We all know that the cost of college is on the rise. Many students can’t attend without the help of student loans — even if they do have some savings and manage to earn scholarships.
The growing concern over student loan debt seems to be seeping into the psyche of parents who have had their own run-ins with student debt. A recent survey from T. Rowe Price indicates that many parents are willing to risk their retirement finances in order to help their children avoid the need for student loans.
If you’re thinking of taking a similar approach to helping your college student, here are some important things to consider.
Are Student Loans Crippling Retirement?
According to the survey mentioned above, 53% of parents would rather dip into their retirement savings to help their kids pay for college versus them having to take out student loans. I find it interesting that this same survey also indicates that 44% of parents say that their ability to save for retirement has already been impacted by their own student loans.
My parents didn’t hesitate to encourage my siblings and I to apply for student loans to make up our tuition costs. They paid our living expenses while we were at school, but told us we were responsible for tuition.
We could get scholarships or borrow money. (I ended up doing both, to my chagrin.) However, as I consider my own student debt, and look at the realities likely to face my son, I worry about him starting out life in debt because of student loans.
How Do Parents Help Pay for College?
I have experience with student loans that my parents didn’t have. They are Baby Boomers, and it was possible to work all summer to earn money to pay for a year of schooling, so student loans weren’t a necessary part of education.
Members of later generations, particularly those (like me) in Generation X, know the pain of student loans, and of struggling to make payments in a crummy job market. Today’s Millennials are learning an even sharper lesson.
While I’m not going to raid my retirement account to cover my son’s college costs, I want to do what I can to help my son. The survey provides some sobering information about what parents do to prepare to help their children:
- 45% use regular savings accounts
- 28% don’t know what a 529 account is
- 20% don’t know what a Roth IRA is
What Options Are Available?
Saving effectively for your child’s college education requires little more than a regular savings account. If you start early enough, you can benefit from setting a little aside each month in a tax-advantaged retirement account.
The fact that more than a quarter of those surveyed don’t know what a 529 account should give us pause. It means that more people need education about the savings tools available to them.
The same is true of learning about the advantages to using a Roth IRA as a college savings vehicle.
There are plenty of options available to help pay for your child’s college education — if you know where to look. As you consider your children’s futures, consider these accounts for college savings.
Start early, and save often, and you will be able to provide for your retirement while at the same time reducing your child’s dependence on student loans.
Are you thinking of helping your child pay for their education? What are some other options to avoid putting your retirement at risk?