Paying for College While Saving for Retirement

Parents of teenagers are facing a financial dilemma: pay for their children’s college tuition bills or save for their retirement. 

For more and more people, it is becoming increasingly difficult, if not impossible to do both. Financial experts say that retirement should come first. While many parents will rate college savings a higher priority than retirement, mothers are more likely than fathers to put aside their own retirement security to help their children pay for college¹.

Perhaps it is the maternal instinct that makes mothers put themselves last, but the consequences can be more devastating for them than for their husbands, or their children. 

While a college education may be one of the most important gifts you can give your child, so, too, is planning a secure retirement for yourself so that your children are not burdened with supporting  you when they are starting out in a life of their own. As you save for their education, be sure you are not neglecting your own retirement plan. This is particularly important for women. Women, on average, live more than five years longer than men.² Couple longevity with the fact that women are more likely to be unmarried, whether through divorce, death of a spouse or never having been married, and they are faced with some unique retirement challenges.³ 

Women need to prioritize their goals and should save for retirement first. There are a number of options to fund a college education, including student loans and grants. Mothers can, however, still help guide their children along a path that will help them achieve a college education without sacrificing their own security.

Multiple Sources of College Funding

Evaluate financial aid. Grants are among the most desirable forms of financial assistance because they don’t have to be repaid. They are, however, based on financial need and are not available to everyone.

Borrowing accounts for up to 41 percent of total aid awarded to undergraduate students each year⁴, and may be the easiest way to pay for a portion of college expenses. You may consider student loans or PLUS loans (Parent Loans for Undergraduate Students). The largest loan program is the Federal Stafford Loan and there are two types –subsidized, which is needs-based, and unsubsidized, which is available to all students. 

There are thousands of scholarships available. Your child may earn a scholarship in a variety of ways. Most are based on a strong high school performance in the areas of academic, social or athletic achievement, and are available through private groups, philanthropic organizations, religious organizations and colleges themselves.

Get your kids involved. Be honest with your children about the cost of college and your own retirement concerns. Discuss with them about how much the education will cost, how much you are able to pay and what they can and should expect to contribute through their own savings and earnings. If they have been saving some of their gifts or earnings from babysitting, yard work or other part-time jobs, suggest they use this to help pay a portion of their college expenses. Your children may also qualify for work-study programs while on campus. If your children work to pay for school not only will it help pay for some of the expenses, it will also help instill their value of their education.

College Savings Plans

After you’ve put money aside for your own retirement, you may find that you are still in a position to invest for your child’s college education, particularly if you start saving early for both. When exploring ways to invest for your child’s education, 529 plans have specific advantages. Any earnings grow tax-free, and withdrawals aren’t taxed when used by the designated beneficiary for the purpose of a higher education. Keep in mind that 529 plans are state-sponsored and the tax benefits may vary by state. There are fees associated with 529 plans as well as some restrictions around their use depending upon the type of plan you choose.

Withdrawing funds for a use other than qualified education-related expenses will result in a tax on the distribution, as well as a 10 percent IRS penalty on earnings. There are many facets to 529 plans and it is important to understand the benefits and the drawbacks of any investment strategy before you begin.

Keep your education funding goals in perspective with your retirement needs.  Like college, a secure retirement is costlier than ever, especially for women who have longer life expectancies and need to save more for retirement. Don’t plan for one goal at the expense of the other. 

This is where professional guidance comes in. A financial professional can discuss your options, as well as the implications of each financial decision. The more you coordinate your overall planning picture – the easier it will be to reach your financial goals.

For more detailed information on retirement and college planning strategies, visit the “At Retirement” and “Preparing for College” sections of the AXA Equitable online learning center.

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1. Country Insurance and Financial Services 2007 College Funding Survey
2. Population Reference Bureau, “Gender Disparities in Health and Mortality,” November 2007.
3. U.S. Census Bureau, “Current Population Survey, 2008 Annual Social and Economic Supplement,” January 2009.
4. The College Board, “How the Borrowing Process Works.” Copyright ©2009 collegeboard.com, Inc.

Investors should consider the investment objectives, risks, charges, and expenses of 529 plans carefully before purchasing. More information about 529 plans can be found in the issuer's official statement, which can be obtained from your financial professional. Please read the official statement carefully before investing.

If you are investing in a 529 plan outside of your state of residence, you may lose available state tax benefits. Make sure you understand your state tax laws to get the most from your plan. 529 plans are subject to enrollment, maintenance, administration/management fees and expenses. 529 plans are subject to fluctuation in value, including loss of principal.

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