Many Parents Are Struggling to Pay Off Their Own Loans While Saving for Their Children’s Education

Posted By Terri Williams on September 28, 2015 at 11:49 am
Many Parents Are Struggling to Pay Off Their Own Loans While Saving for Their Children’s Education

The majority of parents are struggling to pay off their own student loan debt, but they’re committed to making the road to college easier for their kids.  In spite of – or, perhaps, because of – the debt they’re paying off, parents are determined to make sure their offspring won’t bear the same financial burden.

According to the 9th Annual State of College Savings Survey conducted by the College Savings Foundation, although 68% of parents are currently paying off student loan debt, saving is still a top priority. The survey results, divided into two sections, are presented below.

Some surprising findings?

  • 28% of respondents have not saved anything for their child’s college education
  • A third of respondents have never heard of a 529 plan
  • While 28% of respondents save no money per month for their children’s education, 26% of respondents put $301-$500 away
  • 49% of parents expect their children to contribute to college costs

The full results of the survey are below:

Parents save to help children avoid debt

What is the primary way you plan to pay for your child’s college costs?

51% Savings
24% Grants/scholarships/direct
13% Loans/borrowing
8% Current income
4% Other


How much have you saved for your child’s college education (per child)?

28% Nothing
24% < $5,000
17% $5,001 – $10,000
15% $10,001 – $25,000
8% $25,001 – $50,000
4% $50,001 – $100,000
4% > $100,000


Do you know what a 529 college savings plan is?

33% No, I have never heard of them
33% Yes, I own one
26% Yes, but I don’t know much about them
8% Yes, I plan to start one


How much do you save monthly for your child’s college education?

28% Nothing
24% < $5,000
17% $5,001 – $10,000
15% $10,001 – $25,000
8% $25,001 – $50,000
4% $50,001 – $100,000
35% $101 – $300
26% $301 – $500
17% $51 – $100
15% > 500
7% < 50


Other ways parents are funding college

If you are borrowing, what do you anticipate will be your number one college financing source?

40% Education loans
38% Not applicable
7% Second mortgage or home equity line
7% Credit card or credit line
4% Borrowing against my retirement
3% Borrowing against other investments
1% Other


 Will your child contribute to paying for college?

49% Yes, up to one-third
26% No
16% Yes, between one-third and two-thirds
9% Yes, over two-thirds


How will they contribute to their college savings?

49%  Job
24% Scholarships/grants/fellowships
14% Own savings
10% Loans
2% Other
1% Military funding


Would you ask friends/family to make a college savings gift instead of material gifts?

51% Yes
28% No
21% I don’t know


Mark Kantrowitz, senior vice president of Edvisors, says that parents need to plan for their children’s future while also planning for their own golden years, and he recommends that parents save for college as opposed to borrowing money. “Saving for college in addition to retirement as opposed to borrowing for college and saving for retirement yields more money for retirement in the end,” says Kantrowitz.

He explains, “The interest rate on savings is lower than the interest rate on debt, so, by avoiding debt, you increase the amount saved for retirement.”

Kantrowitz says that a similar situation applies to the decision of whether to save for a child’s college education or pay off your own student loans quicker.  He offers this solution: “If the interest rate on the savings is lower than the interest rate on their student loans, they will have more money to pay for college in the end if they pay off their own loans quicker.”

And while Kantrowitz admits the sacrifice parents are prepared to make for their children is admirable, he says they will be better able to help their children if they pay off their own loans as quickly as possible.

He adds, “College students should not borrow more than they can afford to repay in ten years or less. This means borrowing no more than their expected annual starting salary, and, ideally, a lot less.”

When debt is not in sync with income, Kantrowitz warns that the borrower will struggle to make the monthly loan payments. “This forces them to choose an alternate repayment plan, like extended repayment or income-based repayment, which means they will still be repaying their own student loans when their children enroll in college.”

As a result, Kantrowitz concludes,” This causes a cascading impact on the next generation who will have to borrow more because their parents have tighter finances and are unable to help as much.”

Terri Williams
Terri Williams graduated with a B.A. in English from the University of Alabama at Birmingham. Her education, career, and business articles have been featured on Yahoo! Education, U.S. News & World Report, The Houston Chronicle, and in the print edition of USA Today Special Edition. Terri is also a contributing author to "A Practical Guide to Digital Journalism Ethics," a book published by the Center for Digital Ethics and Policy at Loyola University Chicago.

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