 per annum private college experience. Is that a reasonable expectation? One parent said yes and the other no. The agreement was silent except for a consultation clause related to college selection. There is a tendency on the part of parents to be lenient when they execute these agreements because they feel guilty that they have “ruined” their child’s adolescence by splitting up. Kids are certainly affected by divorce but does an expensive college somehow make up for an experience, like divorce that is ubiquitous. Does the child of divorce get a BMW as his first car if mom and dad are separated, but a Focus if they stay together. Economic decisions need to stand on their own and not be driven by guilt. They also need to have some fail safe provisions. We are seeing many folks who were earning hefty incomes and could easily have once afforded almost any college costs caught in the crossfire of a bad economy that this time has afflicted the management class almost as harshly as the working poor. Unemployment benefits of $400 a week leave little room for contributions to college.
Then there is the role of the child. What are to be his or her responsibilities? Today a child with mediocre grades and boards can still pull a quality college admission if he or she is willing to pay full freight. Does that mean the parent must commit as well? And if so, for how long? Today only 30% of liberal arts majors complete their degree in four years. Is there a minimum grade point average that must be maintained or will the standard be how low can you go? Bear in mind that without a waiver of the student’s rights under a law called the Federal Educational Rights and Privacy Act, a parent has no right to a student’s grades or to know whether the student missed class because he was at the university hospital’s detox unit.
The issue of timing payment is also a minefield. We have many agreements in our files that say each parent will pay a percentage of tuition or other costs. But, we are seeing that many parents don’t reveal their incapacity to pay until the arrival of the college invoice. In once recent instance, we had a parent decide that the best way to save for college was to roll the child’s tuition savings plan into a lovely beach house. That was four years ago when shore property was hot. Chances are that child is not going to college until the market absorbs the huge inventory of unsold property that has been accumulating since 2007.
We conclude that college is a good thing and sensible provisions for it are as well. But the price of education has escalated to a point where college or any other post secondary education needs to be carefully planned for if the investment is to be achievable and productive.