Paying for college while saving for retirement
In an ideal world, every college student would be equipped with a full ride scholarship or adequate savings to pay for their education, freeing up their parents to focus on retirement savings. But the reality is that for many, the competing goals of saving for retirement and funding college tuition come up faster than planned for – and often simultaneously.
Of course, you want to do everything you can to set your child up for success. But if you focus all your efforts on tuition and end up coming up short on your retirement goals, the reality is that your kid may end up footing a bill either way.
To take a well-rounded look at all the options to consider, we asked Jeff Rose, certified financial planner for his advice on how to meet both challenges simultaneously. Here are a few tactics and resources to help achieve both objectives – and some smart tools and services from College Ave Student Loans to help get you on the right track.
Get your priorities in check
Come college application time, many parents start frantically crunching numbers to see what they can contribute to tuition costs. But according to Rose, it’s important not to let retirement goals take a backseat in this evaluation process. “The reality is that parents need to get a good sense of whether or not they are really on track for retirement,” Rose says. Even if you can’t cover it all, there are still ways you can help your child out with college expenses.
One tactic that’s sure to backfire is drying out your retirement funds. “If you’re borrowing against your own retirement to pay for your kid’s college, you’re leveraging your golden years and your nest egg to take care of your kids -- and that’s not going to end well,” says Rose. “If you don’t save enough for yourself, you’re going to be a financial burden to your kids. You might save them from student loan debt -- but they’re going to have to take money out of their paycheck because you don’t have enough to live off of.”
Not to mention, having your child take on some of the responsibilities of paying for college makes them have more skin in the game, and helps set them up to understand how to manage a budget.
It’s also worthwhile to note that your child has two big advantages to paying for college that you don’t have on your side when it comes to saving for retirement: time and resources. There’s no lender that’s going to give you a retirement loan, and if you’re looking at retirement in the near future, it’s likely you’ve already reached your career’s peak earning potential. Not only does your child have the option of taking out a loan to help pay tuition costs, but depending on the career he or she is planning to pursue, their earning trajectory will likely align appropriately with the loan’s repayment schedule.
Examine your options
In order to get realistic about how much you’re able to contribute to help your child pay for college, Rose recommends taking a closer look at your retirement plan to paint a clear picture of the situation. “Do a quick calculation to see how much you’re currently saving for your retirement,” he suggests. “If you’re doing a 401k and contributing five percent, how much is that monthly? A good rule of thumb is to make sure you’re not paying more for your kid’s college per month, no matter how you’re doing it, than you are saving for retirement.”
Exploring scholarship opportunities and financial aid are a few first steps to consider in order to bring college costs down. But if you’re still coming up short, Rose recommends looking into loan offerings that would help foot the bill. “If parents want to be involved in the student loan process, one option would be the Parent PLUS student loan,” says Rose. “It has government backing, and interest rates are typically fixed (in the six to 6.5 percent range).” However, this loan puts the responsibility of repayment entirely on the parent.
Consider personalized loan alternatives
For more shared accountability, Rose suggests using a lender with options that allow the parent to act as a co-signer rather than the sole borrower. “Using a lender like College Ave Student Loans, you can do fixed or variable rates,” he explains. “At variable rates, you could see loans as low as three to four percent interest.” Depending on the field of study your child is pursuing, they may be able to pay the loan back quickly, or might need more time in order to do so. College Ave Student Loans offers repayment options from anywhere between eight to 15 years. As far as how much you can borrow, you can take out as much or as little as you need – up to 100 percent of the annual college tuition.
To find the loan that best fits your needs, College Ave Student Loan's “configure it out” tool acts as your own personal parent loan consultant. “It’s a quick process to find out what’s actually out there for what you’re trying to do,” says Rose. “If you’re not sure exactly what you need, the tool lets you construct your own loan.” You’ll be taken through a series of questions to help determine your ideal options, such as how much you’re looking to borrow, how many years of school your student has left, whether or not you want to pay interest now or later (or some now and some later), and other factors. Using this tool can also help show your child what repayment is going to look like under each option, so that you can both get clear on the details and agree on a game plan.
Meet with a financial planner
Sometimes, enlisting the help of a financial guru can mean the difference between a successful savings plan and one that doesn’t meet your expectations. Rose recommends having a financial planner take a look at where you’re currently at with your retirement savings plan, loans and all, and have them come up with a strategy to balance both objectives. “That advisor should be able to not only help you address the student loan option that you’re looking at, but also how that ties into your retirement plan and goals.” You can find a certified financial planner (or CFP) in your area by visiting CFP.net.
Paying for college shouldn’t have to take a toll on your retirement savings plan. With the right lender and investment strategy, both you and your child will be on track to meet your goals. Start exploring private loan options today by visiting CollegeAveStudentLoans.com.