Wait…what?! Saving for college is overrated? But everybody always says, “It’s never too early to start saving for your kids’ college.” And what about the student loan debt crisis? Isn’t SAVING money for college the responsible thing to do…to avoid that dreaded mountain of debt?

It’s time to take a more countercultural stance. While saving up a college fund might help in some circumstances, the reality is most families will benefit more by NOT saving for their children’s’ college costs.

The Pressure to Save for College

Without a doubt, we all want what’s best for our kiddos. It’s well documented that higher education leads to earning more money over the course of a lifetime. But that doesn’t mean parents should be on the hook for the full amount, footing the bill.

There’s an underlying cultural pressure for parents to save up a significant amount for their child’s higher education. As a result, the media seizes on that opportunity and pumps fear into us all with familiar headlines such as, “If you had a baby today…the cost of their college degree will be $X in 18 years time.”

By all means, let’s encourage our kids to go to college if it makes sense. But there are many different ways to cover those costs.

REAL-LIFE STORY: When I turned 15 (of legal age to work at the time) my parents told me I was on my own. Anything I wanted, such as a car or going to college, I had to pay for. This meant getting a job. As a result, a responsible money mindset was instilled in me at a young age that later led to some creative resourcefulness which allowed me to earn two, debt-free degrees! A lot of those tips and strategies can be found in our blog about avoiding student loans. 

As tuition prices have skyrocketed over the last few decades, some parents may feel it is almost unethical to bring a child into this world and then saddle them with tens or hundreds of thousands in future student loan debt. While I can certainly sympathize with that mindset, it isn’t an either/or scenario. You can love your child and help them avoid an insane debt burden without blowing your own financial future to save for their college.

5 Reasons Saving for College is Overrated

The most important reason you shouldn’t save for your kids’ college is that scholarships and financial aid don’t exist when it comes to your own retirement.

Yes, there is a student debt crisis in America. But there is also a retirement crisis. And most people spend so much trying to avoid the former, that they end up suffering the latter.

There are a million ways to skin the cat when it comes to lowering the cost of your child’s college experience. They can attend a less expensive school, apply for scholarships and grants, work, or even join the military while they are pursuing higher education. And even after your child graduates, some employers will help pay down those student loans and PSLF is an option for those willing to work in public service for a decade.

Here are some further situations to consider regarding NOT prioritizing saving money for your kids’ college

1. Your Retirement Should Take Priority

That’s right folks! If your finances aren’t in order, don’t save for college. If you’re managing your way out of a significant amount of debt, you should NOT be saving for your kid’s higher education. You have to prioritize yourself and focus on crushing any credit card debt, car loans, and student loans that you may have first.

This is the classic “put your oxygen mask on first before helping your kids” scenario. When you operate from a position of financial strength, you are able to help your kids even more.

Bonus- If you’re not sure how much money you should be saving for retirement before pursuing your other money goals, be sure to check out our post, “How Much Money Do You Need to Retire? 3 Different Strategies to Calculate.”

2. College Isn’t The Only Place Kids Learn & Grow

Oftentimes folks go out of their way to start saving for their children – but then it backfires because they can’t afford other important learning experiences.

Family trips, learning an instrument, and playing sports are all examples of spending money that can help your kid become more well-rounded. If you neglect those in favor of building a 529 nest egg, that might be more of a short-sighted move.

Think for a moment…the more you save for your children, the more tradeoffs and sacrifices you’ll have to make. This situation could serve as a good teaching moment to shift those sacrifices to your kids in an effort to help them really think about those tradeoffs.

Of course, we all strive to give our kids everything they want (within reason!) But this usually doesn’t encourage a healthy mindset. Life is a continual series of tradeoffs. So why not provide guidance to your children as they encounter important decisions early on in their adult life?

Believe it or not, your kids can graduate college debt free by being intentional with some help from you. Student loans aren’t the only option!

3. The Non-College Route

What if your kids choose a no-college route? The reality is that college isn’t a good fit for everyone.

In fact, nearly 40% of high school graduates never attend college. Many major companies aren’t requiring degrees anymore to get a job and start a career there. There are also tons of alternatives to a traditional college degree.

So if your child chooses a different plan of action than going to college, it’ll be financially frustrating if you prioritized college savings (especially via a 529 plan, which we’ll touch on below).

4. The Future of College is Uncertain

The cost of college has exploded by 1,600% since 1975! This rapid rate of cost increase is not sustainable and will price out many future students. Currently, only about 35% of Americans have attained a bachelor’s degree. Earning a college degree does not guarantee anyone anything in life.

While we can’t predict the future, it’s still fair to say that college might not be as attractive of a choice 10-15 years down the road. Today, the math still works for lots of young adults to earn that college degree. However, as the cost of college continues to soar, it’s not as much of a slam dunk as it used to be. Getting a degree doesn’t automatically equal a higher income like it once did.

5. 529 Plans Aren’t All They’re Cracked Up To Be

For those of you who are crushing it financially and want to start investing for your kids college future, 529 plans are the best tax-advantaged vehicle for doing so. But before you dive in, there are several pros and cons that you need to carefully consider.

Benefits of 529s:

• Tax benefits: Earnings in a 529 plan grow tax-deferred, and withdrawals are tax-free when used to pay for qualified education expenses.
• Portability: 529 plans are portable, so you can transfer them to another state if you move.
• Flexibility: You can change the beneficiary of a 529 to other family members. (Here is the eligibility list)
• Rollover Option: Beginning in 2024, you now have the option of rolling over up to $35,000 into a beneficiaries Roth IRA. (Annual contribution limits still apply, which means rolling over funds might take several years)  

You can even use a site like Backer.com to solicit contributions from friends and family. This is perfect if you’re tired of getting a bunch of gifts that create clutter. Just ask your loved ones to contribute to that 529 plan in lieu of presents at birthdays and Christmas. Or more likely, a smaller contribution with a smaller physical gift. 529 plans make a lot more sense when other loved ones are contributing.

Downsides of 529 Plans: 

• Penalties: If you spend 529 funds on things other than educational expenses, you’re going to pay the deferred taxes, plus penalties.
• Fees: Many institutions that offer 529 plans have pesky fees that suck away from your investment growth.
• Limited Investment Options: Some plan administrators have limited investment options which leads to slower growth and/or more fees.

All in all, we feel that the tax benefits of 529 plans are often oversold. If you instead invested cash in a brokerage account, you would be subject to a 15% capital gains rate (for most folks), but that money would be more flexible too. 

The Bottom Line:

Saving for college is an admirable thing to do for your kids. However, you don’t have to save for your child’s college education to be a good parent. Doing so can pose an extreme challenge to achieving your own major financial goals, specifically a comfortable retirement.

Sometimes we get too caught up in saving for the future that we neglect to invest in our kids in other important ways in the present.. Saving more for college can become a myopic goal and you could forget the real goal: raising kids who will thrive in the real world!

Instead of fully funding that 529 account, consider spending more money during the formative years your children live under your roof to help better develop their life skills and awareness.

Related posts:

• 👨‍💻 Investing accounts for kids
• 💻 10 Ways to Save Money in College 
• 🎧 Ways to give kids a financial head start
• 💪 14+ Money Challenges to Help Save More

Beer tasting notes…

During this episode we enjoyed a Coconut Stout by Easy Chair Brewing Garage. Big thanks to Jess for donating this one to the podcast! And please help us to spread the word by letting friends and family know about How to Money! Hit the share button, subscribe, and give us a quick review in Apple Podcasts. Help us to change the conversation around personal finance and get more people doing smart things with their money!

Best friends out!