Changing Times Require A Different Approach

This post has gotten so much attention since I published it last year that I’m re-posting now with a few updates.

The good news: Your child got their college acceptance letter. The bad news: Your child got their college acceptance letter. You may have been saving and planning this for years and may be prepared for the financial challenge of funding their college education OR you may not be as prepared. So, how to NOT fund their education?

The following choices very often lead to significant and serious financial problems long after a student has attended a college or technical school program  There are other more prudent, but effective, options available ~ so please contact an advisor experienced in this area (such as a CFP, CPA, or independent education specialist) to help you plan ahead.

Using your retirement funds for your children’s education:  Your working years are significantly fewer than those of your 20 something students, and your work life is now also subject to potential health issues, company layoffs, age discrimination situations, and other unforeseen events.  If you’ve used up most or all of your own safety net of savings and investments, you will have little flexibility to weather these types of changes and maintain a reasonable, independent life for you and your partner.

Co-signing on student loans for your children, grandchildren or other family members:  If your student is not able to make the payments on their loans, you are on the hook forever to cover these payments yourself.  It doesn’t matter whether they initially pay and then later default, or they are never in a position to cover the loan amount from the beginning.  As an older adult, you are then facing hundreds or thousands of dollars in payment per month, often at a time when your income may be fixed on a pension, social security, or part-time work.

Maxing out your home loan and equity line to either reduce your student’s exposure to loans or to pay for a program that is really too expensive to prudently handle:  For most people, the equity in their home represents the majority of their savings and net wealth.  Unless you have significant pension benefits, retirement account savings, or are guaranteed of a significant inheritance, the various real estate cycles may well catch you unexpectedly with decreasing house values, property tax increases, and deferred maintenance expenses.  Losing all that equity or having missed payments impact your credit score will greatly reduce your own housing options and quality of life during retirement years.

Failing to question the value versus cost of a particular college program or technical degree:  Sometimes, parents are just so relieved to have their child finally choose a program, or want to provide ‘what we never had’, so all parties then dive into the great/exciting/unique opportunity without really looking at the total cost – and what the potential for repayment will actually be.  Maybe this choice really isn’t a good long term prospect, perhaps there are more reasonably priced alternatives, or maybe the student could benefit from having more ‘skin in the game’ themselves before committing to that large of an investment?  You’ll never really know until you take the time to step back from the emotions and family traditions, and take advantage of balancing all factors for your particular situation.

CHNM 071: Kindred Spirit and CFP® Laurie Bonser Shares Her Wisdom