Cashing out to pay kids' college a bad plan, experts say

Published: Sunday, Aug. 19 2012 10:00 p.m. MDT

Mignonne Jeppson hugs her new graduate, Jessika, 18. Jessika is putting herself through college at Dixie State College.

Family photo

Taylor Bautista earned an international baccalaureate diploma from high school to help pay for college. She grew up knowing she'd have to find her own tools to get there and got grants and loans. But sometimes hard work and hope only get you partway to fulfilling a dream. She needed more help, so she recently posed with a picture of her new tool: The strikingly tall 17-year-old has a giant grin as she stands in a camouflage-patterned uniform and hat that says "U.S. Army."

The National Guard will help pay for Bautista's education, a native of Colorado Springs, at Western Colorado State University, where she'll study elementary education. "It is very important to me that I get my degree," she said.

Alexandra and Jessika Jeppson, sisters 20 and 18 respectively, figured out how to send themselves to college after their mom, Mignonne Jeppson, of Heber City, said they'd be responsible for most education expenses. Their plans rely heavily on scholarships.

"I don't remember not thinking I would go to college and I've always known I would need to pay for it," said Jessika Jeppson, who has a full scholarship to Dixie State College. "No loans. I didn't want to go there. I heard of people still paying off student loans in their 30s and 40s."

Being financially savvy at a young age puts Jessika Jeppson ahead of many parents contemplating what a college education costs. Many of them would be better off doing what Mignonne Jeppson has done: Experts say it often makes more sense to tell the kids to plan on covering their own college expenses than it does paying for it, especially if it would mean raiding retirement funds or savings that will be needed as parents grow old. Experts say parents should not sacrifice the amount in a 401(k) that has survived the recession. Nor should they saddle themselves with extra years of work.

Not well-thought out

"The thing with planning for college is most parents are in a pickle," said Cathy Pareto, certified financial planner and founder of a firm that bears her name and manages millions of dollars. While parents should provide for their children, including helping plan their futures, some "jeopardize their own financial retirement to send kids to more expensive schools, medical schools later, etc. I'm concerned."

"I just think it is frightening and boggles the mind that parents are willing to forfeit their retirement security for their kids' college educations," said Pamela Yellen, author of "Bank on Yourself: The Life-Changing Secret to Growing and Protecting Your Financial Future," a New York Times best-seller. "It's scary. Even without having to pay for a college education, some are so far behind in retirement savings it is a surprise if they can retire at all with any kind of income."

The past 13 years have been brutal for retirement savings, with little growth, she said, and if you consider inflation, many people who have been saving are actually in the hole.

Pareto, of Miami, said she questions whether programs like Social Security will endure. "There are real threats to an individual's future security," Pareto said. Parents who tap retirement funds — and even some who don't — may end up working into their 70s. Some may never be able to retire.

OK, now what?

Pareto said parents could help college-bound children "in a context of what they can afford … while asking questions. What does it do for your life? Is your child going to support you when he's out of medical school?

College-bound kids have resources from loans to scholarships that are not there to bail out over-extended parents who have given away their retirement, she said. Still, it's hard to disappoint offspring.

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