As a parent, you may aspire to send your children to college, just as your parents may have done for you. However, the current state of the economy and overwhelming student debt keep many parents from achieving this. Some parents even warn their children to stay away from college entirely to avoid the same situation.
It’s hard to juggle between your debt and saving money for your child’s future. What solutions can you use to maintain financial health?
Student Debt
College can grant high school graduates degrees, allowing them to get well-paying jobs to support their own families. However, many of their parents won’t be able to send them to school because of current tuition costs. CNBC recently reported that the average cost of tuition for a private four-year college adds up to $50,770.
That’s with room and board included, but it’s still a steep price tag. It doesn’t factor in the child’s cost for necessities such as food and toiletries. Students who live off-campus also have to pay for gas or public transportation costs.
Public four-year colleges are relatively more affordable at $22,180, but even that sounds daunting for debt-laden parents. Just 20 years ago, that was about the cost of sending a student to a private four-year college. The average income of many middle-class families is only $50,000 each year. Obviously, all of that obviously can’t be devoted to future college funds, especially for households with multiple young children.
Because of this, 98% of parents said that they would need to apply for financial aid. Among those parents, 82% said that they would likely or highly likely need some form of monetary assistance. To make matters worse, high debts of their own might make it challenging to get approved for financial aid.
The economy is also in a bad place, with total student debt estimated at over $1.6 trillion in 2020. The average college graduate owes $32,731 in debt, with the average monthly payment amounting to $393. College debt truly started to boom between 1990 and 2013, when it rose by 352%.
The percentage of families that need to apply for financial aid also rose from 49% to 71% during that time period. The cost of one year’s tuition has also increased dramatically since the late 90s. While it was once only $4,740 per year, it has since risen to over $10,000 annually. As expected, millennials are currently the ones experiencing the highest amounts of student debt.
In a study, 48% of millennials are currently paying for student debt, either for themselves or another person. This study also concluded that student debt has prevented 41% of millennials from saving for retirement. Millennials have also avoided saving for homes, new cars, and moving away from their parents’ houses due to the weight of student loan debt. With student loans, the average amount of debt any millennial has is doubled. Boomers that go back to school later in life end up with 48% more debt than those who don’t.
What You Can Do About Student Debt as a Parent
Funding your child’s education might seem overwhelming on top of other financial needs, but it can be managed by:
Address Current Needs
With bills to pay and mouths to feed, saving up for your child’s college tuition seems like an afterthought. However, just like you have a weekly or monthly budget for necessities, you can also put aside money to save. Write down each of your monthly expenses, including past loans, and figure out how much you spend and repay each month. From there, you can take a small percentage of what’s left and set it aside for college. Even something as little as $50 can build up over the years, especially if you start saving early.
Focusing on saving a small amount feels less daunting than forking over $50,000 when your child turns 18. It also eases some stress from parents, so they can focus on supporting their children in other areas.
Saving For Your Future (Including a College Plan)
Kids can also help parents pay for their college tuition, but it can be more difficult for them. Most workplaces won’t hire minors under the age of 15, only for part-time work due to child labor laws. Once they’re adults, they can get a job before or during college, but too much work might interfere with their studies.
However, you can teach the importance of money management with an allowance and opening a kids’ investment account at a young age. That way, your child might have a good chunk of change saved up to assist with repaying a student loan.
Enrolling in a Savings/Investment Plan
An official education investment plan can help you stay organized as you save for your child’s education. A 529 plan:
- Allows users to save up to $380,000
- It can be used to fund up to $10,000 per year at private schools
- Remains untaxed up to a yearly limit, which varies by state
- Offers prepaid college tuition plans
- It is only controlled by the account owner
Another option is getting a UTMA/UGMA (Uniform Transfers to Minors Act and Uniform Gifts to Minors Act) account. These accounts have fewer tax benefits, but the funds from these accounts can be easily transferred to beneficiaries. Additionally, the beneficiaries can use the money in a UTMA/UGMA account for other needs besides education.
