The coronavirus pandemic has upended the school year for millions of families and students all across the country. In some districts, school is being offered online only while others are offering families the option of virtual or in-person classes.
The pandemic has also thrown a major wrench into many families’ college savings plans. About two-thirds (68%) of parents say they’re more worried about paying for their kids’ college education expenses now than they were before the pandemic hit, according to a report issued in June by Discover Student Loans.
More than half (53%) of parents polled said that higher education plans for their kids had changed due to the pandemic. For example, some students are now planning to attend a college closer to home to reduce living expenses, attend a public instead of a private college or delay the start of college altogether.
Assess Your Situation
So how can you go about meeting the challenge of saving for college during a pandemic? The first step is to assess your current financial and employment situation.
If you’ve held onto your job so far and your income remains steady, it might be feasible for you to maintain your current college saving schedule. For example, if you’ve been contributing $500 each month to a Section 529 college savings plan, you may want to continue making this monthly contribution just as you have been.
On the other hand, if your hours and income have been reduced or if your employment situation appears to be uncertain, it might be wise to temporarily scale back your college saving contributions. In our previous example, for instance, you might consider cutting your contributions in half to $250 a month. This would make it easier to meet your current expenses at a lower income level and still continue putting some money away for your child’s future education costs.
However, if you have lost your job and are relying solely on savings and unemployment benefits to get by, you might have no other choice than to suspend your college savings contributions, at least for now. This will lessen the strain on your monthly budget and possibly ease some of the stress you’re feeling about paying your monthly bills. You can always resume contributions later when your employment situation is more stable and your income has recovered.
Consider a Roth IRA
One strategy used by some families to meet the college saving during a pandemic challenge is to open and contribute funds to a Roth IRA. Unlike traditional IRAs, contributions to Roth IRAs can be withdrawn for any reason, regardless of age, without tax or penalty. This gives you the flexibility to use these funds for retirement or college expenses and to withdraw money tax- and penalty-free if you ever need to in order to meet your living expenses.
This brings up another conundrum faced by some families right now: How to balance the competing priorities of saving for college, saving for retirement and meeting current expenses if they’ve suffered a job loss or loss of income due to the pandemic.
Meeting current expenses, of course, should always be the main priority. After this, many financial experts suggest that families prioritize saving for retirement over saving for college. The simple reason why is because there are other options besides savings to help pay for college, such as low-interest student loans and grants. But aside from Social Security, most people are primarily responsible for their own financial security during retirement.
Give us a call if the coronavirus pandemic has affected your college or retirement savings plans. We can help you assess your current financial situation and devise a new strategy that balances your short-term needs as well as your long-term goals.