Paying the Tab for Continuing Education

    Paying the Tab for Continuing Education

    By Shelly Gigante

    College kids may have fraternity parties and a formidable Frisbee arm, but they’ve got nothing on older students when it comes to cutting education costs down to size.  

    Sources of financial support for nontraditional students, (which is loosely defined as anyone older than 25, those with dependents, part-time students, seniors, single caregivers and those who work full-time) are abundant for those interested in getting  their degree, learning a new trade, obtaining credentials, or taking a few classes in subject matters that interest them.

    From employer tuition reimbursement programs, to public and private grants, to personal savings, adult students who know where to look may be able to keep the debt they incur minimal – or non-existent.

    “We have seen an uptick in the number of adults returning to school since the recession when a lot of people were laid off,” said Lenny Sanicola in an interview, a spokesman for WorldatWork in Scottsdale, Arizona, an association for the human resources industry. “Many of those jobs are not coming back so they had to go back to retool.”

    Sources of free financial aid and low interest loans, he said, are not just reserved for younger students.

    “Tuition is very expensive so you should take advantage of anything that can help,” said Sanicola.  

    Employers: Tuition Reimbursement

    If you are currently working, for example, you may be in luck. Many employers offer tuition reimbursement for college classes and vocational schools. 

    According to the Society for Human Resource Management, 55 percent of U.S. organizations offered undergraduate educational assistance and 52 percent offered graduate educational assistance.1 Other SHRM research indicates the maximum reimbursement allowed for tuition/education expenses is, on average, $4,591.11.

    Seattle, Washington-based coffee titan Starbucks famously announced in 2015 that all eligible employees could receive an undergraduate online degree from Arizona State University’s online program — for free

    Pizza Hut of Plano, Texas, also partners with Excelsior College distance learning institution to provide continuing education opportunities to its employees and their immediate family members. The program allows workers to apply their on-the-job management-level training courses as credits toward their chosen degree program.

    Fast food chains McDonald’s and Chipotle Mexican Grill offer similar benefits to student workers.  

    “I’ve seen an increase in traditional tuition reimbursement, but an even greater emphasis on overall career opportunities through on-the-job learning opportunities and vocational training,” said Sanicola.

    To help recruit top talent, some are also offering loan repayment benefits, a big boon for millennials who are walking out of graduate school saddled with debt.

    “A small, but growing number of employers are offering to subsidize new hires’ student debt, or give them a lower interest rate to help them pay it down faster,” said Sanicola. “They listened to their new hires, who are saying they don’t want to hear about 401(k)s when they need to focus on paying off their loans.”

    For its part, PricewaterhouseCoopers, a global professional services firm, offers participating associates $1,200 a year towards their student loans, which it said on its website can help reduce their loan principal and interest obligation by up to $10,000, and shorten the life of their loan by up to three years.

    Natixis Global Asset Management, an asset management firm, also announced in 2015 it will contribute $5,000 to every full-time worker who has been with the company for at least five years and has outstanding Federal Stafford or Perkins Loans. Eligible workers have the chance to earn an additional $1,000 each year over the next five years if they remain with the company.

    Sell your “Stuff”

    If you are heading back to school and you are 30 or older, chances are you have amassed a few assets you could sell to help pay the bills.

    Perhaps there is a boat taking up space in your driveway, an old drum set gathering dust, or an abandoned engagement ring from your ex. You might be surprised how much those items you will never miss may fetch.

    Those who expect to receive an inheritance down the road, may also wish to (delicately) broach the subject with their future benefactor, said Catherine Seeber, a partner with Westcott Financial Advisory Group in Philadelphia, Pennsylvania.

    “A lot of adults are in a position where they already know what their inheritance is going to be, so they may be able to get support from that family member sooner rather than later,” she said in an interview. “I often suggest to clients that they have that conversation. The elder family member is usually more than happy to help with college because they want to be able to see their loved one succeed during their lifetime instead of gifting money after they die.”

    Then, of course, there are your retirement savings.

    While distributions from your IRA before age 59-1/2 would typically be subject to ordinary income tax, plus a 10 percent early withdrawal penalty, that penalty is waived if the dollars are used to pay for qualified education expenses.

    Some 401(k) plan sponsors also allow for hardship distributions for those who demonstrate compelling financial need, which may include tuition or related educational fees and expenses.

    Hardship distributions are included as gross income for tax purposes (unless they consist of designated Roth contributions) and may be subject to an additional early distribution tax. They are not a loan and the money need not be repaid. Thus, hardship withdrawals permanently reduce one’s 401(k) account balance.

