The Perfect Storm – Retirement vs. College
The current recession is stirring up a perfect storm for college bound families - how can you pay for college and still continue to fund your retirement?
Most colleges continue to raise their tuition because there is less money being given to support higher education from the state and federal governments. As a result, more students must turn to loans as a major source of funding for college. Yet, taking on the responsibility of an $80,000 or $150,000 loan is very difficult for most lower– to middle– class families who are already strapped for cash.
However, if you are the parent of a college bound student, the cost of college may not be the biggest financial issue you face today. You could be missing the big picture! Consider these facts:
- The youngest baby boomer is now 45
- The oldest baby boomer is now 63
- The average age of parents with college bound kids is 40-45 years old
Now fast-forward 20 years down the road when today’s parents with college bound kids are 60-65 and they want to retire. At that time the majority of Boomers will be 70-80 years old. Consider this:
- Will you still be paying off education loans over the next 20 years?
- Will college costs keep you from adequately funding your retirement?
- Will Uncle Sam need to tax your 401(k) at higher rates to cover the older Boomer’s old age benefits?
- Will you have enough money to outlast inflation if you live to age 90?
These are all tough questions to face in this tough economy. If you are a parent facing the college vs. retirement dilemma, you really should take the time to put some simple numbers together - to see if college costs will force you into a lower standard of living during retirement. If these numbers don’t add up because your current retirement fund has taken a hit this last year, then you need to seriously think about building a new retirement plan now, with college expenses built into it. Give us a call. We can help!
Private Colleges Must Work Harder To Lure New Students
This down economy finds many private colleges working harder to fill their freshman classes. A $50,000 per year private school tuition – even for such a prestigious school as say Carnegie Mellon – is a harder sell to students who may also have the option of paying less than half that to go to a prestigious state school. As a result, private school leaders are worried about declining enrollment and are making new efforts to help students whose families otherwise might not be able to afford tuition because of the recession.
Schools with a recognizable brand name and a big endowment, like Harvard or Yale, can offer free or heavily discounted tuition. But the challenge is much greater for smaller schools without the big endowments. Last year, many of these smaller schools had to sweeten their offers of financial aid. Some schools have already frozen tuition for next year and increased aid at the same time. If you are a high school junior who plans to attend college in the near future, do not rule out private colleges because of cost. You may be pleasantly surprised that some private schools will offer better deals than public schools for the school year 2010-2011.
The author of this newsletter is Chuck Reilly.
If you have any questions about the information contained in this newsletter, or any questions about college funding in general, please contact our office.
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