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Picture this: James and his wife Nola, both 62, have done well in life, earning a combined income that gives them an upper-class lifestyle. But when their daughter Tia went to college, they told her they couldn’t afford to pay her way.
Most of their money is tied up in investments and employer-sponsored retirement plans, as well as real estate. Aside from a lack of highly liquid assets, they also felt it was important for Tia to learn about financial responsibility.
But they’ve also left the door open for resentment. Now that Tia has graduated, she owes $90,000 in student debt — and she isn’t happy about it.
Now James and Nola are wondering if there’s anything they should do to help their daughter without putting their retirement savings at risk.
This is a complex issue, and there isn’t a “right” answer. For some families, paying for their child’s college education could put them into debt, possibly jeopardizing their retirement or other financial goals.
While college loans exist, “there is no such thing as a retirement loan,” Christian Mitchell, chief customer officer at Northwestern Mutual, said in their 2024 Planning and Progress study.
“If parents can’t afford life in retirement, that unexpected financial burden may fall on their kids’ shoulders. That’s why it’s so important to consider every money move as part of a larger financial plan.”
Most advisors don’t recommend dipping into your retirement savings, withdrawing from 401(k) savings or using home equity to help your child avoid college debt.
Of American workers and retirees saving for both future college expenses and retirement, 58% said they were delaying retirement to reach both goals, according to a survey by the Society of Actuaries. And 41% said they withdrew money from their retirement funds to pay for a family member’s tuition.
“The average federal student loan debt balance is $38,375, while the total average balance (including private loan debt) may be as high as $41,618,” according to the Education Data Initiative. What’s more, the data also points out that 4.86% of federal student loans were in default as of Q4 2024.