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Should You Use Studen Loans or Your Retirement Money to Fund Your Child's Education?

Oct 30, 2007
Are we really in deep trouble if we do not have a college fund set up for our children when they are already to head off for college? Or, are we bad parents? Helping your kids through college is wonderful and demonstrates that you value their education.

Currently there are parents that barely get by, but no matter how tough it gets, they always manage to put money in the kid's college funds, even though they can't afford to purchase a house or contribute to their own 401(k) plans at work.

If you have to choose between putting money in the kid's college funds and buying a house, but the house. You may be able to pay tuition with a home-equity loan when the time comes. You may find it easier to pay for college when that time comes.

It's great if you can start saving for your kid's college tuition 10 to 15 years before they need it. But early years of raising children can be the most financially challenging. Parents' careers are just starting, perhaps just getting into a home and starting investing.

Your kids may choose not to go to college. Will it be OK with you if they decide to pursue a career that doesn't involve college, instead start a business? Don't put so much emphasis on saving for college that it creates a conflict between you and your children.

Your retirement plans are more important than your children's college funds. Your kids can get through college somehow, and you will probably find a way to help them. It is more important to plan for your retirement. Your kids can get student loans, but there's no such thing as a retirement loan.

Your 401(k) plan should be dedicated primarily to your retirement, with the secondary possibility that you might need to tap into it for college expenses. There are two primary drawbacks to using your 401(k) funding.

First, if you withdraw funds before you are 59 1/2, you will owe a 10 percent premature distribution penalty on the withdrawal. This penalty is in addition to income taxes you will owe on the withdrawal.

Second, dips into your 401(k) reduce the amount of money you ultimately have available to reap the benefits of compounding and tax deferral. This, in turn, reduces the overall funds for your retirement.

Your retirement savings plans are not like any other investment. It is much wiser to go the traditional way for student aid, grants, scholarships, federal and state assistance and then look into private loans.

A good word of advice is to have your child as a co-signer so he is aware he has a part of this investment in the long run.
About the Author
Court provides information about student loan consolidation programs and helps people refine their internet marketing services.
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