Most Parents Aren’t Saving For Their Kids’ College Education

My wife and I both went to college. I have two graduate degrees, and Mel has a four-year degree. We had a few starts and stops on the way, along with three children, and once it was all said and done, combined, we are sitting just shy of $100,000 in student loan debt.

Now keep in mind, this isn’t horrible. I have friends who went to medical school, or law school, or Ph.D programs with more than double, or even triple, the student debt we have. But the fact is, neither Mel nor I had much help from our parents when it came to paying for our education, so we paid with loans. We got a few scholarships. In graduate school, I was lucky enough to land a graduate assistantship, so that helped quite a bit.

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Nonetheless, we will be saddled with our own student loan debt for the foreseeable future, probably until after all three of our children have left the house.

Most college-educated parents are in the same boat, and now that we have children of our own, we are stuck between a rock and hard place — trying to pay off our own education while attempting to save for our children’s education.

If you’re like me, you’re probably working hard to pay off your own student loans, but when it comes to saving for your children’s education… well, that seems to be taking a back seat. In fact, some months, even with both my wife and I working full-time-plus, it’s all we can do to pay all our bills, let alone put something away for our kid’s future.

I feel pretty bad about this, but as it turns out, I’m not alone. According to a recent survey by Student Loan Hero, 44% of parents feel guilty about not saving enough for college. They surveyed 1,000 parents who are currently saving for their child’s education to find out how they’re doing it, and how they feel about it. They found what they claimed to be some surprising findings, but to any parent who is struggling to pay of their own education, they probably won’t raise an eyebrow.

For example, “the majority of parents who are currently saving for their child’s education have saved less than $10,000.” Well, I’m in that boat, as well. In fact, we haven’t saved any money for our children’s education. But at the same time, I only finished my graduate work five years ago, and Mel just finished her degree two years ago. We are both still relatively young in our working lives as college graduates.

The fact is, paying off loans as substantial as those used for a college degree take time. Lots of time. But at the same time, my oldest child is 11 years sold, so we don’t really have that much time left to save. And the closer it gets to his college years, the more I feel like I’m approaching a financial cliff, and my son will be left to pay for his own education.

Then again working while going to college and paying my own way did teach me a lot about sacrifice and determination. But, on the other hand, I envied those friends who had a nice savings account from their mom and dad to fall back on.

Such mixed emotions, I tell you.

Naturally, Student Loan Hero has a few things to say about how to save money for your child’s college to get the most out of what you can put away. Turns out 74% of parents who responded to the survey were using a traditional savings account for college funds. While some money for your child’s education is better than no money, putting money in a 529 plan can really pay off in the long run.

For those wondering what a 529 plan is, according to the U.S. Securities and Exchange Commission, a 529 plan is a tax-advantaged savings plan designed to encourage saving for future college costs. Basically, parents can invest in the plan and the earnings on those stock investments aren’t taxed. Naturally, there are a few different flavors of the 529, but ultimately, the return on investment is positive.

But it comes with a catch… once the money is put in, it can only be used for education. That is, unless you want to pay a penalty. And of course, it also assumes that there’s money in the family budget for contributions to the 529 plan in the first place. As a parent who is often blind-sided by unexpected expenses (for example, our roof just started leaking, and last year my son needed a CT scan), placing money in an account that isn’t easily accessible can be nerve-wracking.

However, if you have the money and you can place it away without fear of needing to withdraw it, here is how Student Loan Hero explains the benefits of a 529 in comparison to a traditional savings account: “Say you build your savings in a high-yield bank account earning 1.00% interest. After 15 years of monthly deposits of $200, you’d have $38,823, according to our savings calculator. Alternatively, say you put your $200 monthly contribution into a 529 college savings plan tied to the stock market. After 15 years of 7% growth, your balance would be $63,392.”

Now here’s the kicker: While there are options to save money, 52% of parents are planning to rely on federal student loans to pay for they kids’ college education, just like I did for my own.

So what does this say about our children’s future college plans? Gosh, I don’t know. In some ways, it feels like we are all caught in the perpetual cycle of paying for our own education in monthly installments, with interest, and feeling guilty about not being able to dig ourselves out of the student loan hole so we can free our children from that burden.

How do we fix all this? I don’t have an answer to that either. But what I can say is that if you are struggling to pay your own student loans, and feel guilty about not saving for your children’s education, you are not alone. Your struggle is part of a larger problem with American higher education and the cost associated with it, so please, for the sake of your own sanity, don’t kick yourself too much. And if you are fortunate to be able to save for your children’s college, do it wisely.