College Contributions under Newburgh: Does Paying in Proportion to Your Income Equate to an Ability to Pay?

It appears fairly standard practice for parents to obligate themselves through divorce settlement agreements to contribute toward the college expenses of their children, regardless of their future financial circumstances. This is often done with language such as, “the parties will contribute to their children’s college expenses in proportion to their incomes” or “the mother shall contribute 45% and the father shall contribute 55%.”

This verbiage ignores the fact that no one knows what the circumstances will be when the payment of these expenses comes due. It also ignores that a future obligation, for an absolutely unknown cost, is not an issue ripe for determination in each and every case upon finalization of a divorce. In fact, often parents are agree- ing to pay expenses for their elementary school-aged children when they will not know the extent of that obligation for 10 to 15 years. As attorneys, we are contractually obligating our clients to pay expenses they may not have the ability to pay in the future by memorializing such obligations in marital settlement agreements. Said another way, had our clients omitted such an obligation from their divorce settlement agreements, they may be relieved of the obligation to pay in the future if a court truly conducted the necessary analysis. Accordingly, it is this author’s opinion that such language should be omit- ted from settlement agreements where the issue of college cost allocation is not ripe for determination. Moreover, it is also this author’s opinion that obligating parents to pay in proportion to their income does not actually or accurately reflect that parent’s ability to pay in the future.

In Newburgh v. Arrigo, the seminal and most frequently cited case related to the payment of college expenses for children of divorced couples, the court details a 12-factor test “in evaluating the claim for contribution toward the cost of higher education.”1 Often forgotten, however, is that the court in Newburgh was addressing a

request for college contribution where the parties’ agreement was silent on the issue.2 This makes an important difference because this case does not actually establish a requirement for parents to contribute to the college education costs of their children, but rather, creates a permissive environment wherein one parent may seek contribution from another when the circumstances presented dictate such ability.3 Newburgh did not confer an obligation between parents to pay college expenses, despite how practitioners and courts have since applied its findings.4 Specifically, the majority decision in Newburgh indicated “generally parents are not under a duty to support children after the age of majority. Nonetheless, in appropriate circumstances, the privilege of parenthood carries with it the duty to assure a necessary education for children.”5 (emphasis added) What seems to have happened since Newburgh is contributing to a child’s college expenses has become an obligation imposed upon parents under all circumstances regardless of the parties’ financial circumstances and regardless of whether appropriate circumstances for such contributions exist.

Where a party’s income is possibly equal to that of a child’s yearly tuition cost, we as practitioners now seem to consider that an appropriate circumstance to obligate the parent to contribute. Even the Court in Newburgh seemed to recognize this was problematic in finding: “some parents cannot pay, some can pay in part, and still others can pay the entire cost of higher education for their children. In general, financially capable parents should contribute to the higher education of children who are qualified students.”6 The Newburgh court drew the distinction between financially capable parents and those who are not. This author would challenge that we, as practitioners, do not draw a sufficient enough distinction when drafting our settlement agreements. Often, we are allowing clients to contractually obligate themselves to pay for college expenses they may not have the financial capacity to pay in the future. The ability to contribute and the circumstances surrounding said contributions should rather be left to a trier of fact in the future when the actual cost of the child’s college education are known and the parties’ respective financial circumstances are no longer speculative.

Newburgh requires the assessment of 12 factors when “evaluating the claim for contribution toward the cost of higher education.”7 This article will focus on factors four, six and 10, which respectively read: “(four) the ability of the parent to pay that cost,” “(six) the financial resources of both parents” and “(10) the availability of financial aid in the form of college grants and loans.”8 However, it is worth noting each of the other delineated factors relate to the child’s request for contribution from one of their parents. These factors beg the question, when a request for college contribution is raised, must parents implead the child into the litigation to sufficiently address the child’s relationship with the paying parent and the costs they are incurring, to assess that child’s goals for the requested education, or even the aptitude of the child prior to their entrance into college? Without information from the child who is actually incurring the expenses, it is potentially impossible for the court to render a thorough decision.

When a divorce settlement agreement is silent, or otherwise contains language that abstractly allocates the payment of college expenses in proportion to the parties’ ability to contribute, a request for a parent to pay for college expenses of a child necessarily triggers an analysis under Newburgh to determine what costs should be shared, how they will be shared, and if they will be shared.

