8 Ways to Save for Retirement While Paying College Tuition
Feeling like you’re stretched thin by college tuition costs? You’re not alone. The annual cost of a four-year public college education for residents is $20,770 .
That’s just one year. Ouch. Many parents are trying to balance daily expenses, retirement savings, and college costs at the same time and it can be a struggle. Some may even be prioritizing college payments over retirement contributions, a practice most financial advisors advise against.
While students can take out loans to fund their education, a parent might only have a retirement account to fall back on. Parents can be so worried about paying college costs that they may even be tempted to pull from their 401(k) for their child’s college, which can lead to unfortunate tax situations.
There are better ways to find the best retirement strategy for 50-year-old parents while still pulling together cash for college. In fact, here are eight ways to uncover hidden money.
1. Divert Raises and Unexpected Money to Tuition
Smart savers usually roll their raise into their retirement accounts. But instead of increasing your contribution, use the money for college costs instead. Even a modest 2% or 3% annual raise over four years can mean $4,000 to $7,000, if your income mirrors the median household income of $59,000 in the U.S.
You can also redirect unexpected money and tax refunds. If you get a rebate on a large purchase, or your mortgage company sends you a check when it rebalances your escrow payment, apply the extra funds to college expenses. If you regularly plan on a tax refund each year, pay college costs with it.
You may have a surprisingly higher tax return in 2019 because of a sweeping change in the tax law enacted in early 2018. For example, the child tax credit has doubled. Of course, your refund depends on your specific situation, so contact a tax advisor to see if you’ll benefit.
2. Refinance the Student Loans You Took out for Your Children
If you took out loans for your children’s education, maybe it’s time to transfer those loans into your kids’ names. Once your children have started their careers, they may be able to take over the loans you took out for them. By refinancing loans into their names, you are eliminating the loans from your budget, and you’ll be refinancing the student loans with a potentially better interest rate and loan terms. Your kids will appreciate that.
You can often refinance both public and private student loans on more favorable terms. You have options to get them a fixed-rate loan, where the payment remains level, or a variable-rate loan that has a fluctuating interest rate, based on the market.
You might also have the option to change the loan term — either shortening or lengthening, the latter of which can result in a smaller monthly payment.
One thing to consider before you refinance your child’s student loans is that private lenders won’t give them the same student loan repayment options that you have on your federal loan. So weigh the pros and cons when you’re thinking about refinancing. It also helps if your child has good credit. Lenders often decide a high credit score merits a lower interest rate.
3. Beat the Bushes for Private Scholarships
Private scholarships don’t need to be paid back. They’re offered by companies, communities, societies, religious organizations, nonprofits, and more. Some are applied to all four years of a college education, others are just for one year or a quarter. Even so, it’s worth applying for free money.
Many organizations base scholarship offers on merit. So if your child is a top-notch student or is really excelling in an extracurricular activity, like music or sports, look for compatible organizations.
Various groups of people can benefit from just being themselves or having similar traits as the organization offering the scholarship. There are scholarships celebrating various nationalities or heritages, for example.
You can search for hundreds of thousands of scholarships on sites such as FastWeb.com , CollegeBoard.org , and Scholarships.com , just to name a few. Most allow you to create a profile of your student, and then the site matches the scholarships that best match your profile.
4. Pick Up a Side Gig
The “gig economy,” made up of workers who freelance as opposed to working full-time, is expected to grow 43% by 2020 . Many companies are searching for one-off contractors for projects and will often look to freelancers before deciding to open a new position. Now might be a good time to consider picking up some freelance or consulting work on the side.
Writing, design, consultation, and even tax season work for employees in the finance industry, can help bring in some extra money to pay for college costs. In addition to professional freelancing jobs, the rise of app-based service businesses have provided new ways to make additional cash.
Uber and Lyft, two companies that employ independent contractors to transport private individuals, much like a taxi service, are in most cities. However, the $20 to $25 an hour that Uber claims its drivers make may not be a true picture once expenses are factored in , but it beats dipping into your 401(k) for college.
5. Haggle with the College for More Cash
Yes, you can negotiate with colleges for more financial aid. It’s best if your student writes a formal request explaining how she is a great fit for the college and how the college benefits from her attendance.
If your child is getting more financial aid from another college, see if they’ll match the offer. It also pays to let school officials know of any recent undisclosed expenses, say for a medical condition, that may affect your ability to pay.
The Free Application for Federal Student Aid, or FAFSA, is a key document for getting financial aid. It’s what you fill out so the college can determine your ability to pay. If your income has been reduced recently, refile your FAFSA. FAFSA determinations are based on your previous year’s tax return. Amazingly, parents left $2.3 billion of aid on the table by simply not filling out the FAFSA.
6. Downsize Your Lifestyle for a While
Drastic times call for drastic measures. With the kids in college, do you really need that five-bedroom home? Or that luxury SUV with a big payment? Downsizing temporarily can free up cash, and you won’t have to take money out of your IRA or 401k for college. By selling a big home for a more modest one, you can free up thousands of dollars, especially if you do a cash-out mortgage on the new place.
7. Refinance Your Home
A source of wealth for many Americans can be found where they live — in their homes. Unfortunately, your investment in your house is pretty illiquid. If you were fortunate enough to survive the Great Recession of 10 years ago, you probably have a fairly sizable equity built up. That equity can be tapped by refinancing.
There are basically two types of mortgage refinancing that can help you find more cash. If you refinance at a lower interest rate or for a longer term, you can take the money saved by the lower monthly payment and apply it to college costs. The second option, known as Cash-Out Refinancing, allows you to use the appreciated value of your home to take a lump sum that then can be applied to a college bill.
A third option is a Home Equity Line of Credit, or HELOC, but there are some caveats you should be aware of. Home equity loans have variable interest rates and become less attractive in a rising interest rate environment. They’re also not considered a long-term strategy, because most homeowners want to pay the balance off quickly.
8. Take the First Step to Pay For College Tuition
You’ve been looking for the best retirement strategy for parents of college students, and you know it’s important to keep contributing to savings while paying more for college. It may be time to start doing something about it. Whether it’s downsizing, tapping into your home’s equity, or finding a side gig, you can make the leap to paying those expenses without dipping into your 401k for college.
SoFi can help in two ways, by helping you refinance your student loan debt, and by giving you the tools to plan your financial future with a SoFi Invest account. With a SoFi Invest account you have complimentary access to financial advisors and you pay no SoFi management fees on accounts under $10,000, plus you get exclusive rate discounts on SoFi loans.
Those two steps can set you on the road to balancing retirement savings and paying college expenses without sacrificing your retirement savings plan. Win, win.
SoFi can’t guarantee future financial performance.
This information isn’t financial advice. Investment decisions should be based on specific financial needs, goals and risk appetite.
Notice: SoFi refinance loans are private loans and do not have the same repayment options that the federal loan program offers such as Income Based Repayment, Income Contingent Repayment, or PAYE.
SoFi doesn’t provide tax or legal advice. Individual circumstances are unique. Consult with a qualified tax advisor or attorney.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. Links are provided for informational purposes and should not be viewed as an endorsement.
Advisory services offered through SoFi Wealth, LLC, a registered investment advisor.