08/08/2012 06:18 pm ET Updated Oct 08, 2012

Untangling the Web of Retirement and College Savings

While most college students are eager for September and the start of the school year, many parents don't feel that same anticipation. The costs associated with a higher education have been soaring -- the average tuition at private universities has nearly tripled in the last 30 years. Many of my clients with children in this "red zone" are experiencing extreme sticker shock. The reality is that a college degree is table stakes in the job market today, and figuring out how to foot this bill has become one of the greatest financial challenges facing parents.

One troubling trend in the last decade has been the boom in student loan debt. Overall student debt has skyrocketed 148 percent since the beginning of 2005 to $902 billion. At the same time, the average starting salary for recent college graduates has plunged 10 percent to $27,000 per year since March 2012. It is not a pretty picture for today's college graduates. Given these challenges and the difficult economic environment, parents need to do all they can to plan and prepare early for funding college, without sacrificing their own retirement goals.

College financing and retirement savings are intertwined, both for parents and their children. Parents may be tempted to deflect retirement savings to a college fund. I've had parents ask me that very question: "Should I dip into my own retirement savings to help pay for my child's education?" I always caution them that, first and foremost, they need to preserve and protect their retirement savings. I remind them that there are no loans for retirement, while there are loan programs for college. Every circumstance is different, but a general rule of thumb I often recommend is that for every dollar a parent puts towards retirement, they put 10 cents towards college.

If a student is planning to borrow money from a third-party lender for their education, parents must consider the effects that being saddled with significant loans and interest repayment will have on their child's ability to save for retirement early in their careers. A recent study by the ING Retirement Research Institute found that over half (52 percent) of employed 25-45 year olds have student loan debt averaging $37,100. Families should also research the college financing landscape thoroughly. The College Board offers resources and helpful information for families to help them navigate the financial aid process.

I talk to my parent clients about what a difference proper financial planning makes for college, especially if they can start when their children are young. Parents can cushion the financial blow of college education with careful planning and disciplined budgeting. First, I encourage clients to start investing money in a college fund as early as possible.A 529 college savings plan offers tax-deferred earnings and income-tax-free withdrawals for qualified education expenses.

I also encourage parents to get the extended family, particularly grandparents, involved in saving for college. Grandparents can make contributions to 529 plans as gifts for holidays and birthdays. Compared to the latest toy or game that will soon be forgotten, money placed regularly into a college fund when a child is young adds up to a substantial financial gift when freshman year rolls around. The savings are even more pronounced when compared to loans with interest included.

Finally, here are key financial considerations that should be on every parent's financial syllabus at every stage of the college journey:

Pre-high school: Infancy is the best time to start saving for college. I've had clients set up a college fund for their newborns as they send out birth announcements. In addition, look to milestones including holidays and birthday as opportunities to encourage family members to contribute to investment and savings.

High school: Discuss the various education options early-on. As a child's academic focus and interests become clearer, start weighing higher-education options at different price points, including community, state and private school.

Heading to college: In addition to savings, parents can combine financial aid, scholarships, grants and student loans to help make up for shortfalls. Eligibility for federal financial aid can get complex, so parents need to do their research on various financial aid strategies. Families should consider that work positions on campus can help offset the cost of room and board.

It is a delicate balancing act for parents when in comes to retirement and college savings. While both are important and have a place in a family's financial plan, I encourage parents to have a disciplined and balanced strategy and plan for both goals.

ING Retirement Coach Jacob Gold is a third generation financial advisor. He is a published author of "Financial Intelligence; Getting Back to Basics after an Economic Meltdown", which was published in August 2009. Gold is a CERTIFIED FINANCIAL PLANNER™ practitioner and FINRA Series 7, 24 and 66 securities registered.

Securities and Investment advisory services offered through ING Financial Partners, Member SIPC. Neither ING Financial Partners nor its representatives offer tax advice.