Can Taking on Your Kids College Debt Harm Your Retirement?
Should You Help Take On Your Kids College Debt?
An unsettling trend is emerging among pre-retirees and retirees. Parents are picking up a greater share of college education costs, and in doing so, they may risk damaging their retirement prospects.
A new analysis of higher education debt patterns by SavingforCollege.com finds that the average college loan debt shouldered by parents rose approximately 6% this year, topping $35,000. College is so expensive today that some students are hitting the ceilings on federal student loans, which allow them to borrow as much as they might make their first year after graduation. This year, those lending limits are set at $31,000 for dependent students and $57,500 for independent students. To some undergraduates, that seem low – and parents are opting to help.
Unfortunately, there is no such thing as a retirement loan (unless a reverse mortgage counts). With running out of money a prime retirement concern among baby boomers and Gen Xers, it seems financially perilous to tap savings accounts, IRAs and other retirement plans, or whole life insurance policies to help young adults whose peak earning years are presumably ahead of them. The desire to help sons and daughters deal with this debt is understandable, but it may backfire: if parents cannot fund their retirements adequately as a consequence of this generosity, their children may end up with another financial burden decades later – the burden of their impoverished elders moving in with them. The bottom line: put retirement saving first.1