The big talk recently has been President Joe Biden's
plan to address student loan debt, which includes wiping away $10,000 in debt
for some borrowers and extending the pandemic-related pause on payments for
all.
But financial experts say the plan does not fix the
problem of the outrageous cost of a higher education to begin with.
News 12
spoke with Ryan Zacharczyk, who is a financial adviser, about how to plan for one of the
biggest bills you could ever get in your lifetime, as well as one father, Don
Wachtor, who's feeling the effects of planning too late for his kids.
“I thought I had a pretty penny as far as providing
for school, but, no, it was not nearly enough,” says Wachtor.
Wachtor is a retired 70-year-old father of two
college-aged kids.
“It wasn't expected, but I'm
really happy that I have kids and I want to do all I can for them,” says
Wachtor.
For Wachtor, that means
paying for their higher education. He took out federal "parent plus
loans" to cover the costs for his daughter, now a Rutgers graduate, and
his son, who has one year left at Montclair State University. With
interest, Wachtor now owes over $164,000 in student loan debt.
“Education is far more
expensive than it's ever been in history,” says Zacharczyk.
Zacharczyk, the president of
Zynergy Retirement Planning in Red Bank, helps people like Wachtor figure out
how to set aside money for their children's educational expenses.
“We prioritize
things like an emergency reserve,” says Zacharczyk. “Second priority is
retirement planning because at the end of the day you can borrow for college,
but you can't borrow for retirement. So, somebody
trying to save for two middle class individuals with average incomes in the
state of New Jersey is gonna struggle to get to that third priority and saving
for education."
Zacharczyk says most people know about 529
college savings plans.
“Sometimes our people come to us and they're
either just pregnant or they're planning a family and we start a 529 right from
the get go even before the child is born,” says Zacharczyk.
But Zacharczyk finds many of his clients don't
know about using "I-bonds" for college savings instead.
“In my family, we're prioritizing
putting away in I-bonds instead of the 529 in the short term,” says Zacharczyk.
“The I stands for inflation so it's an inflation adjusted bond and right now
inflation is pretty high, so the
interest rates are high."
In fact, the interest rate on I-bonds right now
is 9.62%. They're tax free if you use them for education, but you can't cash
them for one year.
“If you cash in
the bond in less than five years, there's a three-month interest penalty,” says
Zacharczyk. “Not principal interest, so if you put in $10K and at the end of a
year it's worth $10,900 or something along those lines, really the best option we have in this world for
federally guaranteed money."
Zacharczyk says if your
child choses a profession in public service, tell them their loans can be
forgiven altogether, but most importantly, as a parent, plan as early as
possible for your child's future.
Wachtor says the one mistake
he made was not planning sooner, but he's just glad he was able to give them an
opportunity he never had.
The I-bond is fully backed
by the federal government. For more information, click
HERE.
While you can also tap a Roth
IRA for college expenses even though it's intended for retirement, the
financial advisor never advises taking money from retirement to pay for
college education.