The second half of summer brings a welcomed sense of familiarity for families across the country as back-to-school season approaches, and enthusiasm is particularly strong after more than a year of uncertainty upended the education system as we know it.
While a widespread return-to-campus is a particularly exciting time at the college level, some families may also feel a sense of apprehension, especially in the wake of COVID-19.
In fact, affordability and dealing with the debt burden that often goes hand-in-hand with a degree is the top concern of both parents and students, according to the Princeton Review’s 2021 College Hopes & Worries survey. With many parents trying to balance daily expenses, savings progress and the cost of college simultaneously, supporting four years of higher education can be a struggle.
Some may even be prioritizing college payments over their retirement contributions (not usually recommended by financial advisors), or other investments.
The good news is that with proper planning, parents can continue making progress toward saving for their own future while also helping ease the cost of college. In addition to long-term tools (like 529 College Savings plans), there are ways parents can get strategic about how they finance the remaining gap that exists when tuition comes due later this summer.
It’s possible to help a loved one achieve a better financial future without sacrificing yours. Here are a few tips to consider:
• Consider the short- and long-term impacts of cosigning for a loan vs. taking out a parent student loan. The key difference is who takes responsibility for the loan, which can impact your finances for years to come.
• Understand if your retirement savings can handle the increased expenses of paying for your child’s education out of pocket or by borrowing money. It is absolutely critical that you don’t derail your retirement.
• Encourage your student to take full advantage of work-study opportunities if available as part of any financial aid package. Between class and extracurriculars their schedule might be extra busy, but many end up developing valuable relationships and/or work experience while minimizing the amount borrowed – both of which can benefit everyone’s financial posture in the long-term.
• Resist the temptation to borrow extra money for discretionary spending. While tempting to take out an extra thousand here or a thousand there to help ensure your student can enjoy their college years, compounding interest can make these splurges very costly when you consider them over the lifetime of the loan.
• Evaluate the repayment option on private student loans rather than simply defaulting to the deferred option. The key is to prioritize the amount you pay right now with the amount that you pay over the life of the loan. Deferring your payments might not always be the best option.
An added bonus: get your student involved in the decision-making process! Not only will they learn something, but providing them with the added context around any financial commitments made may inspire them to make healthy financial decisions along the way.