This post Will Your Child's Education Put Your Retirement At Risk? appeared first on Daily Reckoning. Sure, having a college degree can pay off … Georgetown University's Center on Education and the Workforce estimates a college graduate will earn more than $1 million in extra lifetime wages compared to someone who simply graduates high school. And the Pew Research Center says the difference is around $17,500 annually. But that extra earning potential isn't cheap… The College Board reports that a moderate college budget for an in-state public college for the 2017?2018 academic year averaged $25,290. For a private college it was $50,900. Room and board can run another $12,000. On top of that, you have books, transportation, and other fees. To help their children attend the college of their dreams, many parents (and grandparents) have stepped forward to take out loans or co-sign on a kid's behalf. Now, the parents and grandparents may find themselves behind the eight ball when it comes to their own retirements. In fact, more older Americans are carrying student loan debt than at any time in the past. According to the Consumer Financial Protection Bureau, the number of borrowers over the age of 60 with student loan debt ballooned from 700,000 in 2005 to 2.8 million in 2015. The amount of debt they're saddled with is a staggering $66.7 BILLION. And many loans are in default. In fact, the General Accounting Office's figures show that 37% of federal loan student borrowers age 65 and older have defaulted on their loans. Consequently, in 2015 Washington garnished Social Security benefits from about 40,000 older borrowers for failing to repay those loans ? up from 8,700 in 2005. Sadly, Social Security is the only source of regular retirement income for 69% of beneficiaries age 65 and older. That means those who default on student loans may have to forgo basic needs such as prescriptions, doctors' visits, and dental care. Case in point: In 2014, 39% of Americans over 60 with student loan debt said they skipped necessary health care compared to 25% without student loan debt. All of this brings up an important point: It's a lot easier to borrow for college than it is for retirement! The college your child is considering should be able to determine what kind of financial help is available. For example, scholarships and grants from federal and state governments - and even the college itself - could cut a $70,000 annual price tag to $30,000 or less. And grants, such as Federal Pell Grants, are based on financial need and do not have to be repaid. Some parents and grandparents have used home equity loans in the past. But because of the Tax Cuts and Jobs Act of 2017, the interest on HELOCs is no longer deductible. Moreover, loans with variable rates might not be a good move with interest rates starting to creep higher. PLUS loans are another option. The U.S. Department of Education is your lender. And you can borrow up to the full cost of a child's undergraduate education, minus any other financial aid received. You don't have to make any payments until the loan is fully disbursed. Then you'll have 10 to 25 years to repay the loan. The current interest rate is 4.264%. Although a PLUS loan looks good on the surface, retirement-killing risks do exist? First, the interest will accrue on the loan while the payments are deferred, which is often a shock to the unprepared. And second, you cannot transfer the loan to your child. You, the parent borrower, are legally responsible for repaying it. So a PLUS loan should be considered a source of last resort. Above all, the message today is don't put your nest egg at risk to fund a child's education. Avoid taking loans or withdrawing money from your 401(k), IRAs, and other retirement plans. Most Americans don't put away enough for retirement as is. What's more, if you're under 59½, you might get hit with a 10% penalty from the IRS for early withdrawals. The ultimate goal is entering retirement debt free ? not to be working throughout your 70s or longer to pay off college loans. So don't let emotions cloud your decision. Take the time to understand your options and the borrowing process. And be realistic on what you can afford to take on. As tough as it sounds, if the numbers don't add up, you might just have to say ?no.? To a richer life, Nilus Mattive Editor, The Rich Life Roadmap The post Will Your Child's Education Put Your Retirement At Risk? appeared first on Daily Reckoning. |