There is always a balancing act in play when it comes to a family’s finances. And parents are often faced with tough financial decisions when it comes to choosing between supporting their children and taking care of their own financial future. Unfortunately, many parents are risking retirement savings because they want to ensure their child has the best chance of getting a great education. And while it is commendable for parents to want to pay for their child’s education, they have to think about the cost it is putting on the future they would be able to lead heading into retirement. Start by comparing student loans from all the major options at SoFi.
Risking Retirement for a College Education
Using Retirement Money
There are many reasons why parents end up putting their retirement savings at risk to pay for their child’s education. Perhaps the child got into a really good private school, such as an Ivy League or a prestigious liberal arts school. When a child does really well in high school and in their other activities to get into such a school, parents can almost feel a sense of obligation to help out their child. However, it is important for parents to know that risking retirement to pay for college is not a smart move.
Whether it is accomplished by taking out money from the retirement savings that have been painstakingly put together over many decades, or by taking out a loan, parents should never jeopardize their futures for the sake of paying $200,000 over four years to send their child to a private college. Yes, paying such a sum of money makes sense when the parents are wealthy enough to handle the loss of so much money. But if two parents have retirement savings of around $300,000, does it make sense to lose two-thirds of those savings so their child can attend college?
At the end of the day, parents have to understand that there are many college options available to their child. Going to a private school is not a possibility for everyone. And even though attending Harvard is very different from going to a state school, it does not make sense to put the entire family on the verge of bankruptcy to pay for Harvard. Not only would it hurt the parents by taking away their retirement fund, but it would put undue pressure on the child as well. The child would feel as though they have to get a high paying job straight out of school to justify the amount of money their parents invested into the education.
It makes a lot of sense for parents to look for affordable options instead. Perhaps $200,000 over four years is not possible, but $50,000 is more probable. Make sure the child is taking every step to try and get merit-based scholarships to ease the burden of college. Even though these scholarships are sometimes no more than a few thousand dollars, getting multiple scholarships can really help with the costs. Children are also able to get part time jobs while they go to school, to help them pay for their expenses and some of their tuition.
Choosing a Cheaper Option
But sometimes it is up to the parents to make a firm decision that they are not going to subsidize a $200,000 education over four years. The family has to make a commitment that they are not going to take out a loan to pay for college. The parents should not take out these huge loans, and the child must definitely not do it either.
It is much more prudent for the child to attend a school that is within the family’s means. It may not have the prestige of an expensive private school, but they will still get a very good education. And most importantly, neither the child nor the parents will feel the crushing burden of having tens of thousands of dollars in debt, or no retirement savings. The entire family will be on much better financial footing, and this will help the child as he or she looks to make a career decision after graduating from college.
To Pay Or Not Pay
On the surface, refusing to pay for college may seem cruel to parents. But it is a pragmatic and loving decision that has the entire family’s best interests at heart. Having said that, choosing low-risk investment opportunities while your children are young can help you to prevent these harsh decisions by offering an alternative way to pay for your child’s college tuition. Putting aside retirement savings is already a stressful endeavor, you don’t want it to also harm your relationship with your children because you sacrificed too much of your own future. Taking steps right now can mean the difference between risk and reward.