When Michael Modica graduated from George Mason University in 2009, he and his now-wife Ashley, who graduated from James Madison University that same year, accrued a total of $110,000 in student debt. “We’ve been aggressively paying it off since, paying over $1,000 each month,” says Modica, who now works as a financial advisor at investment firm Pine Valley Investments.
The couple doesn’t have children yet but have already discussed how they’ll handle their future children’s college educations. “We are 100% determined to never put our kids in that situation,” Modica says. “We hope to be able to grant them any and all higher education options. If at the end of the day we can only afford ‘X,’ it’s our job to make sure they know and understand the challenges that lie ahead if they want to choose ‘Y,’” he explains.
Modica is just one of many millennials who know firsthand about the burden of student debt and who are determined not to let history repeat itself. According to TD Ameritrade’s Parents and Grandparents College Savings Survey, millennial parents, on average, have $9,180 in student debt and $11,995 in other debt, such as credit card balances and personal loans. Surprisingly, one-third of the millennials surveyed believe it’s unlikely their own student debt will be paid off by the time their own children reach college age. Nevertheless, nine in 10 millennial parents plan to pay for their children’s college fees and are willing to forgo eating out, spending more on themselves and committing to a simpler lifestyle in order to make that happen.
According to the survey, millennial parents who are saving for their children’s educations are putting away an average of $310 a month, but for some, that comes at the cost of delaying retirement savings. “Nearly one-third of millennial parents say they would work longer to make up the difference, but as we age, that’s not always possible,” says Dara Luber, retirement and investing expert at TD Ameritrade. “Their children, on the other hand, have more options to help cover the cost of college. If you’re able to swing it, parents can of course sock away money in a college fund, or ask grandparents to contribute to future education needs, rather than the toy box.” She encourages millennials to be steadfast in reaching their personal goals.
“Millennials are doing a better job of saving for their children’s college because they learned a hard lesson about the impacts of their parents not enough saving for college,” says Mark Hamrick, a senior economic analyst with Bankrate.com. He explains that the perfect storm of climbing college tuitions and inadequate college savings put many students in a situation that they want to eliminate for their offspring. Hamrick suggests starting contributions to a 529 College Saving Plan as early as possible, if, of course, it’s within financial reach. He encourages using an online college cost calculator where parents can enter in their children’s age, income and learn much you then should set aside for college costs.
Others insist that student loans present a learning opportunity for students, and encourage students to take out loans, even if their parents can afford to foot the bill. Forbes contributor Nancy L. Anderson, for example, suggests that the six-month grace period after graduation will motivate recent grads to find full-time employment quickly and in turn, can boost their lifetime income potential. In addition, students who take on their own loans might be more inclined to make every semester count, Anderson writes.
The bottom line: Many millennials know firsthand that getting off on the right financial footing in their young adult years was slowed by the burden of their own student debt. For their own children, some are just not willing to let that happen.
The views of the author of this article do not necessarily represent the views of Gradifi.