Millennials are the most educated generation in US history, but they’re also the most burdened by student loan debt. The most recent student debt statistics peg student debt at an average of $35,000 per graduate.
With many millennials starting to have children, they might be wondering how much student loan debt their kids will face when they go to college if college costs and student debt continue to increase at the same rate.
In this article, we do some calculations to help millennials figure out just how much they might have to spend on college for their children, how much debt the kids will likely have when they graduate, and what can be done about it.
How Much Will College Cost?
According to Forbes, the cost to attend elite colleges could rise to as high as $500,000 for millennials’ children. That takes the current annual costs of about $60,000 per year at these elite schools and adds 4% per year to those figures. But many of the students attending elite schools won’t pay nearly that much since financial aid is often doled out generously based on either merit or income. Also, most students don’t go to an elite school.
According to the College Board, in 2015-2016 the average sticker price for tuition, fees, room and board was $19,550 for an in-state student at a state school and $43,920 for a private college. However, because of grants and scholarships, the average amount students actually paid (also known as the average net total college costs) was $14,120 for an in-state student at a state school and $26,400 at a private college.
The College Board’s statistics show that the average published tuition, fees, room, and board have increased in the last 15 years at compounding rates that average out to between roughly 4%-7% annually depending on the type of school. If we are conservative and use the same 4% compounding rate that Forbes used, that would mean that in 18 years the average published costs for tuition, fees, room, and board at a public college would be around $39,604.71 per year or $158,418.84 in total and at a private college would cost around $88,973.86 per year or $355,895.44 in total. But that would be the most that a family would pay if they didn’t qualify for financial aid.
If we look at average net total college costs and apply a 4% increase over 18 years to them, the average amount that millennials’ children will likely pay to go to college would be $28,604.53 annually as an in-state student at a state school and $53,481.56 annually at a private college. If you multiply that by four years that would bring the total college bill for millennials’ kids to $114,418.12 to go to a state school as an in-state student and $213,926.24 to go to a private school.
How Much Student Loan Debt Will They Have?
Now that we have an idea of how much college will likely cost for millennials’ children, let’s look at how much debt they’ll likely have. According to The Institute for College Access, between 2004 and 2014 the average college debt went up from $18,550 to $28,950. That’s an increase of 56% overall or an average annual compounded increase of roughly 4.5%.
Since currently students graduate with about $35,000 in debt, if debt increases at the same pace of 4.5% annually that would mean that in 18 years the average student debt for millennials’ children could be as much as $77,296.76.
What Can You Do?
If you’re a millennial who has children or is planning to have children, you’re likely concerned about how they’re going to be able to afford college at those prices. So, what can you do about it? Here are two suggestions:
1. Start Saving Now
If you’re hoping to help your kids pay for college, it makes sense to start saving as early as possible. You can set up 529 Plans for them when they’re young that allow you to put up to $14,000 away every year towards their education. The money grows in these plans tax free and, in some states, you get a tax deduction for your contribution.
Saving early allows your money to compound over time so that when your kids are ready for college, the plans will be worth much more than you originally put into them. There are some plans that even allow you to prepay for college at today’s prices. The problem with the prepaid plans is that you can only use them to go to state colleges in your state. If you want more flexibility, then you should choose a regular 529 Savings Plan which will allow you to use the funds wherever your child attends college.
The problem with this strategy is that many millennials are still paying off their own student loans and don’t have extra money to put towards a 529 Plan. If you still have loans, it likely makes sense for you pay them off first since the student loan interest rate that you’re being charged is likely going to be higher than the return you would get in a 529 Plan.
2. Make Smarter College Choices
Knowing how much college is going to cost, you can encourage your children to do well in school so that they will be eligible for merit aid and scholarships. You can also teach your children about college, student loans, and your own experiences of how difficult it is to pay off your student loans so that they won’t make choices that will increase their student loan debt. When it comes time to choose a college, choose one that allows your child to get a great education with a limited amount of student loan debt.
Author: Jeff Gitlen
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