As the cost of private four-year colleges has gone up to an average of $27,000 each year, many parents find themselves between a rock and a hard place. Do they fund their children’s tuition and ignore their retirement savings or do they curtail education spending and divert additional money into a future nest egg?
The average annual cost, including tuition and fees, has ballooned by 70% from a decade prior. Public university fees have soared to $7,600, or about 4 times the amount in 1991. According to a report released by student lender Sallie Mae, 51% of parents “strongly agreed” that they would stretch financially to pay for their children’s higher education, down from 64% in 2010. This is the first time the percentage has dropped since Sallie Mae started the survey in 2007.
Deborah Fox, San Diego-based financial planner and founder of Fox College Funding, says that today’s parents have not saved enough for their own retirement. Among the demographic of parents with college-bound kids, only 27% of those aged 45 to 54 and 41% of parents over 55 have put away $100,000 or more in savings and investments, according to 2011 data from the Employee Benefit Research Institute. Parents who are weighing college options with long-term debt (for themselves or their kids who take out student loans) and their own retirement are smart, says Fox. “Students should have some skin in the game.”