Want to Avoid Years of Crushing Debt? Save for College Now

College is more expensive than ever: Not properly planning to fund your own education or that of your child could saddle you or them (or both of you) with decades of debt.

Piggy banks grow in size until the largest one is wearing a mortar board.
(Image credit: Getty Images)

The financial difficulties of going to college have long been a problem for American families. Decades ago, it was possible for a student to attend college and pay for it with the proceeds of a summer job. Those days are long gone. College today often costs as much as a new car, or more, for just one year! A bachelor’s degree — which, incidentally, most students take more than four years to complete — can easily cost more than $100,000 at an in-state public university.

It’s quite a lot of money for an 18-year-old to come up with! That’s why it’s important for parents to begin preparing for their child’s higher education early. Proper preparation can avoid years of crushing debt for both the student and their family.

The student loan crisis we’re wrestling with on a national level is a clear indication that what people are doing now isn’t working. Students are encountering significant financial obstacles in which parents and even grandparents feel compelled to help them. Often, this means taking out student loans on the student’s behalf, but that’s a dangerous choice.

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As a parent, that’s essentially paying for a mortgage that doesn’t result in homeownership. Some student loans have 30-year repayment windows. My daughter is about to enter college, and I’ll be 47 when she graduates. If I took out one of these loans to help her pay for school, I’d be paying it off until I was 77! This is a prime example of how easy it is to end up paying student debt well beyond retirement age.

However, expecting my daughter to entirely fund her education on her own with 30-year loans is similarly undesirable. If she has to pay for student debt well into middle age, that will have a significant impact on her ability to achieve other life milestones, such as buying a home and saving for retirement.

A further consideration for today’s college students is the challenges they will likely face in the job market throughout their working years. The fact that automation continues to improve every year cannot be ignored; many high-level jobs requiring a college education are at significant risk of being taken over by artificial intelligence. If you get a degree in computer science with the intent of becoming a programmer, know that AI is likely at some point coming for your job. If you still have significant student debt when you are replaced by a machine — debt which is not generally forgiven in bankruptcy — you could find yourself in dire straits.

Proper planning for college takes time. If possible, start when your child is born. Consider savings vehicles such as a 529 plan, which confers tax advantages to the money within it and allows for tax-free withdrawals for certain education-related expenses, including tuition.

Life insurance is another option to consider: Unlike a 529 plan, a properly structured life insurance policy that has a cash-value component won’t count against you as an asset when applying for financial aid.

Stress to your child the importance of earning scholarships. The more “free” money they can get through high academic or athletic achievements, the better. Even if they aren’t a straight-A student, don’t assume they aren’t eligible for scholarships. There are a wide variety of scholarships available, including ones that reward a surprising array of activities. There are scholarships for vegetarians, tall people and even students who promise not to text while driving! Every scholarship your student can win is money they won’t have to source via debt.

Consider other educational options. If your student doesn’t know what they want to major in, completing their general education requirements at a community college is a less expensive — and sometimes free — way to save money on a four-year degree. If your student wants to enter a trade, don’t force them to get a bachelor’s degree; trade school is much cheaper and can lead to high-paying careers.

Involve your student in the plan

Above all, set expectations. Sit down with your future college student and be transparent about what you are willing to do to help them pay for college. Make sure they understand what they must do to pay for their education as well and make sure it’s a significant enough investment that they take it seriously.

If you foot the entire bill for their education, they are more prone to the temptation of slacking on their coursework; after all, if they do poorly in class, they’ve lost nothing but time.

Review the different types of loans available — some are friendlier than others in terms of repayment — and let your student have some proverbial skin in the game.

I regularly speak with clients who are nearing or in retirement and who are still paying off student loans they took out for their children or grandchildren. It’s an unpleasant situation to be in, and one that you should strive to avoid.

That can sometimes feel selfish, but remember, if you harm your retirement by overspending for your child, you may have to ask your child for financial support in what should be your golden years. That won’t be fun for either of you, which is why prioritizing your retirement above going deeply into debt to put your child through college is not only unselfish, but prudent.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Jared Elson, Investment Adviser
CEO, Authentikos Advisory

Jared Elson is a Series 65 Licensed Investment Adviser Representative (IAR) and the CEO of Authentikos Advisory. Following a 10-year career with Yahoo, Jared identified an acute need for sound financial counsel in the tech industry and has excelled in giving tech professionals the tools they need to grow and preserve their wealth.