Jason Flurry, CFP
What are you willing to do to send your kids to college?
Updated: Mar 20, 2018
Parents are taking big risks to make college possible for their kids, but will it be enough?
I was a financial planner long before I became a college planner. And, like most other financial advisors, I thought the best advice anyone could get as they planned for college was to utilize the various tax advantaged programs people traditionally used to pay for college, like custodial accounts, 529 plans, etc. While that still may be appropriate for some people today, I began to notice that in most cases parents still had to dip into other accounts to make college work, sometimes jeopardizing their own retirement and lifestyle, not to mention the future college choices of their other children.
I started realizing there were more affordable ways to send kids to the colleges of their dreams without going broke and now 10+ years later, I have seen hundreds of success stories proving that those with a plan can have their cake and eat it too!
Although there is a growing awareness of the need to plan ahead for college, especially with your finances, I saw this article recently by Paul Katzeff in Investor’s Business Daily that says parents are still willing to take desperate measures to provide a college education for their children.
As you’ll see, the amount of savings most people have isn’t sufficient to cover the high costs of college. Even the 1 in 4 that has saved $100,000 or more may still find themselves chipping in a lot more money or taking out loans to help their students graduate. Factor in more than one child, consider the fact that most students take 5+ years to graduate, and look at what the cost of attendance is at colleges around the country, and it isn’t hard to see why parents feel like they have no other choice than to risk it and hope for the best.
Here’s what the article has to say.
Parents Sacrifice Retirement For Kids' College Costs
BY PAUL KATZEFF, INVESTOR'S BUSINESS DAILY
Stop the presses! Parents love their children! And a new study by mutual fund giant T. Rowe Price shows that Mom and Dad love their kids so much that many are willing to dip into their own retirement savings to help Junior pay for college.
Just in time for College Savings Month — September — T. Rowe Price says that in its survey, 57% said that paying for their kids' education is a higher priority than saving for their own retirement.
That was up from the 52% who felt that way in 2014, when T. Rowe Price asked the question in an earlier survey.
In the new survey, 30% said that they are even using their own 401(k) accounts to build up money for their offspring's post-secondary schooling.
Fifteen percent said that they sre using a traditional IRA, and 13% said that they use a Roth IRA. Mutual funds provide the bulk of assets in IRAs.
Parents who were surveyed range from effective and successful investors to investors who have made only modest headway in building a retirement nest egg.
Twenty-seven percent have a nest egg balance of $100,000 or more. Twenty-nine percent had a balance of $50,000 to $99,000. The rest, 34%, had amassed less than $50,000.
Fifty percent of respondents were age 35 to 50. The other 50% were age 21 to 34.
How much are parents willing to save for their kids? Until it hurts.
Fifty-two percent of parents said that they are willing to take on $25,000 or more in debt to pay for their kids' college education.
Twenty-three percent said that they are willing to go more than $75,000 into the red for Junior.
And 9% said that they would borrow whatever it takes to help pay for those college costs.
In fact, 62% of parents said that investing in their kids' college education is actually an investment in their own retirement. It is a form of retirement planning.
How? An education enables children to get a job and avoid having to live with their parents.
Forty-nine percent of parents said that they would be willing to delay retirement to help pay for their kids' education.
In addition, 63% of parents feel guilty that they can't afford to pay more for their children's education.
How do I avoid getting sucked into this trap?
As a parent with kids in college myself, I totally understand the mindset echoed by the people surveyed in this poll. After all, we’ve all seen the studies show the earnings difference of those who attend college vs. those who don’t. Who doesn’t want their kids to be successful and prosperous? We sort of feel obligated to make college possible, right?
You owe it to yourself and to your children to develop a plan that not only meets their needs for college, but also helps ensure you can meet your own financial goals without unnecessary risk. Getting the kids into the best colleges possible for the least amount of money possible is harder than it looks, but it is something a well-designed college plan can accomplish while also showing you how to pay for your share of the bill without changing your lifestyle or going broke.
If you don’t have a plan on how you’re going to pay for college, the colleges have one for you. And, I can promise their version isn’t nearly as friendly to your wallet as the one you can design on your own!