As families struggle to pay the skyrocketing costs of higher education, a growing number of parents are concerned that the money they borrow for their child’s tuition will hurt their retirement.
In a recent survey, a majority (54 percent) of the parents said they’re worried that their retirement will be jeopardized by student loan debt. That survey was done for Citizens Financial Group which operates Citizens Bank and Charter One Bank.
“Households are feeling the pinch of higher tuition costs and it’s starting to impact other big things in their lives,” said Brendan Coughlin, president of auto and education finance at Citizens Financial Group. “Getting a college degree is still very much a part of the American dream.
"Parents are very aware and supportive of this, but they’re also very worried about the cost and how to pay for it.”
It’s not surprising that most parents (94 percent) said they feel an increased financial burden from their child’s college debt, according to this survey. What’s alarming is the fact that nearly half (45 percent) said they don’t have a plan to pay for that debt.
“People who have a financial plan for any sort of major expense are more likely to succeed,” said Robert Brokamp, editor of the Motley Fool Rule Your Retirement newsletter. “If you don’t have a plan for how you are going to pay off those loans, you’re just flying blind. It will take much longer and you’ll wind up paying more.”
Brokamp, a former financial adviser, thinks college financial planning should start well before your child is a junior or senior in high school and before you apply for financial aid or take out any loans.
“When it comes time to take out loans, look at who applies for them,” Brokamp said. “Kids will often be eligible for lower-rate loans and loans where the interest is tax deductable.”
Of course, free money is the best. Exhaust all sources of grants and scholarships before you start applying for loans.
“Parents who borrow to help their children pay for college should not borrow more than they can afford to repay in 10 years or whenever they retire, whichever comes first,” advised Mark Kantrowitz, senior vice president and publisher of Edvisors.com, a website that provides free information to families about financial aid and dealing with college costs.
Kantrowitz urges parents to save as much as possible before their child enrolls in college, because it’s so much cheaper to save than borrow. “When you save, you’re earning the interest; when you borrow, you’re paying the interest,” he said. “Every dollar you borrow will cost about two dollars by the time you pay back that debt.”
Keep in mind: Most financial experts advise parents to focus on their retirement first and their children’s college education second. “It may not be easy to do, but you have to pay yourself first and too many people get that backwards,” said Greg McBride, chief financial analyst at Bankrate.com.
“The kids can borrow to go to college, you can’t borrow to retire.”
Herb Weisbaum is The ConsumerMan. Follow him on Facebook and Twitter or visit The ConsumerMan website.