Starting college is supposed to be a milestone moment, not just for the student, but also the parents. You pack up the car and make the drive to your child’s dorm. You may set up furniture, meet their roommate and even take a tour of campus. Eventually, the move-in process ends, and it’s time to leave your child on their own, ready to start the next chapter.
COVID changed that experience for many families, just as it has impacted nearly every corner of society. Many colleges moved their classes online. And many schools that previously planned on opening in-person reversed those decisions.1
No matter where your child is attending school, it’s a costly proposition. In-state public schools had average tuitions of $11,260 for the last school year. For out-of-state public schools, the average cost is $27,120. Private schools are even more costly, at an average tuition of $41,426.2
That’s a difficult expense, even during normal times. But it may be more challenging in the current environment. Perhaps you’ve lost a job or seen reduced income. Or maybe you’re worried about your financial future as the pandemic continues to impact the economy. The cost of college only compounds these issues.
Fortunately, there are some steps you can take to manage the cost and protect your financial future. Below are a few steps to consider:
Cut back on expenses.
Budgeting and cutting expenses are always helpful strategies, but they’re especially important during times of crisis. This doesn’t just apply to paying for college, but also saving for retirement and other financial goals.
Take some time to go through your monthly expenses and look for areas to cut back. You also may be able to work with your lenders to minimize some bills. Many mortgage companies, credit card companies, and others are offering forbearances during this crisis. You may be able to put your payments on hold. Contact your lenders for more information.
Consider using your Roth IRA or CARES distributions.
Tapping into your retirement accounts could be an option, although it may have some adverse consequences for your finances in the future. If you have a Roth IRA, you can always withdraw your contributions without facing penalties or taxes.
You could also take distributions from your IRA or 401(k) via the CARES Act, which was passed earlier this year. Under the CARES Act, you can withdraw up to $100,000 from a 401(k) plan with no penalties and the ability to pay the taxes over a three-year period. That could be an option to cover tuition payments.3
However, even if you don’t pay penalties, a distribution from a retirement account could have other consequences. You’ll not only lose the distribution amount, but all future tax-deferred growth on those funds. That could limit the amount of assets you have available when you retire. Explore all options before tapping into your retirement funds.
Reevaluate your options.
Another option is to simply reevaluate the college experience. If your child’s school has moved to online only, consider whether it makes sense to pay in-person tuition for an online education. Perhaps your student could transfer to a community college or even an online-only school at a far lower rate. They can earn credits and then transfer back to their desired college when in-person classes are back in session. It reduces the cost, without a substantial change to the learning experience.
We’re here to help you explore all your options in paying for your child’s education. Let’s connect soon and start the conversation. Contact us today at Advantage Retirement Services.
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