College versus retirement: The mistake more parents are making

The debt load that college students are carrying at graduation is no longer jumping. Undergrads are leaving for-profit colleges with an average burden of $40,858, a rise of less than $150 from the prior year, according to an analysis of data by Mark Kantrowitz, an expert on college aid and vice president of research at Savingforcollege.com. 

But that's not because college costs are stabilizing. It's because students are hitting loan limits, and their parents are taking on more debt to finance their children's educations. A college degree is one of the biggest investments a student will make, yet they're increasingly unable to shoulder the cost.

The average loan debt carried by parents to finance their children's college educations rose almost $1,900 this year to more than $35,000, a jump of about 6 percent, according to the analysis. 

As college costs continue to climb, more students are hitting the limits for federal student loans, which top out at $31,000 for dependent students and $57,500 for independent students, Kantrowitz noted. That means more undergrads are turning to their parents to finance their college degrees as "a pressure relief valve," he said. 

"Parents have difficulty saying 'no' to their children," he said. "Parents say, 'You get in, and we'll pay for it.' Then they realize how expensive it will be and how little they've saved." 

Financial experts typically recommend parents save for their own retirement before socking away money for college because loans aren't available for financing retirement the same way they are for college. And it's considered a better bet to ensure a well-funded retirement so that your kids won't need to support you in your golden years. 

But at the same time, plenty of economic evidence shows that a college degree is worth the cost. The earnings gap between college grads and everyone else is now at its widest point, partially because Americans with only high school credentials have fallen so far behind.

The typical four-year private college cost $46,950 annually in the 2017-2018 school year, a 3.5 percent jump from a year earlier, according to The College Board. That means a four-year degree at a private nonprofit school could reach close to $190,000. 

"A good rule of thumb is student total loan debt should be less than your starting annual salary," Kantrowitz said. 

Take a student who expects to earn an annual salary of $50,000 after graduation. Her total debt at graduation should be less than that, which will allow her to repay the debt in 10 years, Kantrowitz said. 

About one in six graduates are leaving college with "excessive debt," or more student debt than they can repay within a decade, he added. 

Because more students are hitting the federal loan limits, it may be time for Congress to raise those thresholds, Kantrowitz said. It's most likely that lawmakers will boost undergraduate loan limits by $2,000 per year. 

Aside from the impact of rising college costs on parents, student loans also have an outsize impact on women, a recent study from the American Association of University Women found. Women owe $890 billion of the country's $1.48 trillion in student loan debt, nearly double what men owe. 

Women, who account for 56 percent of enrolled college students, are far more likely than men to graduate owing money -- 71 percent for female grads vs. 66 percent for male grads, the study found. 

But because women tend to earn less money than men, they struggle to repay their loans.