Part Eight of Student Loan Series: New Parents And Saving For College
Many Gen-Xers and Millennials are caught between a rock and a hard place when it comes to the cost of higher education. How are new parents are coping with the rising cost of a college education for their children, while still saddled with their own school debts?
In the year 2030, the average sticker price for a year at a private university could be as much as $130,428. That’s according to recent projections by loan-handlers Campus Partners. Their outlook is pretty bleak for public universities too—which could cost a whopping $41,228 per year.
That’s a hefty price tag, especially for Gen-Xers and Millenials. They weren’t in college or grad school that long ago, and many bank accounts are perennially sore from that monthly student loan payment.
"We often joke like if we could just win like $100,000," says new parent John, "we’d totally be OK with just $100,000, even to partially pay off those loans, so that we could then put that money toward saving for Caleb."
John and his wife Leah are the proud parents of 20-month-old Caleb. And if these 30-somethings have their way, Caleb is either going to Dartmouth (where mom went) or Rutgers (where dad went).
"I bleed green for Dartmouth," Leah says. "The goal was always that he would go to college."
Leah admits it’s not going to be that easy. She’s an attorney, but she walked off the podium at Columbia Law School with $150,000 in student loans. John’s debt is less severe, but still cumbersome.
"Truthfully, not having student loans would change our whole life," Leah says.
So what’s a new Gen X/Millennial parent to do? In a way, it’s these generations’ Sophie’s Choice. Blow what life savings you can amass beyond your own debt (and take on more debt), or saddle your kid with their own debt for a good chunk of their adult lives. What would you choose?
"I remember the day my father said you can go wherever you want to college and I remember being like yes this is awesome," Leah admits. "To think I might not be able to say that to my kid is heartbreaking."
But if you ask financial advisor and WAMC contributor Mary Irish, the glass is half full. The most popular college savings tool these days is the state-sponsored 529 savings plan. She says they can go a long way over 18 years to defray college costs.
"All of the states have a 529 and they really have a lot of benefits," Irish says. "All of the money that’s invested, if it’s used for qualified education expenses is tax-free. Another benefit is that the beneficiaries can be changed."
That can be a relief to new parents, Irish says, especially when they consider having a second. She knows that firsthand, as the mom of two boys, now 20 and 17. Her older son is enrolled at a public university, and her younger son is a senior in high school, aiming to go to a private university. She says they overestimated the cost of college for their first son, and are planning to transfer the balance to their younger son.
"My husband and I both paid our way through college, but it was different then," Irish says. "We're in our mid-50s and it was an entirely different situation in terms of the debt you took on. So by the time we became parents, our college debt was paid off."
Perhaps fittingly, the previous generation are seeking information about the 529s as much as the parents.
"I speak with a lot of new grandparents," Irish says. "Often, they may be in a better financial position than the parents to help. The grandparents can use all of the same options for saving that the parents can."
There are other options too. Parents can opt to invest in a Coverdell education IRA, but it’s a less desirable option because it does not qualify as a tax deduction and there is a limit on yearly contributions.
Leah and John started a 529 in New York for Caleb when he was 3 months old. They tied it to a credit card program, which deposits rewards into the 529 based on purchases. And they put in money when they can. But at first, they admit they were embarrassed to talk about what they were doing to save for their son’s education.
"Don’t ask us how much we’ve put in it so far," Leah laughs. "The answer is, not much."
That’s the case for many parents in Facebook parenting groups Leah belongs to—for this generation, Facebook and other social media forums have become the go-to for parenting advice and support—very few wanted to talk about saving for college because they were embarrassed at how little they could save. But for Leah and John, the more they thought about it, the more they realized they weren’t doing anything wrong.
"We haven’t done anything irresponsible," Leah says. "We haven’t like run up some huge gambling debt and we haven’t gone and bought some house we couldn’t afford."
"We’re doing everything we can do, it’s just the current circumstances that we’re a part of, the financial environment currently, " John adds.
Irish, the financial advisor, says it’s all about the benefit of time.
"Like anything, you just really do have to put a little aside into each pocket," Mary advises. "That's all you can do, just do as much as you can. And give yourself the benefit of time. Time is everything, through good markets, bad markets and everything in between."
Of course, it’s hard to predict 18 years out what kind of financial aid will be available, what scholarships might come your child’s way – or even if your child will want to go to a traditional four-year college, increasingly seen as a must for a competitive job market. And when even President Obama has raised concern about the student loan crisis, perhaps wholesale reforms are on the horizon.
But for Leah and John, that’s a bridge to cross when they get there.
"I’d much rather him go to college," John admits. "But if he really has come to a point where he knows with his whole heart that he wants to be an artist or wants to be a photographer and that doesn’t require a college degree, so be it."