College Savings

In Sunday’s WaPo Martha Hamilton writes about the tension between saving for college and saving for retirement. Financial professionals tend to agree that retirement saving should come first, that’s pretty obvious, you can’t borrow for retirement, it’s more predictable, and savings vehicles are more tax-advantaged. But my naive hypothesis would be that there are a lot of people saving for college at the expense of saving for their retirement.

That’s in no small part because there is a substantial college costs scare industry out there fueling a lot of anxiety. Sure, in constant dollars college costs will increase going forward. But I don’t see how 6 percent increases, the common assumption those promoting various college savings vehicles are using, are politically sustainable over time. Something is going to give; I don’t even think it’s tenable that today’s 5-year olds will be paying $120K for an education at public four-year school. Not saying saving for college doesn’t matter, but in public policy concerning a hot issue – which is what this is – 10 or 14 year time horizons are an awfully long time.

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