Everyday Cheapskate: Cover retirement first then pay for college

Just recently, we informed her that we would not be paying for her senior year; she is on her own because we have gone into debt further that we will ever be able to get out of.

So, because we are now three years in debt, do you have any advice for us as we strive to pay it off? — David and Joanne

Dear David and Joanne: First, let me explain the reasoning for my advice that parents should not pay for college. It’s because most confuse “paying” with “going into debt.” Parents’ first priority needs to be getting and staying on track for their own retirement. That means actively funding retirement accounts to the max every year, building a robust emergency fund and paying off all debt including their mortgage so that by the time they retire, they’re financially set — not a financial burden to their kids!

Parents who are in the position I just described AND also have funds over and beyond to help pay for their kids’ college, I say great. Do it, if that is the kind of gift you wish to give to your adult children.

Sadly, most parents are not in that position by the time their kids reach college age. The obligation they feel together with guilt that they have not built immense college funds prompts them to default to co-signing or taking out Direct PLUS Loans, which I am assuming is what you have done. For you, the damage has been done.

Unless you or your student dies or you become totally and permanently disabled, there are few options for forgiveness or cancellation. And do not look to deferment or forbearance as ways to put off repayment. That will only increase the pain in the long run.

My advice is that one or both of you need to get additional employment, pledging all side earnings toward the payment of these loans. You will doom yourselves to poverty if you forgo saving for retirement if you cash in existing retirement accounts or strip the equity from your home to repay the debt. And get used to the idea that you will both need to work until age 70 or later, depending on your current ages and the amount of debt we’re talking about here.

PLUS loans, as written, must be repaid within 10 years. However, if you consolidate, rewrite or become delinquent, they can turn into a mess that just won’t go away. If you allow these debts to linger and follow you into retirement, you need to know that the federal government will garnish tax refunds and even Social Security benefits until the debts are paid in full.

Now that I’ve totally discouraged you, let me do some encouragement. Thankfully, you woke up early. Some parents don’t realize what they’ve done to themselves until much later than three years. I am going to assume that you are younger than you think and stronger than you know.

Get busy right now while you are most able to earn the sums required to repay the debt just as soon as possible. Please know that I believe you can do this. I’ll be right here cheering you on!

Mary Hunt is founder of www.DebtProofLiving.com, a personal finance member website.

To find out more about Mary and read her past columns, please visit the Creators Syndicate Web page at www.creators.com.