My older sister was fifteen the year my dad died. As a self-employed man, he didn’t have a 401k, life insurance, or a long-term financial plan.
He also didn’t have any college savings for the three of us. So my sister, who wanted to go to Boston College, had to settle for someplace local instead. Despite the change of plans, she got a decent education. Over the years she’s worked in executive jobs and had a decent career, but we’ve always wondered how different her path would have been had she been able to afford that prestigious school.
A college or trade school education is a must these days. But with a 4-year college costing close to $40,000 these days (without financial aid), it’s almost certain that graduating students will have incredible debt that can take years to pay off. They hope to land high-paying jobs that will make short work of this debt, but that doesn’t always happen, leaving students no option but to move back in with parents or work several jobs. Such debt can also hinder life plans, such as getting married. After all, who wants to marry only to inherit thousands in debt and start married life with all that stress?
Another striking trend is the number of that Americans 60 and older who have college debt from cosigning loans for their kids. In 2015, 40,000 people over the age of 65 had funds garnished from their Social Security checks to put towards $86 billion in college loans. (I myself have about $100,000 in Parents PLUS loans for my kids.) It’s a real problem that makes it difficult for people to retire as planned.
It’s clearly important to start saving for college as early as possible. Education costs are only going to increase as time goes by, and loan companies have few incentives to forgive loans after graduation. When considering college savings plans, figure out what your goals are. Do you want to be able to fully cover education costs, or do you want your children to have to pay for some of it? Will your kids be eligible for financial aid? Do you anticipate your children getting scholarships, and do you have a plan for if they don’t?
At younger ages, life insurance is less expensive, there’s more time to invest and grow wealth, and college savings plans have more time to grow. Take a look at tax strategies to keep taxes low; after all, we don’t know where we’ll be 10, 20, or 30 years from now. If all of this seems confusing, find a financial planner to help you line everything up and make sure you’re OK with everything that they’re doing to maximize your financial security and future goals. With guidance from a fiduciary, you can breathe easy that your children’s futures are secure and your kids don’t have to choose a different path due to a lack of funds.