The first question for a court should be: What types of college expenses are parents requesting be allocated between them? Are those costs simply tuition, room, and board? Or, are parents also seeking the payment of books, registration and academic fees, application fees, SAT/ACT testing fees, college advisors, costs of college visits, transportation to and from college if the children live at school, computer or other necessary and usual equipment needed at college, additional school fees for programs such as semesters abroad, internships, exchange programs and possibly even graduation fees? The list could be endless. So, to what extent can a court obligate parents to contribute to these expenses? Once again, this author would challenge that the contribution toward college costs should be tailored more specifically to the family and that family’s financial capabilities.

The second question for a court would then be: What is the actual dollar amount of the identified expenses? The College Board’s” Trends in College Pricing 2018” report, discusses the increase seen in college tuition.9 For an in-state student attending a public four-year college, the average total tuition, fees, room and board charges per year in 2018-2019 were $21,370. For an out-of-state student, the tuition and fees were $37,430. When attending a private, nonprofit four-year college, students are paying an astounding average of $48,510 per year in total tuition, fees with room and board.

To summarize those figures:

The total cost, prior to the application of scholarships, grants or loans, is staggering. This is all the more reason why this author believes it impossible for parents to obligate themselves to pay these costs 10 to 15 years in the future when, in fact, the total four-year cost of tuition could be more than the total combined income of the parents paying the expenses at that time. This evidences all the more reason why an issue not ripe for determination should not be addressed in a settlement agreement, and is better left for determination when the parties have all the facts available to them.

The third and last question for a court is: How do the students and their parents expect to pay for the total cost of college? This may require consideration of whether the parents and child expected there to be a proportionate division of costs between them. Federal student aid is the first thing that comes to mind, such as federal subsidized and unsubsidized loans, followed by grants, scholarships, work-study programs, private loans, parent PLUS loans and Perkins Loans. Interestingly, “between 2012-13 and 2017-18, total annual borrowing from the subsidized and unsubsidized Direct Loan programs declined by 22% to $70.0 billion. Total annual borrowing from the Parent PLUS Loan program increased by 22% to $12.8 billion…”10 From these statistics, it appears parents are attempting to incur the debt in their names more so than in their child’s name. But this is debt accumulated. When considering a parent’s ability to pay, requiring the incurrence of debt necessarily implies that no ability to pay exists. The inquiry here remains, however, whether parents can be obligated by a court to go into debt to pay for these expenses if they do not have the financial means to pay out of pocket. This author suggests that courts cannot and should not determine parental responsibility for college expense at the time of divorce where the issue simply is not ripe for resolution. For that reason, settlement agreements should not include an automatic obligation when the issue is not ripe for determination.

A Case Study

A hypothetical scenario illustrative of these issues is as follows: A mother seeks a father’s contribution toward child’s attendance at the University of Michigan. The child’s tuition for 2018-2019 as a nonresident of Michigan is $49,350, according to the university’s website. The child would stay in a standard double room available on campus that year for $11,534, and the estimated cost of books and supplies being $1,048. There is also the application fee of $75, the SAT class taken in preparation for the test of approximately $699 and the cost of the SAT for $64. There is also the cost of transportation to and from Michigan and lodging accommodations for college visit days, for a total cost of $800. In all, the child has already accumulated $63,570 in expenses for the first year of college. Each year thereafter, tuition will be $49,350 as a sophomore and jump to $52,814 as a junior and senior. The total cost of tuition alone at the end of four years will be $204,328. In addition, the total cost of room and board will be $46,136 with an additional estimated $4,000 for books over the course of those four years.

The parents are divorced and incorporated into their divorce settlement agreement a provision specifying they would each pay in proportion to their incomes for their children’s college education costs. The child is now enrolled and mother is seeking contribution from father. Mother earns $75,000 gross per year and father’s income is $95,000 gross per year. The parties have no savings, such as a whole life insurance plan or a 529 account, to utilize for the payment of these expenses. Moreover, neither party has set aside any significant funds for retirement and neither has significant savings available in the event of emergency or decline of health. The parties also share one other child who is currently a junior in high school and looking at available college options.

The parties have regular and ordinary expenses. There is no allegation that either party is living above their means or has an inability to meet their current expenses. Neither party has remarried and besides child support being paid, all other obligations of alimony and equitable distribution have been satisfied since their divorce. Mother has net discretionary funds of approximately $500 available after paying her current expenses each month. Father has approximately $1,000 net available each month after payment of his current expenses. In one year’s time, mother has $6,000 of available income and father has $12,000. Therefore, between them, there is $18,000 of available, net dollars to contribute to their children’s annual college expenses.

