The price of college and the burden of student loan debt is frequently cited as a barrier to young people's efforts to buy a home, marry and start a family. What receives less attention is the impact that paying for college can have on parents, and even grandparents.
As the cost of higher education has ballooned over the last couple of decades, older generations have been dragged into the whole mess, as the financial assistance they provide their children may be interfering with their own preparations for retirement.
A recent survey commissioned by Discover Student Loans shows that 31% of parents said they might have to work longer as a result of helping to pay for their child's college education. An equal portion said paying for college meant they might not have as much saved for retirement as they'd like, and 25% said college education costs meant they would have to skip vacations or other entertainment in the future.
Then there's the far end of the spectrum. In InvestmentNews' cover story on this topic in last week's issue, senior reporter Mark Schoeff Jr. cited one adviser who said two of his clients "completely sacrificed their retirement for their kids' college education."
Advisers may not be experts on college planning, but given the financial implications that college tuition can have for both parents and children, they should be talking to clients and their children about college, and helping them think through how to pay for it.
One good starting point is setting up 529 plans for children soon after they're born.
Once clients' children are in middle school or high school, advisers should check that both children and parents have a realistic idea of what the various options — private universities, state schools and community colleges — would cost and how such costs would fit into the family budget.
The recent college admissions scandal reveals the intensity with which some families pursue prestigious, and costly, private universities. But students can get a good education at state schools as well.
How does the expected tuition cost fit into the family's budget? Are there other areas where the family can cut back in order to pay for tuition? Should the family consider a second mortgage or some other type of financing to help pay student bills?
Advisers don't have a crystal ball that lets them see into a student's future, but they can help families talk over the amount of borrowing it would take to allow a child to attend a particular school, what such an amount would mean in terms of monthly repayments once the student graduates, and what the student can reasonably expect to earn after college in the career they're aiming for. High school students aren't yet experienced consumers; they need help to understand the ramifications of signing up for that student loan.
There are a couple of important roles advisers can play in clients' college planning. First, they can serve as a trusted outside voice. Parents can talk until they're blue in the face, but their children may not be listening. Advisers may be able to get through to kids who've been resisting certain messages from their parents.
Perhaps most importantly, advisers can continue to advocate for the importance of their clients' own retirement plans, even as those clients are concentrating on what their children need for college. Many parents would do anything for their kids, no matter what it ends up costing them. Advisers can provide a useful counterbalance to the insanity of college costs by reminding parents about what they need to do to prepare for a secure retirement and helping them figure out a way to navigate the two responsibilities.