Paycheck Chronicles

Don't Save Your GI Bill For Your Kids

Update:  I've changed the title of this post to better reflect what I actually say in the text.

Ever since the Post 9/11 GI Bill was modified to allow service members to transfer their benefits to their spouse or children, I have been hearing people tell me that they are "saving" their GI Bill for their kids.  And my response has been:  "Don't do it."

Now, there is certainly no right answer for every single family.  I can't know your particular circumstances and I certainly don't know what choice will be right for you.  However, I hope that everyone has a clear understanding of what they are doing when they defer this hugely valuable benefit for 5, 10, even 20 years.

Just like compounding interest helps saving money grow quickly, and that same darn interest makes it hard to pay off credit card bills, the value of GI bill benefits also has a compounding aspect.  The math isn't quite as tidy, because a college degree doesn't improve income in nice round numbers, but the concept is still the same.

If a military member, veteran or their spouse were to start college this year using the Post 9/11 GI Bill and graduate in four years, they would probably immediately increase their income.  Current estimates say that a college degree is worth an approximate average of $25,000 per year in income.  (Obviously, some degrees make lots more and some make significantly less.)   That increase in income remains throughout your working life.  If you are now 26, and graduate at 30, you have an estimate 35 years of working ahead of you.  That comes out to nearly $800,000 more income if you use the GI Bill now to get a college degree.

With that $800,000 in extra income, you could put several children through college and still have money left over for other purposes.  On the other hand, if you save your Post 9/11 GI Bill benefits for your kids, you'll have a lower lifetime income and you'll only be able to put one child through school on the GI Bill.

Another important thing to consider is what sort of changes might be made in the GI Bill between now and the time that your child goes to college.  I urge everyone who is transferring their GI Bill benefits to their children to ask themselves what this program might look like in 5, or 10, or 15 years.  Historically, military education benefits swing back and forth, gaining and losing value as the country requires more and less from their military.  We are coming out of a period of high military recognition, and it is likely that military education benefits will be cut again in the future.  Other educational benefits, like Tuition Assistance and MyCAA, have already been changed or are expected to change in within the next few years.  The Post 9/11 GI Bill itself has already been subject to numerous modifications and adjustments.  It doesn't take much imagination to see how it will be target for future budget cuts.  It would be awful to pass up the chance to use the currently generous benefits now only to discover that they had lost much of their value before your children have a chance to use the benefits.

Again, there is no single right answer for everyone.  If both you and your spouse have already attained as much education as you want or need, then there is no reason not to transfer the benefits.  However, you might want to consider retaining the flexibility to use them if your plans change.  One way to do this is to transfer one month of benefits to your spouse and each child.  This transfer of one month of benefits puts the spouse and children into the GI Bill system.  Once you have retired, you can not add them to your benefits.  You can make adjustments to the amount allotted to each person at any time, so you can make changes as your family's need change.

It is admirable and noble to want to transfer your eligibility to your kids, but in most cases the family as a whole will find it more profitable if Mom and/or Dad use those benefits now to increase their family's earning potential for years to come.  Using the benefits now eliminate concern over future program alterations, and it also creates an economic foundation for a family to provide for the kid's college education themselves.

 

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