Much to the disappointment of students everywhere, we're officially entering the dog days of summer and the start of the school year is coming into sight. For college-bound kids and their parents, this means selecting courses and packing up, while also trying to make sense of overwhelming college tuition bills. Whether your child is headed to college this fall or is still in a crib, this time of year presents a good opportunity for parents to assess their progress and plans for college funding.
When we look at our parents' and grandparents' generations, a college degree did not hold the same weight as a pre-requisite for financial stability as it does today. Now, a college degree is increasingly required for financial success. This creates a conundrum for families who recognize the importance of a degree, but don't have the means to pay increasingly steep tuition fees. With tuition rising faster than inflation, parents realize that they need to plan ahead as much as possible to avoid losing all their savings or finding themselves or their children saddled with debt. Luckily, tools such as the Voya Financial college funding calculator are readily available to help parents get started and asses their progress. Additionally, there are opportunities for people to save for college through 529 plans, which provide tax-free growth as long as the money is used for qualified educational expenses.
Even with college savings set aside, you still may not have enough to cover college costs. Meeting with a financial advisor can be a valuable way to ensure you are taking the right steps to work through this setback. I also encourage you to have an open discussion with your high school-aged kids about college expenses. Engage them in a dialogue so they understand what savings are available for college, what the costs are for their top-choice schools and what the plan is to pay for college - whether it be 529 or other college savings, scholarships, loans or some combination of the these strategies.
Especially considering that a 2014 Voya Financial study of millennials (ages 20-34 years old) found that over half (57%) think that paying off debt, particularly student loans, takes a greater priority in their financial lives than saving for retirement, it is important to discuss the longer term impact of college financing. In fact, 41% have held off saving for retirement due to lack of available funds. Talk to your children about not just affording the cost of college but also the opportunity cost that shouldering debt into adulthood can have on their own retirement planning.
Another recommendation is to look at your child's college choices and available scholarship funds. Many schools have money set aside to help their students with college costs. Especially if your child is a junior in high school, it is time to start looking at available scholarships and connecting with financial aid offices as these aid packages should be considered in tandem with your current savings throughout the planning process.
One idea to engage your college-bound child in the finances of college is to create an agreement that if he or she graduates in four years and has a set minimum GPA, parents will step in and assist with some or all of loan repayment. The degree of assistance should depend on the parents' financial situation, of course, and not interfere with retirement savings. If this idea is feasible for parents, it creates a situation where their child has "skin in the game." This could provide a stronger incentive for a son or daughter to do well in college and value the experience more fully.
While college is certainly one of the most important investments you and your family will make, you want to be sure you are also keeping up with your own retirement planning. Parents need to remember that they also have a responsibility to take care of themselves. First allocate savings toward retirement every month, followed by college savings.
Use the college process as an opportunity to teach financial lessons to your children by getting them involved in the decision-making process around savings and budgeting. By saving early and planning ahead, you and your family will be in a stronger position to tackle all of life's expenses from college to retirement.
Voya Retirement Coach Jacob Gold is a third generation financial advisor with ING Financial Partners, a broker-dealer of Voya FinancialTM. He is a published author of "Financial Intelligence; Getting Back to Basics after an Economic Meltdown", which was published in August 2009. Gold is a CERTIFIED FINANCIAL PLANNER™ practitioner and Series 7, 24 and 66 securities registered.
Securities and Investment advisory services offered through ING Financial Partners, Member SIPC.