Saving for HER College vs YOUR Retirement

RBIPIctCollegeThere has been a structural change in the way Americans pay for college. Older generations, like my parents, frequently paid their own way through college. This enterprising generation found many creative ways to pay for their college education. Some enlisted in the armed services and paid for college through the GI Bill. Others borrowed money from relatives or worked while attending college. These were viable options when tuition rates were low. Over the past thirty years, education costs have skyrocketed. According to a 2012 Businessweek article, the cost of attending college has increased 1,120 percent since 1978, far outpacing inflation. Younger generations, now in their thirties and forties, have found themselves saddled with debt, particularly those who financed a bachelor and a master’s degree. This generation, now as parents, would like to alleviate this financial burden for their children, as they don’t want their children beginning their lives saddled with the same levels of debt.

As parents, we have spent many years putting our children’s needs before our own. It is natural for us to continue this trend as our children enter their college years. The problem is many of us don’t have the discretionary income to fully fund our children’s education. This often leaves us with a difficult choice: funding our children’s education or funding our retirement account.

Most experts agree that when faced with these two choices, your children’s education must take a back seat to your retirement savings. Their advice is primarily based on the multiple opportunities students have to fund their education. Think about it. There are many types of loans, scholarships, grants, and other similar alternatives at your children’s disposal. When it comes to funding your retirement, no financial institutions will lend you money. They most certainly won’t provide retirement scholarships or grants in your golden years. Most people have only one option for providing retirement income, and that is through savings.

Another option for students to consider is finding a job to defray college expenses. Working was a viable solution for our parents and in many cases is still a good option for today’s students. High school graduates can take a year off and save money for college. This will give parents a good opportunity to observe their behavior and determine if they are mature enough for college. Do their actions during the year off reinforce their promises to be a disciplined student? Saving for their education has another benefit. It allows the student to have some ‘skin in the game.’ Frequently students are quick to fritter their parent’s money away, but will think twice about wasting their own. For some students, a better solution is to find a part-time job while attending college. Whether it is waiting tables; getting hired as a Resident Assistant; working for the college/university; or even better, finding a part-time job in their field of expertise; resourceful students can find many opportunities to defray their college expenses.

Controlling college expenses has gained increased interest for many parents and students. A volatile market and static wages have many parents focused on expenses within their household. It is only natural that they would apply this same focus to their children’s choices for education. There are many choices available to students interested in attending college. There are private non-profit universities, private for-profit universities, state universities and community colleges, and all these institutions of higher learning come with a price tag. While your child may have the desire and ability to get into an elite university, a state college may offer a lower cost alternative and an equivalent institution in terms of ranking. Whatever the route you choose to take, make sure you perform a good price comparison amongst your options. You should compare the advertised price of the university while factoring in all the forms of student aid. Sometimes a private institution, coupled with student aid, may be a more cost-effective option than a public university.

In a perfect world, we would be able to fully fund our children’s education in addition to our retirement account. Regrettably, this isn’t an option for many of us. Those who are struggling to make ends meet should prioritize their retirement savings. This will help you avoid becoming a burden to your children in your retirement. There are many funding opportunities and cost control measures available for your children. You need to talk with them about your ability to contribute towards their education and guide them along the way. This is best started with a conversation. You cannot start soon enough.

— Mark Melendez, Client Services Manager