Key Takeaways
- Parents often underestimate the full cost of college—especially non-tuition expenses—and that can put pressure on retirement savings.
- Protecting retirement comes first, and using 529 plans, the FAFSA, and modest borrowing can ease the pressure of paying for college.
- Periodic check-ins on your retirement contributions and college savings can help you stay on track toward both goals.
How College Costs Can Squeeze Your Budget—and Your Retirement Plans
College is more expensive than many parents anticipate. The average college cost for an undergraduate student in the 2024–25 school year was $30,837, according to a recent survey by private loan provider Sallie Mae. Some parents pay for nearly half of that, but many underestimate the total cost of attendance, including housing, food, books, and transportation.
When those bills rise, college costs compete directly with other financial priorities—especially retirement. Here are some points to consider as you aim to fund both goals.
Why This Matters to You
Paying for college can quickly become one of a family’s largest expenses—and many parents underestimate the true cost of attendance or feel pressured to reduce their own savings to cover tuition. Understanding how to balance these competing priorities can help protect your financial future while supporting your child’s education.
Smart Steps To Protect Your Retirement While Paying for College
If you’re working to allocate money to both of these goals, remember this: “You can borrow for college. You cannot borrow for retirement,” said Stu Bradley, wealth advisor at Hightower in St. Louis. “Avoid sacrificing retirement to pay tuition.” Keeping that in mind, it is worth exploring some ways to fund college beyond borrowing.
Automate college savings early. Opening and regularly funding a 529 college savings plan goes a long way toward generating funds for college. Named for a section of the Internal Revenue Code, 529 plans are tax-advantaged savings plans intended to help pay for education expenses. You can open such an account even before your child is born, Bradley said, which can certainly give you a leg up in amassing savings for education.
Look at aid options. Fill out the Free Application for Federal Student Aid (FAFSA) each year, since it determines your student’s eligibility for federal grants, work-study programs, lower-cost federal loans, and some merit aid. Consider options like low-interest federal loans for your student or Parent PLUS loans with payment plans for yourself. Also, know that parents can appeal a school’s financial aid package if circumstances have changed.
Tip
Other cost-saving strategies—such as starting at a community college or choosing an in-state public university—can reduce how much families need to borrow or save.
Treat retirement contributions as non-negotiable. Continue contributing to your retirement plans and don’t use them as a way to pay for college. “If necessary, use a combination of cash flow, modest borrowing, [and] extended payment plans instead of retirement plans,” Bradley said. “Don’t raid your retirement account.”
Ask the experts. If you’re considering withdrawals from your retirement accounts, taking on large Parent PLUS loans, or you’re not sure what you can reasonably afford, it’s time to ask for guidance. Bradley recommends a college’s financial aid office and its net price calculator as first steps, followed by speaking with a financial planner who can discuss the balance between retirement timing and college spending.
Related Education
How To Stay on Track With Both College Costs and Retirement Goals
Pay attention to your progress toward retirement as well as to what you’re saving for college. It doesn’t have to be complicated, Bradley said, but keeping track of both will help you see where your money should be going.
Monitor retirement savings. While you are paying for college, you’ll want to track your progress on your retirement goals, but keep it very simple. Bradley suggests asking these questions:
- Are we still at least capturing the full employer match on retirement contributions?
- What’s our current savings rate for retirement as a percentage of income?
- Once a year, are we updating a basic projection that shows whether we’re roughly on track for our target retirement age and lifestyle?
“Even if contributions dip for a few years, continuing to monitor those three items keeps people engaged and makes it easier to ramp back up once college is behind them,” he said.
Resources
- Federal financial aid tools at studentaid.gov
- Net price calculators at college websites or The College Board
- Your state’s 529 plan website or hotline for details on tax benefits and withdrawal rules
Don’t overfund your 529. Once the balance in your college savings account, plus the projected growth, will cover the expected costs, stop contributing to the account. If your student receives a large scholarship or significant grant money, that’s a good time to curtail your contributions. “If it’s overfunded and you need to take money out for some reason, there is a 10% penalty on any earnings,” Bradley said. “So in addition to the tax, you’ll also pay a penalty for those types of non-qualified withdrawals” (for a non-educational expense). Note that the penalty applies only to earnings; contributions can always be withdrawn tax-free.
As you are working on meeting these goals, remember that it’s not a long-term balancing act and it is possible to keep your plans on track while helping your student. “Sending a child to college is both joyful and stressful,” Bradley said. “Know that this is a temporary cash-flow squeeze in the context of a multidecade retirement plan.”