Budgetboost.co is supported by its readers. If you click on or buy something via a link on this page, we may earn a commission.

So Your Kid Earned a Free Ride…

You did it!  They said it would be nearly impossible, but you did it!  You have saved enough money to put your child through college!  The acceptance letters are coming in and you breathe a sigh of relief because you’ve got it covered.  There is enough to cover tuition, room, and board.  Today you are on top of the savings world.

But then you hear the news, she got a scholarship – a big one.  Awesome!

(I always knew if we have a kid that he wants a girl…)

Now What?

This can be both a wonderful and nerve racking experience – having saved and saved for ten, fifteen, or even eighteen years, you now realize that you don’t need (or only need a part of) all of that savings.  So what do you do now?  The answer to this question has a lot to do with how you got to where you are today.


One common thing is for parents to save for their child’s college fund by skimping on their own retirement savings.  If this is the case, now is the time to catch up.  Depending on your age, many retirement vehicles allow for an additional catch-up contribution in the years before the “normal” retirement age.  Alternatively, if you participate in an employer sponsored 401K, consider significantly upping your contributions for a year or two – making up the difference with the college fund.

Depending on what you have been using to grow that college fund, you may find it more beneficial to leave it there and let it grow.  In this case it can become a retirement savings plan in and of itself.  Whatever your specific situation, look to retirement first.

Outstanding Debt

If your retirement situation is looking good, you have been a skilled saver.  Perhaps though, there is that nagging debt still hanging around.  Credit cards, cars, home, all of the above – whatever your particular poison, if there is debt in your life, now may be the time to reduce or eliminate it entirely.

Here it is simply a numbers game.  Take a look at the balance and interest rate of all outstanding debt and create a plan of action.  You may be in a position to eliminate all of your debt and still have money left over to do something else.  Perhaps you noticed you could pay off the remaining balance of that old credit card and put the rest toward retirement.  Maybe you simply need to make a big dent in those very old student loans.  Whatever your situation, take a look at the numbers and find what works best for you.

Childish Generosity

Another alternative to consider (perhaps after retirement and debts are seen to) is to give the money to your child as a gift.  No I don’t mean write a check.

Sometime soon after college, she will be looking for a home of her own.  Consider getting her off to a great financial start by turning the college fund into a down payment on her first home.  Perhaps a wedding is on the horizon.  Funding the dream wedding/honeymoon may be something that you have both wanted.  This could be the way to make it work.  Is she business minded with that entrepreneurial spirit?  Perhaps you could provide a boost to her first business.

Many of these decisions depend on the child, but it can be a wonderful boost to their quality of life to begin their adult lives with such a huge advantage.

Don’t Forget About You

Don’t forget who saved all that money!  Who sacrificed?  Who drove the kid to practice every day?  Uphill!  Both ways!

When a big windfall hits, it is tempting to either completely overlook a small reward for yourself or to go to the other extreme and get a little extravagant.  If there is something that you have been wanting and putting off, especially if you have been specifically putting it off for the purpose of saving for your kid’s college education, now may be the time.   This may be the retirement or debt I mentioned earlier, or it may be new carpet, a second honeymoon, your emergency fund, or even a new pinball machine.  Now may be the time.

The important thing is not to take this as an opportunity to blow what you have spent years saving in a shopping blitz.  Make sure that your self-splurge lives up to the time and effort that went into saving the money that you are now spending.


Every situation is different and no one formula can calculate how much to allocate to everything.  If you have experienced a sudden windfall from unused college savings or any other cause, take a good long look at your own situation and prioritize what areas of your life need the most attention.  Give special consideration to your retirement savings (it will be here before you know it) and any outstanding debts.  The most likely outcome is that you will see a need for a little here and a little there.  Take advantage of the opportunity to improve your situation – find the weakest point in your financial health and address that area.

My Vote

What would my vote be?  Assuming the number make sense, there is much to be said for starting your child off on the right foot.  My parents used my college savings as a down payment on our first house.  It allowed us to get out of renting faster than most others our age and put us in a great position to pay off the house much earlier than expected.  It also seemed to give us a sense that we wanted to live up to the gift – we wanted to make sure that we did not squander that incredible help.

Thank you so much to my inlaws for greatly helping us toward our 20% downpayment!  And thank you to my parents for supplying all of our main appliances!  We would have had to wait 2 more years for home ownership without all of that help.  We also made sure that we would never need further assistance.  We each wanted both sets of our parents to know that we were going to be more than okay.  That is one reason we have always prioritized savings and debt freedom.  We hope our parents know that they did a great job with us.  🙂

What would you do with a windfall?

21 thoughts on “So Your Kid Earned a Free Ride…”

  1. Michelle

    I got a little bit of a windfall when I was younger, and we applied it towards a downpayment on our mortgage, it was nice.

  2. Daisy

    I would probably half it – put half of it in my own retirement and give her the other half for travelling and for HER retirement. She worked hard to get into and go to college, she would deserve it!

  3. Suba

    Our parents helped a lot without our education and in general. We didn’t spend a penny on our own until 22. If we ever need money, they won’t hesitate to give us as much as they could even if they have to break most of their retirement accounts. We will always be grateful for that and will never ask them anything. I would like to fund their retirement (at least more than the basic that they already planned for) and help our kids with education too.

    We are putting our education savings in ROTH IRA instead of a 529 to avoid paying penalty in case they get a scholarship. We will see.

  4. Shondell

    I would either do the same as your parents, or assist with a start up business if that’s the direction my daughter would want to take after University.

