Mom and Dad didn’t go into debt to get Junior through college as you might think. Parents say it’s a worthwhile bet.
It wasn’t an easy decision either — not an easy decision when paying for college is still high, and this week the Credit Summit released some new data on total college costs.
Total U.S. student loan debt has grown to $1.75 trillion by 2022. Average student loan debt is $37,113. The total number of borrowers with student loan debt was 43.4 million.
Somewhat surprisingly, American parents are pulling out cash to pay for rising college costs and shrugging off the financial burden on their families.
According to WalletHub’s 2022 “Back to School Shopping Survey,” about seven in 10 parents say their child’s college education is “worth the debt.”
According to a recent College Ave Student Loan Survey, that’s probably why more than half (54%) of families plan to take out student or parent loans to help them pay for expenses.
“In addition to the cost of college, the survey found that parents help finance their children’s personal expenses, including phone plans (96%), car insurance (75%), travel expenses (74%) and car purchases (44%),” the survey noted . “One-third of households also reported that they paid their children a financial allowance ranging from $101 to $250 a month.”
Noble, but astray?
The idea of so many parents letting their kids pay for college is heartwarming — but is it a good family business? Personal finance experts aren’t so sure.
“While giving your child a head start in life is noble, taking on college debt may not be a smart move,” said Leslie Tayne, founder and lead attorney at Tayne Law Group in New York. Retirement savings money. In the future, you may find yourself cash-strapped during your golden years and dependent on your children for financial assistance. This situation could wipe out the advantage you gave them decades ago. “
good news? Paying for college doesn’t have to lead directly to huge household debt.
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“Ideally, it’s not an either-or situation,” said Kimberly Foss, president and founder of Empyrion Wealth Management in Roseville, Calif. Compound magic. “
For example, Foss suggests that using tax-advantaged accounts like 529 plans and IRAs for education expenses and 401Ks for retirement savings can also provide you with significant leverage because these plans can grow tax-free and can also be used in many Cases of tax-exempt gains are provided.
“Even if you start small, saving and investing regularly can make a big difference when your kids get to college,” she said. “Additionally, many states now offer tuition prepaid plans when your kids get to college. When students enter an in-state college or university, they lock in tuition for future years at a discounted current price.”
Debt problems start when young families struggle to set aside a fixed amount for home college expenses, and a few years later, they realize that college is coming with little to no educational kitty.
“At some point in life, it’s better to help your child get the best financial aid packages, including scholarships and grants, than to spend most of your current liquidity and assets on college expenses,” Fox told TheStreet . “I tell my clients that the best thing they can do for their adult (or near-adult) children is to make sure they don’t have to support them financially in retirement.”
“At some point in life, your priority has to shift to providing enough money for your retirement, which is ultimately in your children’s best interests,” she added.
Get creative with college expenses
Is there a tipping point here where parents have to choose between their children’s college costs and their own retirement?
Not necessarily, university experts say.
“I recommend that students take work-study instead of taking out loans,” said Amanda Stern, director of financial affairs at Western New Mexico University. “I also encourage families to consider schools in areas closer to home or with affordable housing options.”
“Education is a learner’s input, and students work as hard as they do to pursue a bachelor’s degree at Harvard as they do at a public institution like Western New Mexico University,” Stern told TheStreet.