Personal Finance and Investing

Paying for college for yourself or for a child can drop you into debt faster than many other things. Aside from huge disasters like medical emergencies or a home fire, more people get into higher debt by paying for college than any other reason.

The best advice for long term financial health is to avoid paying for college for your kids if it means going into debt or shorting your retirement.

If you’ve managed to put aside money for their education in a savings account, or if you are able to meet all of your personal financial goals and still have enough money for your children’s education, then this advice may not apply to you.

However, if you will incur debt to send you child to college, you should rethink your financial strategy.

Financial experts warn that your children will not feel the same sense of responsibility to you in your old age that you feel for them and putting them through college.

Parents can be divided roughly into non-wealthy parents and wealthy parents. If you are able to write a (good!) check from your checking account for junior’s $20,000 tuition for a semester at college and it doesn’t affect any of your spending for the month, then you’re likely in the wealthy parent category, and the following may not apply to you.

However, if you are like the majority of parents in the western world, you are not wealthy, and college expenses are a real concern.

However, here are some things to consider when paying for college.

Retirement saving vs. college saving.

If you hold money outside retirement accounts, in most cases, even if you are saving for your children’s college, then the government considers those assets as being available to pay college expenses.

Likewise, if you create accounts in your children’s names, then that money is counted as being available at a much higher rate than money held in your own name (for example, the government might say 6 percent of your savings are available for college, while 35 percent of your children’s money is considered available for college.)

Putting money away for retirement instead of investing it in your child’s college education may sound selfish, but it actually puts both of you in a better position in the long run. Take care of your needs rather than your child’s, and you benefit both of you.

Some will say that it is cheaper to save for college rather than put money in a retirement account and borrow for college. However, that is not true. Because of all the tax benefits of retirement accounts and the increase in the amount of financial aid you can receive if your savings is concentrated in retirement accounts, you can actually find yourself ahead by investing for your retirement and borrowing for college.

When the time comes for your child to attend college, you can also explore other financing options. These include a variety of scholarships, grants and major-specific awards, work study programs and summer work, coops or internships.

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