Going Back to School: Can I Afford It?

If you're an older adult who wants to go to college, can you afford it? More older adults are returning to college or attending for the first time. In 2021, nearly 6.5 million students enrolled at U.S. colleges and universities were 25 or older. This accounts for roughly 34% of all college students.

If you're thinking about joining them, here's what you need to know about the costs.

Is Going Back to School Worth the Cost?

The value of a college education has become a matter of vigorous debate as college costs and student loan debt have soared to new heights. Yet, studies continue to show that there are few better investments.

Education Equals More Income

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%."

Costs and Time Matter

For older students in particular, cost is the major obstacle to getting a degree or other further education. A 2019 survey conducted by Full Circle Research for Champlain College Online found that 27% of respondents age 20 to 72 needed to go back to school to gain the skills required to stay current in their field but didn't have the money to do so. An identical percentage 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 School

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 means 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 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

Private student loans are different in that private lenders consider your income and credit history as part of the approval process. The higher 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. These include low fixed interest rates, a choice of repayment plans, and the possibility of loan forgiveness.

Scholarships and Grants

While many awards are geared toward first-time students, there are some scholarships and grants 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.

Employer Programs

Another potential source of money to pay for college may be your employer. Many companies offer tuition reimbursement, scholarships, or repayment assistance for student loans, so it's worth inquiring about.

“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 to 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.

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. They won't help you to pay current college expenses, but they can help defray your costs later.

Tax Credits

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.

Tax Deduction

The interest that you pay on a student loan may 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.

Maintain Your Long-Term Saving

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 continuing to build to 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 if 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 sometimes it's hard to find the money to pay for it. Funds may be limited for older students who are on a fixed income, responsible for a mortgage, or raising a family.

However, there are opportunities such as scholarships, grants, employer programs, and financial aid. Be sure to do your research to determine which may meet your needs and be a good financial fit.