parent wants to be the bad guy.
as they try to figure out whether they should let their
children say yes to college acceptances that have just
arrived, parents may wonder if they dare give the
go-ahead. For many families, the choice between an
exciting yes or an excruciating no is a fraught
decision. And if parents trust their gut, they may go
parents havenít saved nearly enough to pay for
college, which is understandable considering tuition,
housing and food now average about $18,900 a year for
students at in-state universities and $42,400 for
private colleges, according to the College Board. Some
are closer to $60,000.
like paying for a $250,000 home in just four years.
before facing college costs, about 63 percent of parents
said in a recent T. Rowe Price survey: "I feel
guilty that I wonít be able to pay more for their
college." The majority was willing to take a chance
on undermining their own retirement than to disappoint
saving enough for college is outside most parentsí
ability, 52 percent said they were putting a
higher-education fund ahead of saving for their own
retirement. When it comes to borrowing for college, 52
percent of parents surveyed said they were willing to
borrow $25,000 or more, with about 23 percent willing to
borrow more than $75,000. Parents who struggled to pay
off their own college education were the most intent on
saving their children from the same fate.
experiencing the burden of student loans, I would not
want my kids to experience the same thing," 74
percent of parents told T. Rowe Price researchers. And
79 percent said, "I want my kids to worry about
money less than I did while I was in college."
overarching feeling of responsibility can lead families
precept of financial planning is to put saving for
retirement ahead of saving and paying for college
reasoning: If parents canít save enough for college,
students can borrow through federal Stafford and Perkins
student loans. They can then take 10 years or more to
pay those loans back and parents, if inclined, can help
with repayment, if able.
importantly, if a person with federal student loans
fails to earn enough after graduation to make full
payments, the government can reduce payments until the
studentís income increases. After 20 years, if the
borrower has not earned enough to pay off the loans, the
government can forgive the remainder.
have no such advantages.
they borrow using federal loans called Parent Plus
Loans, they will be required to pay fully. And the loan
interest rate for parents is high, 7.21 percent compared
with 4.66 percent for a Stafford loan. Perkins federal
loans also are more affordable.
waiting until after a childís college years to save
for retirement often doesnít do the job and planning
to work longer fails. About half of current retirees
were forced by health or layoffs to leave work early.
a couple starts saving $5,000 a year in a 401(k) or IRA
at 30 and continues the same practice until retirement
age. If they earn eight percent a year, on average they
will have about $1.2 million by retirement at 68, giving
them about $50,000 a year to live on, not including
Social Security. But if they have saved only $100,000 in
a 401(k) or IRA by age 48, and then start saving $5,000
every year after that, they will end up with only about
$713,000 for retirement. That will give them about
$28,500 a year, again not including Social Security.
choosing among colleges for your children, consider the
price tags and investigate the cost compared with how
far along you are saving for retirement. Or try the
Employee Benefit Research Instituteís ballpark
estimate calculator at http://choosetosave.org/ballpark/.
should also see if childís school of choice will match
or provide aid closer to any better offers from other
set up a monthly payment plan rather than writing a
$20,000 check. óóó