College degrees lead to higher pay, greater career options, and — research suggests — longer lifespans. But parents with college-bound children may feel trapped by the skyrocketing costs of education, which can also last a lifetime.
If you pony up, you could risking your retirement; if you don't, you could be risking your kid's future.
Indeed, the average graduate leaves school with nearly $30,000 in student debt, a sum that will reduce their future retirement savings by more than $300,000, according to a projection by insurance and financial research group Limra.
Likewise, parents' retirement savings are also getting put on the line because of skyrocketing costs. Nearly a third of parents in a T. Rowe Price study admitted they've made the risky choice of tapping their 401(k) plan to save for their kids' college.
That's a shortsighted move, said Sean T. Keating, a certified financial planner in Eatontown, New Jersey.
"You can always borrow money for college, but you can't borrow money for retirement," Keating said.
What do you do?
Finding compromise is possible if you plan ahead and follow the right order of operations, said Lazetta Rainey Braxton, a CFP and founder of the wealth advisory firm Financial Fountains.
"Middle income parents need to ensure their own financial stability first," Braxton said. "It's like putting on your airplane oxygen mask before you put on your children's."
Here are three key questions to ask yourself before you decide to open your wallet wide — or slam it shut.
One rule of thumb says that to maintain your standard of living, your savings at retirement should be high enough to replace at least 80 percent of your annual income each year, said Keating. Work backward from that assumption to see how much you can actually spare today, he said, also keeping in mind obligations like your mortgage payments and any other debts.
"You have to be aware of what you'd be sacrificing," said Erika Safran, a CFP and president of Safran Wealth Advisors in New York. "Will you run out of money at age 75? You must also consider medical expenses and where you will live."
In fact, many older adults end up forced to retire earlier than they expected because of illness or other unforeseen events, said Thomas Murphy, a financial planner in Dallas. So it pays to leave plenty of buffer room as you budget out any contribution to your child's college funds.
Make sure you are doing everything you can to free up easy cash, Safran said. Refinancing a mortgage right now could save you hundreds of dollars a month, for example. If you've done the math and realize you truly can't spare much (or any) cash for your kid's education, don't just leave your child hanging.
"When you simply say you can't pay, that can discourage a kid from applying to schools at all, since he or she might not realize you can actually get application fees waived," Murphy said.
Instead, stay involved in the process and fill out the Free Application for Federal Student Aid — no matter what. Even if your family income is too high for your children to qualify for federal aid, simply having a completed FAFSA gives students the option to apply for merit-based scholarships and other grants a prospective school might offer.
"Don't get hung up on the numbers in the initial letter," Murphy said. "It's a negotiation, and if it's a really good candidate, a school might up their package."
Mentioning acceptances from more competitive schools can help your child's case, said Murphy, and he or she should get to know the aid officers at the college by name.
"Financial aid officers are impressed if a student is proactive in asking about scholarships," Braxton said. "Don't be afraid you're bombarding them."
Finally, remember that it doesn't hurt to exercise a little patience: Consider asking for additional aid before the second semester, since money may have freed up because of first-semester dropouts, Murphy said.
Not all high school seniors are academically or emotionally ready for college.
"For some, a year in the working world not only allows them to contribute financially but also gives them a sense of accountability," Keating said. "It might also make them more reasonable in their choice of schools."
Joining the military or starting at a community college before transferring to a four-year school are other options that can save money and give your kids extra runway to mature before college, Keating said.
Remember that, for your child, choosing a school is not just a financial or academic decision. "It's also an emotional decision," Safran said.
Try to keep an open mind. If your child is excited to start right away at a school on the high end of your price range, you can always make your financial help conditional upon their academic performance.
"You can promise you'll help them pay back their loans after graduation if they get good enough grades," Murphy said.
But be careful not to view your contribution as a quid pro quo.
"The assumption that you're doing this because your children will care for you in your old age needs to go out the window," said Braxton. "If it's a gift, you can set the terms and how you want to give it, but you can't hold them hostage."
Braxton said when she went to college, her parents chipped in for a car, and she had to fund the rest of her education by taking out loans and working multiple jobs.
"I appreciate my parents for setting boundaries," said Braxton. "They said, 'Here's what we can and can't afford,' and they didn't feel guilt. They shouldn't."
Indeed, at least one study has shown that undergraduates receiving less financial support from their parents actually get higher GPAs.