As the weather grows colder and the school year gets into full swing, the thought of your child’s future education – including the looming cost of college – has probably crossed your mind. With high price tag of college, many parents worry about how they’ll be able to pay for their kid’s college education.
When you’re still paying off your own college loans while paying the bills, it’s tough to think about how you’ll save for long term goals like retirement and college. Often parents have to choose how to allocate their funds between the two.
While it’s understandable to want to pay for the best education possible for your child, especially if you struggled to pay for college on your own, it’s not a smart financial move to prioritize saving for your kid’s college over saving for your own retirement.
Here’s why saving for your own retirement should come first:
Your Children Are Not A Retirement Plan
While you may want to sacrifice everything to put your children through college, it’s no guarantee that your children will do the same for you in retirement. Paying for college is doesn’t mean that they’ll have the financial means to support you later in life.
If they decide to become a starving artist, then what? Or they could just struggle with finding a good job and pay their own bills. Ultimately, you have no control how they lead their lives.
You don’t want to place the burden of your care on your children in retirement. Paying for your medical bills is much more expensive and stressful than a manageable student loan payment. How are they supposed to build wealth and support their own children if you aren’t self-sufficient? While it’s nice to be able to depend on your children when you need it most, you don’t want to hold them back from living their own lives.
It’s like they say on every airplane flight: you have to secure your own air mask before assisting others. Your retirement comes first.
Student Loans Can Help Pay for College, But What About Retirement?
Student loans can be a great way to help put your children through college. Federal student loans are one of the best types of loans to have (relatively speaking, of course — no loans are best!) Some federal loans like the Stafford Subsidized Loans and Perkins Loans remain interest free until a few months after graduation.
Federal loans also have very flexible repayment plans. If your child goes through a rough period where they aren’t making enough to pay for the bills, they might qualify a very small payment with Income Based Repayment. Some student loans are even forgiven.
Nothing like this exists for retirement. If you don’t have enough to live on for retirement, you really have few options. You can work well into old age, rely solely on Social Security for income, and live on less — but you can’t borrow for your needs and hope to repay that amount back some day. There’s no getting around paying for your everyday expenses.
There Are Many Ways to Pay for College
There’s no need for parent to fund the entire college experience. There are many ways to pay for college, in full or at least in part.
Students can apply for scholarships and grants to help defray the cost of the college experience. Parents and students should work together to fill out the Federal Application for Student Aid (FAFSA) every year to see if they qualify for financial aid.
Students can also can also work part-time to help fund living expenses during college. Your student will be building up relevant skills that will help them later on in the job market — and helping to handle the expenses associated with higher education.
Make the Most of What You Save with a 529 Plan
If you are able to set aside a little every month, make the most of your money by putting the funds into a 529 plan. There’s no federal tax deduction for putting money into a 529 plan, but you are allowed to withdraw all the money, including your earnings, tax-free for qualified education expenses. Some states also offer a tax-break on state taxes for contributions to a 529 plan.
There are many ways to help your child get a high quality college education. Make sure you aren’t neglecting your own retirement savings as you work to pay for college.