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Kids Headed to College? Don’t Let Them Delay Your Retirement Plans

By U.S. News & World Report

Parents who choose to pay for a college education for their children have a steep mountain to climb. The average cost per year of a four-year in-state college education in 2016 was just over $20,000, according to College Board data. For a private college, the cost more than doubles.

Though parents may feel inclined to do whatever it takes, paying for a child’s college education should be secondary to your retirement. Aside from Social Security, you’re on the hook for your own retirement. College bound students can find lower cost tuition, scholarships, loans and work-study programs to pay for school, and they have their entire careers to pay off their education bill. You only have one retirement, and the money needs to last.

But with early planning and discipline, you can help pay for college for your children and retire comfortably. Here are some tips to ensure you won’t need to delay your retirement to pay for higher education.

[Read: How to Prioritize Retirement Versus College Savings.]

Start saving early. If you plan to fund the cost of your child’s education, the most effective action you can take is to start saving early. Starting when a child is born gives you 18 years to save and invest. That is significant time to allow your investments to compound and grow. If you can, maximize tax-advantaged accounts early. The compounding effect is more powerful when gains are tax-free.

Not everybody starts saving when a child is born, but that doesn’t mean it’s too late. If you want to assist paying for your child’s higher education and haven’t started saving yet, start today.

Have a comprehensive plan. Make saving for college part of your comprehensive financial plan alongside retirement planning. Start by using an online calculator to estimate the cost of a four-year education when your child is expected to attend college. Determine a target savings goal based on the estimate, then choose a monthly savings amount and investment strategy to reach it.

Include college savings in your monthly budget from the day you commit to paying for school. Automate your contributions to investment accounts to consistently save for your child’s future. Invest in appropriate funds for your child’s age and reduce risk as he or she approaches freshman year. Or consider an age-based target fund that adjusts automatically over time. Make sure to include a withdrawal strategy in your comprehensive plan for when it’s time to pay for tuition.

Use tax-advantaged accounts. The 529 plan is the go-to tax-advantaged savings account for many parents saving for college. Money invested in 529 accounts grows free of federal and state tax. Distributions are also tax-free, provided the money is used to pay for the cost of higher education for a qualified recipient.

Many states also provide tax deductions for contributions to a 529 plan for residents, meaning you can lower your state tax liability by saving for college. The 529 contributions are not tax deductible on your federal tax return. Limitations vary by state, so make sure the 529 plan and provider you choose gives you the maximum benefit for where you live.

[Read: How to Cope With Student Loan Debt in Retirement.]

Highlight return on investment. The average lifetime earnings of a college graduate are more than double that of a high school graduate, according to a Brookings Institution analysis of Census Bureau data. Even as the cost of a college education rises, it still provides an excellent return on investment over a lifetime.

College costs vary dramatically between community colleges, state schools and private universities. But lifetime earnings are correlated more closely to education level and degree rather than college selection.

High school students may not think about the cost or value of college as much as the experience and education when selecting a school. As your child begins his or her search for a college, explain the value of an education in relation to the cost and how degree earners in certain disciplines earn more. Doing so may help shape their major selection and college choice, especially if they are responsible for funding all or some of their own education. By choosing a lower cost college and higher paying degree, attending a less prestigious college won’t negatively affect their long-term earning potential.

Borrow to pay. Many parents choose to fund college by tapping home equity loans, private or federal student loans or other borrowing means. Make sure the planned payback period does not drastically alter your target retirement age and the payments fit comfortably into your regular budget.

If you choose to borrow to fund your child’s education, set reasonable tuition limits with your child to avoid higher cost schools. Ask your child to cover expenses such as books and spending money by working at school and during the summers. Try not to borrow more than you need to. Aim to pay for some tuition out of savings and current income if you’re still working. Carefully plan and execute your borrowing strategy so the loans and payments don’t impact your ability to retire.

Partially fund college tuition. Offering supplemental support for your child’s college costs is better than no help at all. Determine what you can afford to contribute and clearly communicate the numbers to your child. Your child will need to make other arrangements for loans and work while at school.

Do not offer to co-sign on student loans unless you’re prepared to pay them back yourself. If your child later defaults on payments, you’ll be responsible. This can damage your credit and put the burden of payment on you, potentially derailing your retirement.

[Read: How to Balance Retirement Saving With Other Financial Goals.]

Don’t pay for college if you can’t afford it. Not everyone can afford to pay for college for their children. Paying for school isn’t worth sacrificing your own financial security.

