Saving for college has become a primary goal for most parents. As soon as they learn of their baby’s anticipated arrival, they begin planning. They will research college savings plans and start choosing schools almost at the same time that they decide on potential names. However, once you realize that the costs of a typical 4-year private school can be between $400,000 – $700,000 depending on the rate of tuition inflation over the next 18 years, you will probably want to make saving for college a top priority. Even with that news, there are still a few situations where it will be better for you to focus on your own finances, rather than saving for your child’s tuition.
When Shouldn’t You Save For College?
When You Have Debt
If you have debt, then now is not the time to begin worrying about saving for college. Most likely, you are going to earn less in investment returns on your college savings account than you will have to pay in interest on your debt. Paying off debt is one of the easiest ways to see a great return on your cash. So take your extra money and put it toward debt repayment, rather than saving for college! Even if it takes you 18 years to completely get rid of your debt, you will still be better off than if you plowed all of your extra income into saving for college. Debt has been tied to levels of stress, and even obesity! The bible indicates that someone in debt becomes a servant to the lender! Saving for college may be important, but it is not worth living under the weight of debt for decades!
If You Have No Emergency Fund
Having an emergency fund is an essential part of financial planning. If (or should I say when) a large, unexpected expense comes up in your life, it will be a lot easier to pull the necessary money out of your emergency fund, as compared to trying to make heavily taxed withdrawal from your college savings account! Once you fully fund your emergency fund, then you can begin to save for college (assuming that the other items in this article are in order as well), knowing that you are as prepared as you can be for an unexpected event.
If You Have Inadequate Retirement Savings
In my experience, this is the one area that is most often neglected for college. Since retirement seems very far away for most people – definitely much farther than their kids going to college – they will put retirement savings on the “back burner” in favor of saving for college. This is a terrible mistake. One of the main benefits of saving for retirement is time. However, you lose that benefit with each year that you neglect to max out all of your retirement savings options (including earning your 401k employer match)! Every year of college savings in lieu of retirement savings means that you have forgone not only the amount from that one year, but the compound interest for decades to come!
Why are These More Important Than Saving for College?
You Have Much Less Time Than Your Children
What I mean by this is that if they are forced to wait a few years after graduating high school before attending college (so they can work and save up themselves), they still have time to get a degree and follow their dreams. However, if you are plowing a significant amount of your disposable income into saving for college until you are in your 50’s, then you don’t have a lot of opportunities to make up for lost time. There are more programs in place and more options available to someone trying to get a college education, than there is for someone who has neglected retirement savings, or doesn’t have an emergency fund when a $10,000 even pops up!
They Don’t Have to Go Immediately
There is no rule that a kid must head to college immediately after high school. As I stated earlier, if they have to work a few years to save up enough money for tuition, it’s not a big deal. Those additional years may also give them time to really decide what they want to do with their lives. They could also take a few classes here and there as they get the money – no rule against going part time either! We need to get out of the mindset that college is a normal progression of life!
You Have an Opportunity to Teach Them to Save
Many people look for creative ways to teach their children about personal finance. This is a way that you can tackle two objectives at once. When you begin to talk to your children about the importance of saving money and of education, give them a goal. Anytime they receive money for birthdays, Christmas, inheritances, good grades, etc., have them save a large percentage of it. That money will now be earmarked for their college education. It may not mean much to them at age 4 or 5, but it will mean a great deal when they are in middle and high school and they begin to think about their future. Hopefully, when they start working, they will be inclined to boost this savings account with some real dollars. Once you have taken care of your financial concerns, you can begin to match their savings and watch the account grow over time.
It May Encourage Them to Make Better Choices
The numbers that I quoted above were based on a child attending a private school for 4 years (with tuition inflation ranging from 5 to 8%). However, those costs can be drastically reduced if they choose to go to a state college, pay the in-state resident tuition rate, and commute from home. Have them attend a two-year community college to drop their project tuition even further – they can then transfer into a 4-year university to complete their education.
They Can Apply For a Scholarship
A scholarship is a great way to offset the costs of college. However, many students and parents fail to do the necessary research and preparation in order to take full advantage of them. There are a plethora of different schools out there and they all offer unique financial awards. Online schools, for example, are an excellent way for your child to save money as the overall payment is generally lower than a conventional institution and many of these schools also offer numerous forms of financial aid. Online schools have designated professionals that you can contact at nearly any time, so encourage your child to make contact with someone who can guide them through the process. A simple phone call or trip online could result in thousands of dollars saved via scholarships, financial aid, and unique awards. In addition to the typical academic and athletic scholarships, there are awards for music, science, various ethnic backgrounds, low-income children, etc.
They Have the Opportunity to Get a Job
Your kid can also get a job while in high school in order to save up for college costs. Then once they are in school, they can work in order to pay for classes; or if they have taken out a loan, they can begin to pay it back while they are still in school.
Your Child Can Get a Loan
Unlike when you are ready to retire, your child can always fall back on a loan in order to get through college. Of course, that isn’t the preferred solution, but it is an option. Your child will have ample time and opportunity to payoff the student loan without damaging their future.
- Are you currently saving for your child’s education?
- If so, have you taken care of these things first?
- How much of a priority is saving for college?