If you’re the parent of a student, you may be starting to think about the future of your child’s education – specifically, how you or your child might pay for college. Options may start dancing through your mind: Should you start a savings account? Should you draw from your retirement fund? Will your child have to pull a student loan?
There’s no doubt about it – financially planning for your child’s college education can be stressful, especially since college tuition has increased 213% since 1987 and the average student loan debt rose to $39,400 (for the class of 2017). All of those numbers amount to one word: “Yikes!”
You might even want to be able to pay for your child’s college, but you’re worried about paying off your own student loans. Not to mention, you may have a mortgage payment and you also might want to retire at some point in your life.
If your goal is to get your child through college debt-free, we’re here to say it’s possible with a game plan and a little strategic budgeting. To give you some inspiration, we found three parents who were able to pay for their children’s college education. Here are their stories and advice to others.
John C. from Michigan
One in three parents reveals that they plan on helping their child pay back some or all of their student loans. In some cases, parents plan on taking out a loan themselves in order to fund their child’s education. In a 2015 – 2016 study (the most recent data), it was revealed that parents of college students borrowed an average of $33,596 in loans.
The reason is the same across the board: The parents would rather take on the debt of college tuition than have their children start their adult lives in debt.
John C. decided to take this approach when paying for his child’s $80,000 student loan. A skilled worker employed at Millwright, a construction company in Michigan, John brought home a single income of $120,000.
In order to pay for his child’s school, John took out a loan, which he expects to completely pay off in the next five years.
At the end of the day, John wanted to finance his child’s college education to help them get a start in adult life.
It’s important to note that every parent’s financial situation is different. There might be factors that prevent you from funding your child’s college education. Additionally, it’s never a good idea to put your financial future at risk by borrowing from your retirement or tapping into your home equity.
Liz A. from Chicago
Speaking of the factors you should consider when paying for your child’s education, some parents might have to contemplate the long-term play. There are aspects like caring for elderly parents, having multiple children in college and even the amount of interest you’re expected to pay over the life of the loan that might make it risky to take out a loan for your child’s education. In fact, borrowers over 60 years old (often the parents of college-aged children) are more likely to default than their younger counterparts.
If you’re considering taking out a loan for your child’s education, consider Liz A.’s approach. Liz, a school teacher, along with her spouse, a project manager for Bank of America, was able to put three children through college by taking out a loan and adopting a strategic budgeting system into her household.
With a dual income of $130,000 and a combined student loan amount of $360,000 (between their three children), Liz and her spouse took out a loan, relying on a strict budget in order to pay everything off in a timely manner.
“We didn’t go on vacations and watched our shopping expenses,” Liz adds.
Currently, college is paid off for her two eldest children, the oldest attending school in Iowa and the second in Boston. For the third child, who attended undergrad in Michigan and is currently attending graduate school online, Liz expects their schooling to be paid off in about three years.
“One of the greatest gifts that we can give our children is the gift of education and also to have them begin their adult life loan-free,” Liz explains.
David H. from California
In some cases, you might be able to get ahead of the game and start a savings fund for your child’s future financial obligations. There are some specific savings plans for college, like the 529 College Savings Plan, but it’s not for everyone. There’s also the option of setting up a personal savings account, which is what David H. and his spouse did for their children.
David H., a retired fire captain from California and his spouse, a school teacher, had a dual income of $115,000. David revealed that when he and his spouse found out they were expecting a child, they started a mutual fund, contributing to it on a monthly basis. They were able to save a total of $50,000 from “conservative spending and responsible borrowing,” recalls David.
David explains he was able to achieve this by never spending more than he and his spouse made in income and by never borrowing money, except when necessary (like a mortgage or an auto loan). He also strove to stay on top of credit card payments every month, paying on time and in full.
However, when his child completed college, with a final amount of $120,000 in tuition, he found they hadn’t used the money from the mutual fund, so he and his spouse gifted the funds for their child’s wedding.
“My number one goal in life is to have my children succeed. I’ve known broke. I was not going to let my daughters start off their lives in the hole,” he adds.
There are ways you can help your kids avoid future student debt without going into debt yourself. By coming up with a plan sooner rather than later, you’re able to set you and your child up for future financial success.
Are you a parent that paid for their child’s college education? Tell us your story in the comments below!
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