Helping the next generation foot the bill for college is one of the most common financial goals out there for parents. With the cost of a college degree on an upward trajectory, parents are having to double down on saving more than ever. Unfortunately, the rise in tuition isn’t the only shift that’s putting families in a tight spot. Many college students are staying in school longer too.
According to recent research, it’s taking students an average of 5.1 academic years to earn a bachelor’s degree these days. A fifth year of college could cost over $150,000 when you consider additional tuition, the associated costs of staying in school, interest on student loans, and forgone income and retirement savings for the student. Talk about an unexpected blow to the bottom line!
What’s going on:
There are lots of reasons why it’s taking longer for kids to graduate:
- Not taking enough credits each semester: Most students need to take at least 15 credit hours per semester to graduate in four years. Many take less than that.
- Taking an unexpected leave of absence: A family emergency, personal emergency, or medical problem may lead to kids taking time off during their college years.
- Losing credit hours from school transfers: Transferring in from other colleges can lead to losing credits in the process.
- Taking unnecessary classes: Students wind up taking classes that don’t count toward their major, forcing them to take additional semesters to make up for lost time.
The effect on the student:
It’s very common for college students to rack up the debt. Most don’t save any money during college and have taken on large student loan and credit card balances. Adding more time to college life only magnifies the problem.
An extra year at a public college costs $12,000 on average, with one more year at private school coming in at approximately $19,000. The cost of a student loan for that additional year? A 10-year loan with interest ranges between $6,000 and $8,000. On the flip side, you have lost opportunities for generating income from a full-time job and saving for the future. That extra year costs $46,000 on average in lost earning potential, and $82,000 in missed retirement savings with compounding interest.
What it means for the parents:
Having an unexpected year of college to pay for is a hard thing to swallow and can have a very negative impact on the parents’ financial plan. It takes many parents their child’s entire life to save up enough money to pay for school. Most don’t consider that it may take their child more than four years. Paying thousands extra in tuition can make parents really fall behind on their own goals, particularly saving for retirement. Parents must keep in mind that saving for retirement is a must-do, as you can only stay in the workforce for so long before having to tap into that next egg.
Our two cents:
As a parent, don’t put saving for retirement on the backburner because of unexpected college costs for your children. If your kids need to take out loans to finish up college degrees, it’s not the end of the world. Taking out loans means the responsibility is shifted from the parents to the children, which isn’t necessarily a bad thing. Having some financial skin in the game can benefit college students and may lead to kids doing what’s needed to finally get that degree under their belt. It’s not always an ideal situation to add more debt, but it is certainly something many parents and their children must consider when it comes to paying for additional education. The impact of delaying retirement savings and lost income are simply too large to ignore.
If you’d like to chat about how to handle the upcoming college expenses for your family, we’d love to hear from you. Take our Risk Assessment to get started.
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