When Jim McGehee went straight from college to graduate school in 1991, his parents said they would loan -- but not give him -- the money. His folks feared he was hiding from the real world.
So he borrowed $45,000 for grad school at Stetson University in Florida. Now a certified financial planner in Charlotte, McGehee was able to pay back his parents in four years.
Most parents McGehee counsels at his firm, Alpha Financial Advisors, plan to cover their children's undergraduate college education. But grad school? For a variety of reasons, he says, that's where many parents draw the line.
Should parents finance grad school for adult offspring? Or should young people learn to fend for themselves? Should parents instead hold their money for retirement?
These are questions hitting home for my family. Our only child is going to grad school this fall. For the next four or five years, he plans to work on advanced degrees in microbial ecology at Virginia Tech, his alma mater.
Jeff, 25, has worked for two years as a lab tech at a biotechnology firm in southwest Virginia. He earns a modest salary. But he found his passion in the microscopic "bugs" he grows for his company's antibacterial products. He's hoping for a career in microbiology research and college teaching.
We thought he'd go to grad school after he saved more money. But on his salary, saving came at a snail's pace. In November, he told us he was taking the GRE (Graduate Record Exam). Four months later, he was admitted to Virginia Tech.
He got a graduate assistantship that will pay his yearly tuition and fees (about $10,000) and give him $20,000 a year for helping professors with research and teaching. As long as he makes progress toward his doctorate, Tech will likely continue that support each year.
Can he make it on $20,000 a year?
Supporting adult children
Across the country, grad school enrollment has grown to 2.5 million, rising about 2 percent a year over the past decade. Female, minority and international students are driving enrollment gains, says Stuart Heiser, a spokesman for the Washington-based Council of Graduate Schools.
No one tracks how many parents help students with grad school, Heiser notes. That's because grad students are considered independent for financial aid purposes. About 74 percent nationally get financial aid. Those who pay their way don't disclose the source of their money.
In contrast with previous generations, more parents are supporting children well into adulthood, researchers say.
Johnna Watson, an associate dean, says UNC Charlotte's graduate school provided $36 million in financial aid last year to grad students. About 43 percent of those 4,790 students got grants, loans, assistantships and other financial aid.
Because graduate education usually helps boost income, she says most families want to help "any way they can."
Family finances
But that doesn't always make financial sense for families.
Alpha's McGehee says he doesn't advise parents to take on grad school costs, especially if those clients are struggling to save enough for retirement. He says some parents, like his own, worry that children are using grad school to put off becoming financially independent.
McGehee says his parents tapped a home equity line for his grad school loan. He paid back interest of between 6 and 8 percent. It was a fair arrangement for all, he says.
Larry Carroll, president of Carroll Financial in Charlotte, says he sees more willingness from parents to pay if their children have a concrete career goal.
"If you're paying for a 28-year-old to get a master's in romance languages, you might want to ask, `What are you going to do with that?' " Carroll says.
His son Kris, 32, also a certified financial planner with the firm, got two master's degrees, one in science and financial mathematics, and another in business administration.
The younger Carroll says his dad paid for the first master's degree, which was "very nice of him." But Kris says Larry Carroll made it clear he wouldn't finance a second advanced degree.
Kris says he got grants from UNC Chapel Hill to pay his MBA tuition. He also borrowed about $15,000 from the federal Stafford loan program for living expenses. He advises parents and children to explore the many sources of financial aid for grad students.
The Carrolls see other trends. Younger parents are more often putting away money in 529 savings plans to cover six to eight years of higher education instead of four. And parents who went to grad school are more apt to save for it for their children as a matter of course.
John Gugle, also a certified financial planner with Alpha, says he sees parents hedging their bets. They're putting aside enough for private tuition at a Duke or a Vanderbilt. But they're thinking they might be able to stretch it for grad school if their sons or daughters go to N.C. State or another public university.
Relieved, as retirement nears
Jeff thinks he can make it on Virginia Tech's $20,000 a year. Our son lives fairly frugally, has no debt and drives a 9-year-old Toyota. He's already lined up an inexpensive apartment. He hasn't asked us for money.
My husband is relieved. He points out that we'll be retiring, hopefully in a few years, and really need to step up our saving. Providing for ourselves means we won't burden Jeff in the future.
But if I know my husband, Jeff and his cat and turtle will never go hungry.
Paying for grad school
U.S. grad school enrollment stands at about 2.5 million. Average yearly tuition and other costs total about $27,000, according to the Council of Graduate Schools. But that can go much higher with a private institution.
Money tips
• Parents who decide to help with grad school should consider loaning the money rather than giving it, say planners. Setting up a formalized process, such as an agreement both parents and children can sign, is a reasonable step that encourages adult children to move toward independence.
• A way to give financial help but still encourage independence is to offer your child a no-interest loan with a generous time period to pay it back.
• Parents can save early by using state 529 savings plans, which cover both undergraduate and grad school tuition and certain other costs. Those savings plans have an added advantage: they are controlled by parents, rather than children.
• Never tap retirement savings to pay for children's college expenses. You'll pay penalties and shortchange your retirement.
• Some employers, particularly banks and other financial institutions, will underwrite part or all of grad school costs. Typically, say planners, the employee takes classes at night or is required to return to work after a grad school leave for a specified period of time to get reimbursement.
• Compare what schools can provide. Most colleges offer a variety of grants, loans, assistantships, fellowships and other sources of money for qualified grad students. Since grad students are considered independent for financial aid purposes, parents' income is generally not a factor.
• Borrowing for grad school, such as federal low-cost Stafford loans, isn't complicated and can help tide the student over. But borrowing $100,000 or more makes sense only if your salary will be large enough to pay it off in a reasonable amount of time, say 10 years. Sources: Certified financial planners and www.gradschooltips.com