    A potentially better bet, if your plan allows, is to take a loan from your 401(k) to fund your education expenses, since the funds borrowed are not taxed or penalized if repaid on time. Any interest you pay goes back to your account.

    But be forewarned. You must normally repay your loan in full within five years, limits typically apply on the amount you may borrow, and if you lose or quit your job while the loan is still outstanding, it will generally need to be repaid in full (including interest) or it will be taxed (and potentially penalized) as a distribution.  

    By far, though, the biggest downside risk is the opportunity cost you incur by removing money from your retirement savings.

    In the case of a 401(k) loan, some plans may not let you make new contributions during the years you are paying back your loan. An early withdrawal from an IRA or 401(k) can cost you far more long term, as it denies those dollars the chance to benefit from tax-deferred growth.

    “For that to be a feasible financial alternative, you would have to guarantee that the return on investment is worth more than you are giving up in tax deferred growth opportunity and when you look at the time value of money you can’t do that,” said Seeber. 

    According to Bankrate.com’s 401(k) calculator, a 5-year, $10,000 loan from your 401(k) would cost the borrower $1,449 if repaid on time, but nearly $200,000 in forgone earnings if he fails to repay it and is forced to pay additional taxes and a 10 percent penalty. That figure assumes an 8 percent rate of return on the borrower’s 401(k) investments, a 35-year time horizon until retirement, and a 7 percent interest rate on the loan.

    As such, many financial professionals, including  Seeber, recommend against robbing your future to pay for the present.

    “I am a big fan of leaving your retirement funds untouched,” she said. “You give up the compounded growth. Plus, there are so many other tax credits and opportunities for scholarships for people over age 30 that you should not have to use your retirement savings.”

    Federal Aid for Students

    A number of low interest loans, scholarships and grants are also available to older students.

    The Federal Pell Grant, for example, which is not a loan and need not be repaid, is available to students who demonstrate financial need, and according to the government, financial aid administrators at community colleges, colleges and universities have been “urged to take an unemployed person’s current economic circumstance into account when determining a student’s eligibility for Pell Grants and other student assistance.”

    Pell Grants are available if you are taking classes as part of a program that leads to an undergraduate degree or certificate and can be used to help pay for tuition and fees, books, transportation, living expenses (such as room and board) and for costs expected to be incurred for dependent care for a student with dependents.

    Low interest Direct PLUS Loans are another option for students of any age who are enrolled at least half-time at an eligible school in a program leading to a graduate or professional degree or certificate.

    The NEA Smart Option Student Loan by Sallie Mae also offers low interest loans with favorable repayment terms.

    To apply for federal aid, students must fill out the Free Application for Federal Student Aid, or FAFSA. Income limits and other restrictions may apply.

    Studentaid.ed.gov recommends adult learners check with the college they hope to attend to inquire about school-specific scholarships, talk to an admissions counselor, and search for scholarships for free through the government’s Federal Student Aid website.

    Those collecting unemployment benefits may also qualify for free or discounted job training through the Labor Department’s CareerOneStop program, many state labor departments offer similar assistance, and military veterans may also qualify for subsidized training and college classes under the GI Bill.

    Make Yourself a Priority

    When juggling work and family responsibilities, it is all too easy to put continuing education on the back burner. Don’t give up, said Seeber, who herself took 12 years to finish her degree, while going to school part-time and raising kids. 

    “A lot of people don’t go back to school because they feel like their financial priority is their children, but I argue that if they can make a better living by enhancing their education, then in the long run everyone wins,” she said. “You have to put yourself first in this case; like putting on your own oxygen mask before helping your children.”

    National Center for Education Statistics (NCES) data indicate that 27 percent of full-time undergraduate students enrolled at public 2-year institutions in 2013 were more than 25 years old, and 53 percent of full-time students enrolled at private for-profit schools were more than 25 years old. A smaller 12 percent of “nontraditional” students were enrolled at public, 4-year institutions in 2013, the most recent year for which data are available.2

    More from MassMutual…

    Refinancing Student Loans: What’s Lost, What’s Gained

    Paying for College via Direct Loan

    MassMutual’s College Finance Center



    1 Society for Human Resources Management, Employee Benefits survey, 2016

    2 National Center for Education Statistics, Characteristics of Postsecondary Students, last updated 2016

    The information provided is not written or intended as specific tax or legal advice. MassMutual, its employees and representatives are not authorized to give tax or legal advice. You are encouraged to seek advice from your own tax or legal counsel.

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