Mom and Dad aren’t as upset as you might think about taking on debt to get Junior through college. That’s a bet worth making, parents say.
That’s also not an easy call -- not when the cost of paying for college remains sky-high, with Credit Summit out with some fresh numbers on the total cost of college this week.
- The total U.S. student loan debt has increased to $1.75 trillion in 2022.
- The average student loan debt is $37,113.
- The total number of borrowers with student loan debt is 43.4 million.
Somewhat surprisingly, U.S. parents are ponying up the cash to cover those rising college costs, and are shrugging their shoulders over the household financial burden.
According to WalletHub’s 2022 “Back to School Shopping Survey”, approximately seven out of 10 parents say their kids’ college education “is worth going into debt for.”
Maybe that’s why over half (54%) of families plan to borrow student or parent loans to help them cover the costs, according to a recent College Ave Student Loans survey.
“In addition to the cost of college, the survey found parents help fund their child's personal expenses, too, including a phone plan (96%), auto insurance (75%), cost of travel (74%), and car purchase (44%),” the survey noted. “ One-third of families also reported they give their child a monthly monetary stipend ranging from $101 to $250 each month.”
Noble, Yet Misguided?
The idea that so many parents have their children’s back with college costs is a heartwarming one – but is it good household business? Personal finance experts aren’t so sure.
“While it’s noble to give your children a head start in life, taking on college debt may not be a wise move,” said Leslie Tayne, founder and head attorney at Tayne Law Group in New York, N.Y. “Upfront, you’ll have less money to pay off other debt or save for retirement. Down the line, you may find yourself short on cash in your golden years and dependent on your children for financial assistance. That scenario would possibly erase the advantage you gave them decades ago.”
The good news? Paying for college doesn’t have to lead directly to massive household debt.
“Ideally, this is not an either-or,” said Kimberly Foss, president and founder of Empyrion Wealth Management in Roseville, Calif. “If you start early enough and you save and invest with discipline, you can do both, thanks to the magic of compounding.”
For example, Foss advises taking advantage of tax-advantaged accounts like 529 plans for education expenses and IRAs and 401Ks for retirement savings also give you important leverage, as the growth in these plans is not taxed and can also provide tax-free proceeds in many cases.
“Even if you start small at first, putting aside a regular amount for savings and investment can make a big difference when it’s time for your child to head off to college,” she said. “Also, many states now offer tuition prepayment plans that lock in tuition for future years at a discounted present rate when your student enters an in-state college or university.”
The debt problems start when young families struggle to set aside regular amounts for their family college costs, and a few years down the line, they realize that college is around the corner and they have very little in the education kitty.
“At a certain point in life, it’s better to help your child obtain the best possible financial aid package, including scholarships and grants, rather than sinking most of your current liquidity and assets in covering college costs,” Foss told TheStreet. “I tell my clients the best thing they can do for their adult (or nearly adult) children is to make sure they don’t have to support them financially in retirement.”
“At a certain point in life, your priority has to shift to adequately funding your retirement, which is ultimately in your child’s best interest, too,” she added.
Get Creative with College Costs
Is there a breaking point here where parents have to choose between kids' college costs and their own retirement?
Not necessarily, collegiate specialists say.
“I advise students to take work-study jobs instead of loans,” said Amanda Stern, director of fiscal affairs at Western New Mexico University. “I would also encourage families to consider schools that are closer to home or in areas with affordable housing options.”
“An education is what the learner puts into it, and students will put just as much effort into their bachelor’s degree at Harvard as they will at a public institution like Western New Mexico University,” Stern told TheStreet.
