Some parents are trying to fund their children’s college tuition with unsecured personal loans. Mary Eggertt, mother of two college students in Ohio, said, “Personal loans are bridging the gap for us financially. …We don’t have a lot of savings, and when a bill comes up, we don’t have a lot of other options.” Eggertt is just one of millions of parents looking for ways to fund their child’s education. It’s estimated that the average private college costs about $30,000 a year and an in-state public university can cost $12,000 annually. With numbers like this, average people will have problems putting their child through college.

Despite the problems of funding college, is it a good idea for parents to stretch their budgets to make payments? Experts are weighing in on the issue and giving a lot of advice concerning why parents should not make funding college their primary reason for saving.

Retirement needs to come first

Sure children’s education is important, but when parents are continually putting off their own saving to fund it, there is a problem. Financial experts cite that there are no loans for retirement. If a parent reaches their retirement years without necessary funds, they could see their golden years quickly diminish. When it comes to college, kids will be able to get loans to fund it if necessary. There are also scholarships, grants and part-time jobs. Also, psychologists argue that having a child personally invested in their education makes them more appreciative and serious about studies.

College savings funds

There are a lot of options for saving for college, but not all of them are reliable. First of all, if parents use these education funds, there are few investment options. A lot of funds pay interest only, and some don’t allow owners to invest. Parents can’t use an education fund to invest in real estate, for example. That may bring a higher return than the education fund would. If putting money into other investments brings a higher rate of return, parents may only need a few small unsecured personal loans to cover the gap.

On top of being inflexible when it comes to investing, education funds are also difficult because of their reliance on tax code. Tax rules change from year to year and it’s difficult to gauge a parent’s income in five years. There have been many cases of parents having income that is too high for them to be eligible for tax advantages they were expecting to use. Gail Prittman, Financial Aid Director at Cornell said, “Too many parents want to do everything they can to start a college fund for a child right away. The problem is that predicting the future just isn’t possible.”

Other education options

While it’s nice to say your child went to an Ivy League school, is it really worth it? There are no guarantees in college funding that say if a child has a Harvard education they will find the perfect cushy job. Overall experts are telling parents to save for themselves first, and then move onto their children’s college funds. Worst case scenario there won’t be enough for children to go to the college of their choice, but there are options. They can get jobs, work at the college for a discount, use unsecured personal loans, get scholarships or start off at a less costly college.

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Personal loans for funding college or retirement? Think carefully. (Photo: flickr.com)

One key question Americans are asking themselves is whether to use personal loans as a means of funding retirement or college funds. There is a careful balance between choosing to put hard-earned money into a person’s long-term future, or their children’s. Senior financial advisor Evelyn Dinkins recently reported on why consumers should be looking to their own retirement funds before their children’s college account.

An Expert Sounds Off

Dinkins stated that there are some very important points to saving for retirement religiously. First of all, retirement is funded one way: consumers resolutely saving. With the state of Medicare and Social Security, ancillary funding is most likely not going to be available for much of the future.  Consumers are most likely reaping the last benefits of these programs now; future generations will be on their own. For this reason alone, it’s important to realize that saving today is what’s going to take care of the average American’s future.

In addition, Dinkins spoke on how retirement funding is pretty much a fixed cost. If a consumer knows their cost of living and can project inflation somewhat accurately, they can pinpoint how much they need to save for a comfortable retirement. This amount is non-negotiable, unlike a college fund. Plus it’s important to take stock of funds at various times throughout the career to reassess if retirement fund goals are met, or if more savings need to go into the account.

Finally, with employers willing to match 401(k) contributions, it benefits all employees to take advantage of the extra money for their futures. Dinkins subscribes to the philosophy that people should “fully save for retirement and if there’s money left over, then save for education.”

On the Other Hand, There’s College

College has a good number of ways to be funded. Personal loans, scholarships, grants, and part-time jobs can all contribute to a college fund. Plus there are ways to alter this cost by going to a community college for the first two years of an education or live at home for the duration of college rather than dorm living. Schools can be chosen for a specific budget and other cutbacks can be used to save money.

How to Face Reality

Dinkins states that when a child is about 16, parents should have a serious discussion about their college future. Parents need to lay out specific financial guidelines, making it a point to communicate the total amount they can contribute. Children should understand that anything above and beyond the total parental contribution will need to be funded by their own efforts. Even if parents are able to totally fund a college experience, children should be aware of the total cost. Dinkins explained college funding to her own child this way: “My daughter looked at one particular school and I just had to say that can’t be on your list unless you want to come out with a massive student loan.”

Retirement Funding is a Priority

In the end, the temporary cost of college can be funded with a wide variety of tools such as personal loans, scholarships and grants. However, retirement funding is going to be a result of proactive savings. If their retirement years aren’t prioritized, then retirement may need to be postponed indefinitely. The bottom line is that Americans need to make sure their retirement futures are secure prior to contributing to any other funds.

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