Parents weigh retirement savings against college costs

Parents who earn too much to qualify for need-based aid but lack spare savings face a growing financial choice: reduce retirement savings to pay college tuition or prioritise retirement and shift costs to students. Financial advisers report they most often recommend securing parents’ retirement first, then using education savings and loans to cover college expenses.

Research shows average tuition rose about 312.4% from 1963 to 2025 after adjusting for inflation. Since 2010 tuition has continued to outpace inflation in real terms, and public colleges reported year-over-year tuition increases of roughly 3.3% for in-state students and 3.7% for out-of-state students for the 2025–26 academic year. Those trends have widened an income band in which families are ineligible for need-based aid but have little capacity to pay without drawing on retirement accounts.

Advisers say the decision depends on each family’s circumstances, including parents’ age, health, retirement account balances and the student’s earnings prospects. Mitchell Kraus, co-founder of Capital Intelligence Associates, describes the situation as a dilemma he encounters frequently and notes that many households can afford some but not all goals.

John Pantekidis, general counsel and managing partner at TwinFocus, recommends prioritising a fully funded retirement, especially for older or less healthy parents who may have limited ability to return to work. He points out that recent graduates typically have more time to repay student debt than parents have to rebuild retirement savings. Some advisers report cases in which parents who committed large sums to children’s trusts later faced shortfalls and sought help from adult children that was not always forthcoming.

Advisers suggest starting college-funding conversations early. Many promote 529 education savings plans because contributions grow tax-deferred and qualified withdrawals are federally tax-free, and they encourage using tax-advantaged accounts where possible. Some advisers also recommend a mixed approach that can include federal or private student loans; private loans are sometimes suggested in limited amounts so students build credit and retain an incentive to complete their studies.

Travis Poodiack, co-founder of Birch Financial Group, advises families to treat higher education as an investment and to compare expected returns, such as career prospects and earnings, with the cost of a degree. Advisers advise families in the income “gray zone” to evaluate retirement needs first, estimate likely aid and scholarships, consider tax-advantaged savings, and include loans as part of a funding plan. They stress that adult children may be able to help if parents run short, but that such assistance is not guaranteed.