Are Parents Who Pay for College Risking Retirement?

May 18, 2021 Share This 


College_and_Funding_RetirementIt’s a question that confounds some clients and probably has them turning to you for guidance: Do I save for retirement or for my child’s college education?

The conflict may not be wholly financial. Choosing retirement over their child’s education may feel selfish to some parents, and that parental guilt has the potential to lead to poor decisions.

No matter the motivation, recent statistics indicate that parents continue to be the largest contributor to their children’s education:1

  • American families spent an average of $30,017 on college in the 2019-2020 academic year
  • Parent income and savings covered the largest portion of education costs at 44% (more than $13,000 on average), a major increase from 30% the year prior
  • Scholarships and grants covered 25% of tuition
  • Money borrowed by students and parents paid for 21% of the total cost on average
  • Students covered only 8% of their tuition costs

So, where did parents come up with that kind of money? In addition to their regular income, 14% of parents withdrew funds from a retirement fund and 35% dipped into other savings or investments to cover college tuition expenses.1

Is There a Return On Investment?

Paying for college may help ease some guilt, but delaying or foregoing retirement savings contributions may result in well-meaning parents running out of money in their golden years. What then? Some parents might assume their grown-up kids will be there to help, but it’s a return on investment that may or may not come to pass. 

By the time parents reach retirement age, their children could be trying to save for the education of their own children. And they will likely try to save for their own retirement and have other expenses. The children simply may not be in a position to help aging parents financially.

Should Parents Practice Tough Love?

Parents who are struggling with or struggled through student loan debt of their own may see trying to relieve their child of that same type of burden as “doing what’s best.” After all, costs for college tuition, fees, room and board have about doubled over the past 30 years, according to the National Center for Education Statistics (NCES).2 

Education is not cheap, but parents do not have to shoulder the expense alone. There may be funding alternatives available to college students (such as student loans, scholarships and grants) that simply aren’t an option for retirement savings. It may not be what clients facing this choice want to hear, but as their financial advisor you can provide objectivity in a situation they may be too close to emotionally.

Before committing to paying for college, encourage your clients to look at key areas to determine whether they can afford to do so. Ask the following questions to help parents understand what they need to prioritize financially for themselves and their future before helping a child out with college tuition:

  • Does your budget cover your basic needs? If monthly bills are paid but there’s no room for discretionary spending, or if financial stress is a constant from month-to-month, financial security may be in jeopardy. Focusing on putting more money in the bank to alleviate concerns about covering basics might take precedence over saving for — or paying for — college.
  • Do you have an emergency fund? Life happens, and it usually comes with unbudgeted expenses. If three to six months’ worth of cash isn’t tucked away to cover unplanned events that arise in the short term, building an emergency fund may need to happen before saving for a future college education.
  • Do you have a handle on paying down debt? Before acquiring more debt to pay for a child’s education, parents must have a clear picture of their existing debt, and a proactive strategy for paying it down. Eliminating debt-related expenses could eventually mean more money in the college savings fund.
  • Are you saving for retirement? Contributing to a retirement fund now means more years for the money to grow. There may also be an opportunity to capitalize on employer plan matches and tax breaks to further shore up the golden years. Ignoring long-term financial security in retirement in favor of paying for college might come with unanticipated consequences.

Clients considering the college vs. retirement debate may not ultimately choose the prudent path for their financial futures, but you can help them manage the retirement resources they have by managing market risk and limiting loss. Explore our Rethinking Retirement Planning whitepaper for additional considerations and ways to encourage your clients to save. Click the button below to access this easy-reference tool now.

Rethinking Retirement Planning white paper


1Education Resources Information Center, How America Pays for College, 2020.

2U.S. Department of Education, National Center for Education Statistics, Projections of Education Statistics to 1986-87; Higher Education General Information Survey (HEGIS), 2019.


Topics: Retirement Planning