Bad news: Nearly 25% of parents plan to use their own retirement savings to pay for college, according to a study released last week.
Cashing out retirement funds early, even for education, is a big no-no. The tax bite, never mind the lost savings, will crush your nest egg.
And it may be completely unnecessary, says Zac Bissonette, a senior at the University of Massachusetts, and author of Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching Off My Parents.
True, college tuition is rising at a scary 6% per year—faster than wages or inflation. Still, you can control costs without sacrificing a quality education for your kids—or your own future financial security.
Consider avoiding brand names. A pricey, high-end college “will not help your kid get a better education or earn more money,” says Bissonette. A study from Princeton found that students who were accepted into elite schools, but who attended less selective colleges, ultimately earned the same as those who actually went to the elite schools.
Go local. Community colleges are cheap, and studies show that students who transfer from these to four-year schools have a higher graduation rate than students who started at four-year schools.
Lock in lower tuition now. By using a prepaid tuition plan—a type of 529—you put money toward your child’s degree at current prices. Most prepaid plans pay for college within state systems, but you can also lock in private school tuition through the Private College 529 Plan.
Check out Zac Bissonette’s book, Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching Off My Parents.