Should parents pull from retirement accounts to pay for college? | Where's the Money

WASHINGTON — As money gets tighter for the average American, a new survey from Citizens Financial Group, Inc. shows that families are feeling the squeeze, especially when it comes to paying for college. 

Many parents are finding it way more stressful and expensive than they expected. While 59% of survey respondents said they felt pretty confident about covering college costs when their kid got accepted, only 21% still felt that way once the tuition bills actually showed up. That gap between what parents expect and what college really costs is getting wider.

A lot of parents start out feeling hopeful, but that confidence takes a hit as expenses pile up. More than half of survey respondents (58%) said the rising cost of living has made it harder to pay for college, and nearly 40% are also dealing with credit card or other debt, making it even tougher to save.

• 30% borrowed against 401k or liquidated personal funds
• 26% paused investing entirely
• 66% cut back on major purchases or vacations
• 62% expect a delay in retirement, with nearly 40% anticipating a delay of 1–5 years

Another challenge families face is the disconnect between college admissions and financial planning. One in five parents admitted they focused on getting their child into college without thinking about how to pay for it. And once they do consider the cost, many are reluctant to talk about it.

• 47% would rather talk to their kids about drugs and alcohol than discuss the cost of college
• 30% would prefer a conversation about politics than discussing the cost of college
• 74% of families fell short by at least $5,000, some by more than $30,000

This financial “reality check” has some parents sacrificing their long-term goals and wondering if they should take taking money out of their retirement accounts to pay for their child’s college. So, is that a good idea?

“The answer to that question is no,” certified financial planner Mary Clements Evans said. “And the reason the answer is no, is you can borrow for college, but you can’t borrow for retirement. Once you get that money out of there, it’s really tough to rebuild it and you’ve lost the time value of money.”

Evans said it’s critical to take the emotions out of the equation and it’s better to help children repay student loans rather than take big chunks out of your retirement accounts.

“We have forgotten that what college is, is a way to develop the skills that you can earn enough money to support yourself and your family for the rest of your life, and we have to take a look at it as a return on investment,” she said.

Evans added that students can dramatically reduce college expenses by taking a multi-layer approach by finding scholarships to help offset the cost, by getting a part time job, or considering going to a community college, then transfering to a state college.

“If you get the same degree with the same earnings ability out of a $35,000 a year school versus a $65,000 a year school, that just changes everybody’s life,” Evans said. 

Citizens Financial Group’s College Raptor College Match tool matches students based on GPA, majors, location, test scores, and culture.