Support for college isn’t limited to paying for it. Guide your children when deciding on a school and major to keep tuition low and earning potential high. Offer your home as a residence during school to help your children save on room and board. Help your children identify scholarships, and encourage them to apply. When your child graduates and student loan payments begin, you can always offer to help pay off debt if your financial security and retirement savings are on solid ground.

Craig Stephens is a blogger at Retire Before Dad.

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Kids Headed to College? Don’t Let Them Delay Your Retirement Plans originally appeared on usnews.com

Don’t Settle for Student Loans to Pay for Online Education

By WTOP Staff
Online college programs are becoming a more popular choice for prospective students, with one study finding that more than 6 million students enrolled in at least one online course in fall 2015. The popularity of these courses can be attributed in part to their flexibility with working adults' schedules, students' ability to progress more quickly through online programs and, oftentimes, cheaper tuition. [See 10 low-cost online bachelor's programs for out-of-state students.]Online degrees can be beneficial to many college students, but some studies have shown online learners complete their programs at lower rates than students at traditional brick-and-mortar campuses. Individuals with student loans but no degree comprise two-thirds of defaulted borrowers. Though these numbers are not encouraging, just like for traditional programs, there are ways to reduce how much you'll need to borrow for an online program to ensure you won't become one of these statistics. Don't just settle on borrowing student loans to cover the whole cost of your program and living expenses. Instead, start thinking about how to cut costs and cover your balance in different ways, such as the following. -- Grants and scholarships: Even though you are taking an online course, you can still apply and receive grants and scholarships. But your first step should be to complete the Free Application for Federal Student Aid, commonly referred to as the FAFSA, which will allow you to receive a Pell Grant if your expected family contribution is low enough. The EFC criteria and award amounts are adjusted annually, but the 2017-2018 academic year awards range from $606 to $5,920, which could significantly lower the amount you borrow annually. Your next step is to apply for scholarships. You can start by checking online scholarship search engines, such as the Salt Scholarship Search, College Board's BigFuture and Peterson's. But don't forget to take advantage of local organizations and your school's financial aid office. Both may offer scholarships that you can't find with a national scholarship search. [Review these 10 sites to kick off your scholarship search.]For instance, organizations like the Elks Club, Knights of Columbus or the Rotary Club typically offer scholarships annually to local students. Just because you're going to school online doesn't mean you're ineligible. Visit your local library for scholarship listings, and ask around town. You might be surprised how many local organizations offer scholarships. While these scholarships typically aren't large, every little bit counts. Each dollar you receive in a scholarship is a dollar you don't have to borrow and pay interest on. -- Work-study: Another option for online students may be work-study awards. Not all students enrolled in online programs are eligible, but students at some schools -- including, for example, SUNY Empire State College and Liberty University -- are. Work-study awards are not given upfront like scholarships and grants. In most cases, they are an offer to earn up to the awarded amount if you secure an eligible work-study job. While there is a misconception that all work-study jobs must be on campus, students can work for off-campus, nonprofit or public employers as long as the work is in the public's interest. You may be able to work for a for-profit employer if the job is relevant to your course of study. No matter who the outside employer is, it will need to have an established agreement with your college for you to receive work-study funds. Remember, to be eligible for federal financial aid, you must be enrolled and pursuing a degree or certificate. If you're not working toward a credential, Pell Grants and work-study won't be option, but you may still be able to take advantage of private scholarships -- just be sure to read the eligibility criteria carefully. [Explore what to know about financial aid in online programs.]-- Pay as you go: One of the great benefits to enrolling online is the flexible schedule, which can allow you to complete your college coursework around your responsibilities. But prospective students often overlook using their part- or full-time job earnings as an option for paying for college. Almost 80 percent of college students in 2015 worked at least part time while attending classes, according to the National Center for Education Statistics. By budgeting and thinking strategically about your college costs, you can likely reduce your dependence on student loans by paying a portion out of pocket. Many -- but not all -- online programs are less expensive than traditional programs and often have shorter payment periods. Six, eight or 10 weeks are common course durations. Because of the frequency of payments in an online setting, you may be well-placed to pay as you go and possibly avoid borrowing altogether. Attending college online and avoiding student loans may be challenging, but if you are willing to put in the effort, you can limit the amount you need to borrow. More from U.S. News Q&A: Understanding Student Loan Discharge Eligibility Student Loan Refinancing Isn't Right for All Borrowers
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