  5. Steve Mertz

    Well, i wouldn’t buy a Rolex…If my financial situation was good I’d start a cash account for the child and get them off to a great start!

  6. Charlotte @ Veranda

    Great post Mr BFS! As your mother, I will have to say that you and Crystal have always been grateful for everything. As I always say “He’s rotten, but he doesn’t stink!” It has been a pleasure watching you grow up and we are very proud of everything you and Crystal have accomplished. We wish you continued success in this phase of your lives. And if you want to help with our retirement, feel free. 🙂 We love you both very much.

  7. Corey @ Passive Income to Retire

    I would love to have money towards a house… 🙂 I’m happy that you were able to cut out renting because it sucks! I definitely would do a combination of boosting my retirement savings and funding my child’s wedding/down payment for a house.

  8. WorkSaveLive

    For me it’s so important to have goals – short and long-term. Our goals dictate where our monthly disposable income goes and where any money from windfalls would be allocated.

    Just like with our tax return, I’ve been known to spend a certain percentage of the windfall on fun stuff (clothes, vacation, tech gadget, etc) but the rest goes to savings right now. It’s time to buy a new car! woohoo. Anybody want to give me a windfall to cover it?

    If your kid got a scholarship, you could adopt me. 🙂

  9. PFM

    You’re very lucky to have such generous (and able) parents. We’ve saved for our child’s education for 15 years, our agreement is if he gets a full scholarship we’ll buy him a new car for college.

  10. Megan E.

    DH got his undergrad basically paid for – so his parents instead have been helping him out with living expenses after he left – for MS stuff, and now with stuff for the both of us. They also put some of it into an account for him that we ended up using for part of our 20% downpayment on a house.

    I like the options you listed above – another one would be help pay for grad school (if they go) or pay for a year of travel when they graduate…or other big experiences (think African Safari, for example).

  11. Madison

    This is a great post. I funded my own college tuition with loans and working part time jobs. My husband’s parents paid his college 100% and provided him with living expenses the majority of his college years.

    We don’t have any kids, but when we do and if this situation arises, I’m not sure how we’d handle it. I’m torn with wanting to give the money to my child as a gift in the future, and applying it to retirement. So we’d probably end up doing both!

  12. You know, I’ve actually thought about this…dreamed about it even. Being able to max out my retirement contribution annually, max out a comfortable college savings for my child annually, etc. If all goes according to plan, and my child got a full ride, I would love to be able to help provide a down payment for her first home. By starting her out on such a good, solid, financial foundation, it would be my hope that she would be in a position to do the same for her child one day, thus changing our family tree for the better.

  13. Johann

    After retirement, it’s best that you settle all your debts first before doing anything with your retirement fund. I like the advice of being generous to your kids because after all, we can’t take the money to the grave right?

  14. Anna @ Good Cents Savings

    Great post and suggestions for how to handle that situation (that I so hope I’ll be lucky enough to be in one day! :)) One thought is to make sure to be really clear on the terms of the scholarship – is there a certain GPA that must be maintained? What if your kid really pushes him or herself with a super challenging course load one semester and dips below it? Is it contingent on playing sports or participating in a certain activity like art or drama (I don’t know if that’s even allowed??) Or what if the school turns out not to be the best fit and your child really wants to transfer to a different university? Anyway – my point is, that if your goal was to have the funds available for your child’s education the most conservative thing might be to leave it in the education fund until your kid has graduated and you know they really won’t need it. (Unless they’re headed to grad school??)

    Love the super sweet comment from your mom, by the way! Sounds like you both come from great families!

  15. Pam at MoneyTrail

    I think we would do a combination of helping the child get started in life and put some away for our retirement.

  16. Kris @ Everyday Tips

    Great post!

    My oldest is headed off to college this September, and unfortunately, I will not be experiencing a windfall…

    If I did though, I would probably take a vacation for sure. Then, the money would just get ‘reinvested’ in other areas. We max out our retirement already, so formalized 401K plans are out. Would buy me some more dividend stocks, but not all at once. I would probably take a lot of it too and put it toward the college funds for the other two kiddos.

  17. ODWO

    Nice start!

    It is a wonderful thing for those with parents who have helped them along their trek from having little to having a chance ot make to on their own. Something from the book Millionaire Mind comes to mind where a famous footbal coach told all the new recruits to call home … right NOW. Thank your parents or whomever helped you! Without them, you would NOT be where you are now.”

    I’ve never had windfall(s), but had plenty of mentors along the way, to help learn from. 🙂 In that respect I am lucky. Lotsa’ questions, lotsa’ answers. I’m glad it ended up the way it did. I (myself) might not have learned the lesson(s).

    Scholarships, parents, lessons learned (hard way or not), etc, etc ……. if not for those, life would be a lot different.

    Excellent post. Made me thankful to those who have helped me along the way, over the years. 🙂

  18. Cherleen @ My Personal Finance Journey

    I will divide the money into several parts — additional savings for our retirement, pay off the last few debts left, put a part on her savings, down payment for our first home, and vacation treat for her. She deserves some time off. After all, she worked hard towards a scholarship.

  19. femmefrugality

    I’ve never even thought about this. I guess I’ve always thought of the saving process as so intimidating that, even though we are saving, I’ve never thought about the fact that we may end up having more than enough. I like the retirement option, followed by a singular trip, then giving the rest to help dc with a downpayment or whatever she may need to get started out on the right foot.

Comments are closed.