It’s no wonder this wisdom is imparted when one considers that the average cost of a private university in the U.S. is $44,551 per year, according to the National Center for Education Statistics. In a 10-year period, that price increased by 24 percent, and that was after inflation adjustments.
And currently, student debt in the U.S. is $1.5 trillion or $34,000 of debt for each person in our country.
It’s “overwhelming,” agrees Jonathan Murray, a financial advisor for UBS. Parents who want their children to start adult life with as little debt as possible have to figure out how to save for those educational expenses. At the same time, they, like singles and childless couples, may also be saving or paying for a home as well as their own retirement.
And at a greater rate than previous generations, today’s twentysomethings and thirtysomethings also are paying off their own student loans.
“How do you do all that,” Murray says, literally asking the $100,000 question. His No. 1 recommendation? Millennials need to start saving for retirement now, he says, pointing out “there’s no such thing as a retirement loan.” Even putting aside a small amount of money will be helpful, he says.
Next, pay off any high-interest credit cards, he says. “Too many millennials only pay the minimum due.”
Then, if able, parents can begin to put $100 to $200 a paycheck in an educational savings account. Look for a college savings plan — he recommends the Maryland 529 Investment Plan from T. Rowe Price.
Another savings option is actually a prepaid tuition plan for a Maryland school, which locks plan users in at today’s tuition rate. The one potential downside is that parents will also lock in which school their children will attend.
Want to read more about these plans? Murray recommends doing research through savingforcollege.org.
Another option is an education savings account, a “mini 529” that allows parents to invest up to $2,000 a year. There are also Series EE savings bonds that can be purchased through the Treasury Department and be used for educational expenses.
Finally, a handful of colleges and universities across the nation (about 35) have adopted income-share agreements in which a student pledges a certain percentage of post-graduate income, anywhere from 2 to 7 percent based on major and other factors, in exchange for tuition. Essentially it’s a loan, but payback is structured differently.
Purdue University in Indiana was the first to adopt this innovative approach, Murray says, which on the plus side “forces parents and kids to have skin in the game and graduate.”
This is worth noting because much of the student debt in this country is from students who do not graduate, he says, “which is such a shame. The college premium is at an all-time high. Kids with degrees will earn more.”
His last bit of advice? “Avoid bumper-sticker peer pressure.”
Murray served as assistant dean of admissions at Dickinson College in Carlisle, Pennsylvania for six years and says “parents think they need to get their child in the best school out there.”
That’s not true. They need to find the “best fit” for their child, he says. “You don’t want them to be miserable because you wanted cocktail bragging rights.”