A recent study by the CFP Board shows that student loans are impacting parents ability to pay for their children’s college educations. Nearly half (47%) of parents in the United States had to borrow in order to get their own education. Of those parents, nearly 33% are still paying back their own loans and 15% still have more than $25,000 to repay. This growing trend not only hinders their ability to save for their children’s college but also their ability to save for their own retirement. Many are counting on financial aid or are leaving college expenses up to their children.
The study shows that there are a few contributing factors to this trend. The first is what many advisors believe is a slow recovering economy. Since 2008, the economy has experienced historically high unemployment rates which makes it more difficult for people to pay their loans back consistently. New college graduates are graduating with thousands of dollars in student loans, but don’t have the income to support those monthly payments.
A second factor is the rapidly increasing costs of education. Since the 1970s both private and public college costs have risen by an average of just over 6% annually. That is twice the rate of inflation. Unless you have high income or many years to invest and plan, it’s difficult to save enough for your children to cover their full tuition.
A third factor is the increasing cost of living and savings priorities. The study states that 40% of parents said that building an emergency fund is their top priority with extra cash flow. Second on the list was saving for retirement at nearly 33% of parents. Third on the list was their children’s education at 31%. With an abundance of financial goals and limited cash flow, it is difficult for parents to meet expectations of achieving all three with their savings.