As indicated, the total cost of one year’s tuition for this child is $63,570. But how will the court distribute this amount and the amounts which will be incurred every year thereafter? Maybe a portion of the total college costs are offset by the child obtaining federal student loans, but those amounts will not cover the entirety of the cost of undergraduate tuition. Even if the child obtained a $20,000 total financial aid package from the federal government and another $5,000 in scholarships, there would still be $38,570 of expenses that the mother and father would need to provide each year.

If a court just simply obligated the parents to pay in proportion to their incomes, as is required in many divorce settlement agreements, the mother would be responsible for 44% of the expenses (i.e., $16,970.80) and the father would be responsible for 56% of the expenses (i.e., $21,599.20). After paying for the tuition costs with loans first, and then with the parents’ available funds left over after their incomes have otherwise been exhausted, there continues to be a significant deficit that would necessarily and only be made up by incurring additional debt in each parent’s name.

A Question of Appropriate Circumstances

However, had these parties let the issue of college education expenses abide the event and be determined under the Newburgh factors mentioned above at the time of college enrollment, the court would have to find no obligation exists and that they could not satisfy these expenses. These are simply not the appropriate circumstances for such payments. First, there really is no ability of the parents to pay the costs of tuition. Neither of them will have any available funds in the event of an emergency after satisfying their regular and ordinary expenses if they are obligated to pay those remaining funds towards their one child’s college education. Second, the parties’ financial resources are little to none, given that the parties have no other savings on which to draw and pay for these expenses. Third, a court would need to consider the availability of financial aid in the form of college grants and loans. However, it is unclear how a court could obligate a parent to go into debt in order to pay for their child’s college expenses because it would come into direct conflict with the parent’s actual ability to pay college expenses.

So, does obligating litigants to pay in proportion to their income reflect their actual ability to pay for college expenses? This author submits that, we as attorneys, are overextending and over-obligating our clients to pay expenses they may have no financial means to cover in the future. We ought to consider the future implications of including blanket and sweeping obligatory language related to college expenses in settlement agreements.

The above facts are indicative of those typically presented in divorce litigation and post-judgment motions. These hypothetical parties were an ordinary, middle-class family, which has now been divided into two households with two sets of expenses. Had these parties remained an intact unit, possibly they could have paid for their child’s college education, in whole or in part, or maybe not at all had their financial ability dictated so. But now, they may be forced to incur debt in order to satisfy those expenses in proportion to their incomes. Therefore, these are not the appropriate circumstances under which the Newburgh court thought the obligation to contribute to college expenses exists. Had these parents omitted such an obligation from their divorce settlement agreement, wouldn’t a court relieve them of the obligation to pay once it conducted the necessary analysis as detailed above? Had such obligatory language been omitted from a client’s divorce settlement agreement, they may be relieved of the obligation to pay in the future if a court truly conducted the necessary analysis. Therefore, any language that obligates parents to pay in proportion to their income does not actually or accurately reflect that parent’s ability to pay in the future and, in many cases, does more harm than good.

Article written by Lauren A. Miceli, Esq., Associate at Shane and White, LLC and printed in New Jersey Family Lawyer, published by the New Jersey State Bar Association, Vol. 39, No. 4 — March 2020.

Endnotes

1. 88 N.J. 529, 545 (1982).
2. Other post-Newburgh cases also discussed obligating parents to pay college expenses when the settlement agreement lacked a specified provision. Gac v. Gac, 186 N.J. 535, 537 (2006); Gotlib v. Gotlib, 399 N.J. Super. 295, 300-01, 310, 944 A.2d 654 (App. Div. 2008).
3. 88 N.J. at 543.
4. Therefore, while parents are not generally required to support a child over eighteen, his or her enrollment in a full-time educational program has been held to require continued support. Khalaf v. Khalaf, 58 N.J. 63, 71-72 (1971); Patetta v. Patetta, 358 N.J. Super. 90, 94 (App. Div. 2003).
5. 88 N.J. at 543.
6. Id. at 544.
7. Id. at 545.
8. Id.
9. trends.collegeboard.org/sites/default/files/2017-trends-in-college-pricing_0.pdf
10. trends.collegeboard.org/sites/default/files/2018-trends-in-student-aid.pdf