If you're an older adult, can you afford to go back to school? More and more are. While the traditional path to earning a degree takes students from the high school classroom to the college classroom, older adults returning to college or attending for the first time have a significant presence on the nation's campuses these days. In 2020, 7.5 million students enrolled at U.S. colleges and universities were 25 or older. This accounts for nearly 40% of all college students. If you're thinking about joining them, here's what you need to know.
- For most older Americans, the biggest barriers to returning to school are time and money.
- Depending on your income and assets, you may be eligible for low-interest federal loans.
- Many employers have programs to provide tax-free educational assistance.
Is Going Back to School Worth the Cost?
The value of college education has become a matter of vigorous debate in recent years, as both college costs and student loan debt soared to new heights. Yet, study after study continues to show that there are few better investments.
For example, a 2019 study by the Federal Reserve Bank of New York reported that the average rate of return for a bachelor's degree was about 14%, compared with a long-term return of 7% on stocks and 3% on bonds.
In dollar terms, the study noted, "In recent years, the average college graduate with just a bachelor’s degree earned about $78,000, compared to $45,000 for the average worker with only a high school diploma. This means a typical college graduate earns a premium of well over $30,000, or nearly 75%."
For older students in particular the major obstacle to getting a degree or other further education is cost. In a 2019 survey conducted by Full Circle Research for Champlain College Online, 27% of respondents age 20 to 72 said that they would need to go back to school to gain the skills to keep current in their field but that they didn't have the money to do so. An identical percentage said they didn't have the time.
“Going back to school as an adult can be a challenge and very different from when you were in high school,” says Dawn-Marie Joseph, founder of Estate Planning & Preservation in Williamston, Mich. “To determine if it’s the right decision, you need to consider both time and money.”
How to Pay for It
Older students have most of the same options as younger ones when it comes to paying for college. If you can afford to pay for it out of your savings, great. But for many people, it will mean borrowing. While taking on debt may not be ideal, especially later in life, federal and private student loans can often provide the funding you need.
To be eligible for federal student loans or other assistance, you’ll need to complete the Free Application for Federal Student Aid (FAFSA). “Filling out the FAFSA form will be different because you’re using your income, not your parents',” says Joseph. You're also reporting your own assets. There’s no age limit to apply for federal aid, and your credit score won't affect your ability to qualify for loans.
Private student loans are different, in that private lenders will consider your income and credit history as part of the approval process. The stronger your credit score, the more likely you are to be approved and to qualify for the best interest rates.
Bear in mind that private loans lack many of the benefits and protections associated with federal loans. Those include low fixed interest rates, a choice of repayment plans, and the possibility of loan forgiveness.
Scholarships and Grants
Better than student loans are scholarships and grants. While many awards are geared toward first-time students, there are some programs that cater to returning students. The advantage of scholarships and grants is that, unlike student loans, they typically don’t need to be repaid. However, some may come with strings attached. The Nurse Corps Scholarship program, for example, offers funding to students of all ages but requires a commitment to work at a healthcare facility with a critical shortage of nurses after graduation.
A third potential source of money is your employer. Many companies offer tuition reimbursement, scholarships, or repayment assistance for student loans, so it's worth inquiring.
“Many adult education programs at both the undergrad and graduate level are often geared toward workers who get some support from their employer,” says Sean Pearson, Ameriprise financial advisor in Conshohocken, Penn. Currently, employers can provide up to $5,250 in educational assistance annually that you won't have to count as income on your tax return.
If your employer offers help with college costs, that could work to your advantage in more ways than one. “Returning to school could potentially add to job stability because once employers are invested in you, they may also have an incentive to keep you around now that you’re more qualified and have an expanded skill set,” Pearson says.
Going back to school may also entitle you to a tax credit or deduction, which helps defray the cost.
Tax Breaks for Education
Depending on your income, the expenses you incur, and other factors, you may also be eligible for a tax credit or deduction for a portion of your costs. The American Opportunity Tax Credit (AOTC) offers a maximum annual credit of $2,500 for the first four years of higher education.
The Lifetime Learning Credit (LLC) offers an annual credit of up to $2,000 for undergraduate, graduate, and professional degree courses, and there is no limit on the number of years you can claim it.
The interest you pay on a student loan may also qualify for a tax deduction. Note that if you're eligible, you can take a student loan interest deduction as an adjustment to income, even if you don't itemize deductions on your tax return.
The American Rescue Plan passed by Congress and signed by President Biden in March 2021 includes a provision that student loan forgiveness issued between Jan. 1, 2021, and Dec. 31, 2025, will not be taxable to the recipient.
Staying With Long-Term Financial Plans
As you plan for how you’ll pay for college, don’t neglect the other pieces of your financial life. That includes shoring up your emergency fund and keeping up your retirement savings.
“When considering whether you’re going to go back to school, it’s important to make sure you have at least six months of living expenses saved,” Joseph says. This can help you cover expenses if going back to school means temporarily reducing your hours at work or you need extra cash for costs that aren’t covered by loans, scholarships, or employer assistance.
If you continue to work while going back to school, resist the temptation to put your 401(k) or individual retirement account (IRA) contributions on pause. At a minimum, try to contribute enough to your workplace retirement plan to qualify for your employer’s full matching contribution, if there is one.
Take advantage of other savings opportunities as well. You can contribute to a 529 college savings plan before you go back to school and while you’re enrolled. These plans allow for tax-free withdrawals when you use them to pay for qualified education expenses. If you don’t exhaust your 529 savings, you can pass the account on to your spouse, children, or other close relatives. You can also use up to $10,000 of it to pay back student loan debt.
The Bottom Line
Returning to school is often worth the cost, but for an older student, it can mean a period of adjustment. For example, consider how well you’ll be able to balance classwork and homework with your career and home life.
“Getting back in the academic mode is challenging,” Pearson says. “If going back to school was easy, and most people finished every program and subsequently doubled their salary—everyone would do it.”