October 26, 2017
Parents, way too many of you are still getting it all wrong when it comes to college. A recent survey by T. Rowe Price reports that 68% of parents think saving for their kids’ college is a more important priority than saving for their own retirement.
That means that 68% of survey respondents get a failing grade from me. And to my millennial friends with young children, you are at the head of the failing class. More than 75% of millennials prioritized college saving for kids above retirement. Are you nuts? Your 20s and 30s are when saving in retirement gives you a huge advantage: decades when your money can grow. Wait until your 40s to get serious about retirement saving means losing out on so many valuable years of compound growth.
People, let’s review why retirement savings must be the priority for every family.
There are no loans for retirement!
If you don’t save for retirement today, what do you expect to live on tomorrow? Social Security will not be enough.
And don’t you dare start with the “Oh Suze, but I will do anything for my kids” pleading.
If you would do anything for your kids, the top of the list should be to make sure you will never be a financial burden for them. How can you promise that if you aren’t saving enough for retirement? Even worse is if you intend to take on lots of debt to pay for college. That just puts more strain on your household finances.
And please don’t be overly optimistic that you will be able to manage it all. Nearly three in four parents in the T. Rowe Price survey said they would be willing to delay their retirement to pay for college. I get the sentiment. But are you really sure you will be able to work longer, or work longer in a job that pays as much as you will need? The answer is: no. You might become ill, or need to take care of someone else, or be downsized, or nudged out.
You must make saving for retirement your household’s priority. That is good parenting.
Here’s how your kid will be able to get a college degree without upending the family finances:
• Children should take out federal Stafford loans. Not private loans. Just federal loans. The borrowing limits on federal loans means your kid should be able to graduate with a manageable amount of debt.
• Look at colleges that will be affordable with only federal student loans. In-state schools are a must for your child’s short list. Private schools are fine too…as long as you are strategic. Focus on schools where your child will be such a standout candidate that he or she is likely to get a sizable aid package that will be affordable for your family. Just be sure the package is not based on having Mom and Dad go out and borrow a lot. There are federal loans for parents, called PLUS loans. If you aren’t on track with your retirement savings, you should not use a PLUS loan. No borrowing.
And for those of you who feel you are on track with retirement, please be careful with PLUS loans. Only borrow what you are confident you can pay off in 10 years, or when you expect to retire (whichever is sooner.)