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?
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Parents can potentially assist their children’s study fees via redrawing funds from their home loan. Since the rate of interest is low, parents can make an agreement with their children to make regular monthly repayments. Once the children graduate and get a full-time job, they can then begin to make larger lump sum repayments into this loan to pay it off fast. This will ensure minimal interest is paid.
My wife and I will put some money aside for our kids college education, but will be more focused on our retirement. The way we see it, if you neglect our retirement, that will just put our grown up kids in a tough spot by having to help out mom and dad. Not that they have to, but most likely they will want to. Why put the added stress on them?
Instead we will save for our retirement and when our kids are adults we can help them pay off some of their student loans assuming we saved enough money.
I agree. I paid for my own college and took out loans that took me years to pay off. However, because my parents did not pay, I took school seriously and got out quickly. If someone wants an education they will find a way to pay for it without expecting handouts from family.
Thank you! Finally someone said it. Being a good parent does not mean removing every obstacle in your child’s way. It means teaching them to have the sense and the courage to move those obstacles for themselves.
Parents should not use their retirement money to fund their children’s education. There are plenty of way to pay for school – scholarships, student loans, working – but there are very few ways to get money once you retire.
I have a BA in religion, an AAS in business, and a financial planning designation. I don’t feel that any of these accomplishments has gotten me anything in the world of making a living. I’m very disillusioned with education in general. I would say 10 times out of 10 go for retirement and not education.