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Is It Worth It To Borrow For Your Children’s Education Instead Of Saving For Retirement?


If you want to help your children pay for their college education even though the amount you were able to save for them before they graduated, it does not make you a helicopter parent.  If you are the parent of a recent high school graduate, then the price of a four-year college degree has increased exponentially since your children were born. In other words, even if you followed the financial advice you received when your children were babies and you started saving for their university education, the amount you saved is probably not enough to cover the entire cost of tuition and living expenses unless your children receive scholarships, live at home, and attend an in-state public university.  You might be tempted to take out Parent PLUS loans for the purpose, but if you do this, it is to the detriment of your own financial security in retirement.  A central Florida estate planning lawyer can help you develop an estate plan that provides for essentials while also enabling you to contribute to your children’s college education.

Put on Your Own Oxygen Mask Before Assisting Others

It is very easy to qualify for a Parent PLUS loan, a federal student loan for the parents of undergraduate students.  Repaying these loans is not so easy.  Unless you have a high-income job and little savings, the chances are high that you will struggle to keep up with payments.  If you enter an income-driven repayment program, you will need to pay 20 percent of your discretionary income toward the loan for 25 years.

If you want to put anything toward retirement in that situation, you will need to live very modestly indeed.  Your first priority should be long-term care insurance.  You can read about the dramatic ways that parents have downsized their lifestyles in order to pay the income-driven Parent PLUS loan installments, but then again, that might be enough to convince you not to borrow one.

What to Do Instead of Taking Out Parent PLUS Loans

If your child has decided to attend a university where the costs exceed your child’s scholarships, the grants for which your family is eligible, and your college savings, there are ways to help that don’t involve borrowing.  You can give your children tax-free cash gifts in any amount up to $15,000 per year, due to the annual gift tax exclusion.  If your child takes out student loans to fund their education, you can also offer to let them live at home after graduation while contributing very little to household expenses, while prioritizing loan payments, if your child is able to find work in your city.  The fact that college education has become unaffordable for all but the wealthiest people is a problem bigger than individual families, but you should not let it interfere with your retirement plans.

Contact an Attorney Today for Help

A Clearwater estate planning attorney can help you see the big picture about educational expenses and retirement planning.  Contact William Rambaum for a consultation.



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