Pitting savings for college vs. retirement is counterproductive to your and your student’s financial health. They are not mutually exclusive. You need to look at the big financial picture when paying for college. It’s financial planning for not just you but also for your children.
“Don’t put saving for your children’s education before saving for retirement.”
“You can borrow for college, but you can’t borrow for retirement.”
They are familiar refrains, heck, ones which I use and agree with, but in reality, they are too simplistic. When goals and finances compete against each other, and you throw in the emotion of wanting to help your children, it becomes a challenge.
The battle for your savings leaves out a critical component – the student!
Too often, we leave the student out of the process beyond “you’re going to have some loans after you graduate.” The student graduates, and bam, six months later, the loan repayments start. Happy graduation!
If they have difficulty finding a job or find one with a lower income, Mom and Dad may end up assisting with the loan payments. Even if you didn’t put saving for college ahead of your retirement, the cost of tuition still might return like a bad cold. Planning is imperative – you may want to help even if you didn’t plan.
No wrong answer
Every family is different when it comes to paying for college. Even if the parents’ decision is not financially sound, as long as they’re happy, and understand the repercussions of that decision, then it’s the right thing to do for them. Emotion is a primary factor.
Over the years, I’ve noticed parents fall into one of three college tuition camps:
- Not my responsibility, or I can’t afford to help, so my children will have to pay their own way
- I want to pay as much as I can, even if that means I have to delay my retirement
- I want to help as much as I can, but my retirement comes first, so expect to have student loans
There are varying degrees within each group, but the most important thing parents need to do, whether they’re going to help a little, a lot, or not at all, is to bring their children into the process, and I don’t mean the week before they’re off to college.
The big picture.
There is much to review regarding what your children may want to do post-high school. Look at it as financial planning for you and your kids. The financial decisions made now will have potential consequences on either your retirement or their bottom line, just as they are trying to become more independent.
There are other options
College isn’t for everyone. There’s a need for skilled labor. In fact, there is a nice living to be made by selecting a trade, and it usually doesn’t bring the burdensome debt that attending college does. Don’t shortchange that option.
We have clearly laid out the three options for our children
- Go to college
- Go to trade school
- Enter the military
We don’t care which option they choose, they could even combine the options, but they are not going to graduate and sit around playing video games or watching Youtube in our basement.
Decision, decisions, decisions
It’s easy to say “choose one of those options,” but they have to know what the heck they want to do. How many of you changed majors? Changed careers? Changed directions? I did, and I’m sure many of you did as well. It’s hard trying to figure out what you want to do with your life.
If your child is unsure of their aspirations maybe a community college is the best option. Most of them have transfer or dual admission agreements with other four-year colleges. College credit for a fraction of the cost while the student matures and tries to figure out what to do. What isn’t there to like about that?
If you enter the military they expect you to choose a career path or specialty, but they do give you the option to change jobs, and hey, it’s better doing it on the government’s dime. Don’t forget you can enroll in college after your tour of duty with college credits and the GI bill.
The real cost of college
Review the actual cost of attending college. It needs to be to be an honest and in-depth analysis, not limited to just tuition. Include room, board, books, entertainment, etc., and don’t forget travel costs if your student goes to a college that isn’t close to home.
Yes, private colleges are more expensive than public colleges at first glance. The one difference is that a private university may be able to offer a generous financial aid package to bring the cost of attendance closer to a public college. If your child applies to both public and private universities, whip out that spreadsheet to compare.
The savings, the paying, and the loans
A spreadsheet, a piece of paper, an abacus, a napkin, I don’t care what it’s on, but you need to make clear who’s paying, how much, and what to expect in the way of loans. Calculate what the monthly payment will be, how long they’ll be paying, and how much income they’ll need after graduation to live and repay the loans.
I encourage you to get your children involved with the FASFA. It’ll help them understand what’s at stake financially, how tuition is covered through savings, loans, gifts, scholarships, and/or work-study programs, and teach them some vital lessons on money management at the same time.
Paying for College – Cost benefit analysis
College is an investment. All investments have risks. Like investing in the stock market, there are chances of loss, not graduating, a low rate of return, high cost, significant loans, and years before the return is positive. Consider that when you choose majors and colleges.
Look at the major, the starting salary, the highest potential salary. Then compare the cost of going to the various schools. For example, the salary of a teacher does not change based on the college attended. Why go to a college with a high cost of attendance and leave with significant debt instead of attending a university that is more affordable?
Paying for college is a financial and emotional investment. Unfortunately, finance and emotion don’t mix well together. Taking your time and laying out the realities of the situation financially, will help overcome the emotion.
To help overcome the emotional decision of paying college, check out our posts on the financial aspects, the rules for using a 529 and 529 FAQS