How to Help Clients Choose Between Funding Retirement and a Child’s College Education


Samantha Lamas  |   25th Oct 2019 | 4 min read

When it comes to college tuition costs, many advisers see their clients face a common problem: They want to pay for their children’s college tuition, even if it means taking money away from their retirement savings. Doing otherwise may make investors feel like a bad parent or a poor provider, even though it means putting their own future financial security in jeopardy. In their recent white paper, “The College Question,” senior behavioral scientist Sarah Newcomb, head of retirement research David Blanchett, and director of personal finance Christine Benz explain why clients feel so deeply compelled to make this sacrifice and how advisers can steer them in the right direction based on their unique situation. Here, we outline a few key points to cover in this conversation.

Should parents cover the tuition bill? 

Any college-funding conversation should start with understanding the research behind college-funding decisions. There are several options available, and research suggests options where students assume part of the responsibility can often be the right fit. For example, research suggests that student loans can be a good solution for many families. Researchers tracked the financial circumstances of thousands of college graduates and found that most people can manage their school debt without much burden if they keep payments below 8% of their pretax salary. Morningstar has created a tool to help investors calculate this number and better understand how much debt their children can reasonably take on. Other findings suggest that working part-time while in college may help boost a student’s academic performance. Several studies have found that students who worked 1-15 hours per week had significantly higher GPAs than those who worked more than 15 hours and those who did not work at all.

College or retirement: Forgoing retirement savings might be more serious 

Clients may benefit from understanding that though their kids will have plenty of time after college to work and pay off loans and tuition bills, they may not have as much time to catch up with their own savings before reaching retirement age. It may come down to this choice for clients:
  • They put financial responsibility on their kids when they are young, strong, and educated, or
  • They put the responsibility on them when they’re older and have additional financial priorities—which may include caring for their aging parents, who weren’t able to save enough.
Many parents simply haven’t thought through this potential consequence. Pointing this out can go a long way toward opening a person’s eyes to the need to make trade-offs during the college years.

How to afford college and retirement 

Many retirees rely on a combination of funding sources for their income needs in retirement: the so-called three-legged stool that includes Social Security, personal savings, and possibly a pension. A similar multipronged approach can be an effective way for parents to think about paying for college. One funding strategy that can make paying for college seem more manageable includes three discrete pieces:
  • Personal savings: An ongoing savings endeavor over the years leading up to the child enrolling in college.
  • Financial aid and student loans: In the case of federally subsidized student loans, interest doesn’t begin accruing until after the student has finished college.
  • Contributions from income while the child is enrolled in college: These contributions can come from the parent or the child.
Though the parents can and should work to grow their personal savings fund, this three-part approach can help remind them that additional levers are available if their own savings fall short.

How to have more effective conversations about college funding 

It’s not an easy task to help clients understand the trade-offs between funding their children’s college or their own retirements. Many clients may balk at the idea of putting their own needs first, even if it may be the right decision for their unique situation. Our latest white paper helps advisers through these conversations by dispelling the myths surrounding college funding and providing a three-step approach to affording both college and retirement.

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