When it comes to their kids, many of your employees may be willing to put their retirement on the line.
As HR pros focus on workforce planning, understanding the burden that college costs impose on most employees is a key component for successful financial wellness programs.
Paying for college is a daunting challenge, and even financially savvy parents can become overwhelmed and confused by the college financing process. That’s where employer-sponsored education efforts can help. Employers who understand the following common college financing traps can better plan programs to alleviate the stress of paying for college and improve financial wellness overall.
Table of Contents
Key Points
• Many employees risk retirement to pay for children’s college.
• College costs have doubled in 20 years, increasing financial stress.
• Direct PLUS loans for parents have high interest rates and can result in significant debt.
• Avoiding any kind of college debt can also lead to financial mistakes.
• Employers can help parents by offering a mix of educational resources and flexible financial benefits.
Trap One: Prioritizing Their Children’s Education Over Their Own Retirement
By now, it’s become a financial wellness mantra: Parents should prioritize their retirement savings before saving for or paying for a child’s college education. After all, the thinking goes, students can borrow for education costs, but parents can’t borrow money to pay for retirement. And if parents don’t properly prepare for retirement, their children may end up supporting them in their later years, jeopardizing their future finances.
But with ever-rising tuition costs and the increasing burden of student debt, it may be harder for your employees to follow that tried-and-true advice. The cost of college has roughly doubled over the past two decades — and student loan borrowing has risen along with it. Americans collectively owe more than 1.8 trillion in student loan debt, according to the Federal Reserve.
Trying to ease the burden on their children, your employees may be raiding their future. In a June 2025 Citizens Bank survey of more than 1,000 parents, 59% said they were confident in their ability to cover their child’s college costs when they were initially accepted. But that confidence plummeted when the actual tuition bill arrived, with just 21% of parents saying they felt prepared to manage the cost. To manage, 30% borrowed against their 401ks or liquidated personal funds; a full 26% paused investing entirely while their child attended college. A majority (62%) said they expect to delay retirement as a result of needing to redirect funds to their child’s education.
When an employee delays retirement to catch up on missed retirement savings or pay off education loans, it can be costly to an organization. What’s more, if paying for college forces an employee to work longer than they want to, the result may be a less productive, less engaged worker.
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Trap Two: Mismanaging PLUS loans
Direct PLUS loans for parents are underwritten by the federal government and allow families to borrow without the same credit checks and other limits imposed on other types of lending. Because these loans are in a parent’s name, your employees may naturally gravitate to them as a way to help their children avoid debt.
But there are drawbacks. Unlike federal student loans, there are no limits on the amount parents can borrow as long as it doesn’t exceed education costs. To qualify for a PLUS loan, parents need only pass a check for an “adverse event” such as a recent bankruptcy filing or foreclosure. There is no consideration of the borrower’s ability to repay the loan. Given the often astronomical costs of attending a four-year college, your employees may quickly find they have taken on more debt than they can comfortably handle.
In addition, PLUS loan interest rates, set by the government each year, are usually significantly higher than student-held federal loans (8.94% for 2025-2026 versus 6.39%) and sometimes higher than some private college loans.
Recommended: Preparing for College Resource Guide for Parents
Trap Three: Avoiding College Financing at All Costs
Another common mistake lurks on the opposite side of the spectrum. In an effort to avoid college debt of any kind, many parents will do whatever it takes to come up with the funds. As mentioned, this might mean forgoing saving for retirement and/or dipping into retirement savings. Alternatively, parents might use home equity to pay tuition bills as they come.
Withdrawing 401(k) savings can result in significant penalties, taxes, and, importantly, lost principal and earnings. Cash-out home refinancing can lead to higher and perhaps unaffordable mortgage payments. Even putting retirement savings on hold when the year’s tuition is due can translate into large gaps in savings goals, depending on the number and ages of children attending college.
These are all understandable mistakes. As we saw above, an overreliance on debt to pay college bills can seriously jeopardize financial well-being. But so, too, can dismissing the strategic use of financial aid and loans to finance college costs.
For instance, your employees may neglect filling out the Free Application for Federal Student Aid (FAFSA), figuring that they earn too much to qualify for federal financial aid. According to Sallie Mae’s How America Pays for College 2025 report, 71% of families filed the FAFSA for the 2024-2025 academic year, down from 74% the prior year.
These parents may not realize that without the FAFSA, the student will not be awarded federal subsidized and unsubsidized loans, which can be attractive for their low rates and, in the case of subsidized loan, help from the government in paying interest.
More importantly, many schools require students to submit a FAFSA to be eligible for merit-based scholarships and grants, even though these funds are awarded according to the student’s academic record and other achievements, not financial need. Merit-based aid does not have to be repaid and is usually awarded to undergraduates for the full four years.
While too much debt is never smart, a prudent and affordable mix of well-structured student debt can help parents avoid sacrificing retirement savings, home equity, and other long-term savings to pay for college now.
Employer-sponsored college financing education and one-on-one college counseling can help ensure parents understand the complexities of financial aid and student borrowing so they can balance long-term and current financial needs and goals.
The Takeaway
Prioritizing college savings for children over retirement can have serious long-term financial consequences for parents and, by extension, negatively impact employee productivity and engagement. Employers can mitigate these risks by offering comprehensive financial wellness programs that educate employees on strategic college financing, including the effective use of financial aid and student loans, to help them balance immediate educational costs with future financial security.
SoFi at Work can help. We’re experts in the employee education assistance space. With SoFi at work, you can access platforms and information that will help build the benefits needed to create a successful and loyal workforce.
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