By: Stephanie Taylor Christensen
Based on current college tuition rates, CNN estimates that students who are in-state residents at a public four-year school will spend about $57,000 to obtain an undergraduate degree (assuming that they graduate in four years). Students who attend a private non-profit college will spend nearly $105,000 to obtain a four-year degree.
As if those price tags weren’t daunting enough for parents who will send their kids off to school one day, a recent NBC News/GenForward survey reveals that 36% of millennials have lingering student loan debt of their own to pay off. While tackling existing student loan debt and saving money to help your children avoid taking on too much college debt of their own can seem a bit daunting, parents can strategically work towards both of these goals in tandem.
Here’s how to pay down your own student loans, while saving for your kids' college.
Calculate the balance on your student loans (and what they cost you).
The first step to eliminating any kind of debt is knowing how much you owe, to whom, and how much it costs to carry the balance. If you have Federal student loans (like Stafford, PLUS, and Perkins), you can find your account information for them, including the balance and interest rates, in the National Student Loan Data System. If you have private student loans, pull a copy of your free annual credit report to see private loan creditor information, and balance details. Create a list or master document to track each of your student loans, including how much you owe on each, the monthly minimum payment amount, loan terms, interest rate, and whether the rate is fixed or variable.
Explore your options.
If you have Federal student loans, research whether you may qualify for any types of modified repayment or debt forgiveness options. If you have private student loans, good credit, and steady income, you may qualify to refinance the loans for a lower interest rate. That could mean more of the money you pay towards your debt goes to the balance, rather than the interest rate charges.
Budget to pay your highest-interest loans first.
It’s smart to be concerned about saving for your child’s future education, but the interest you’re currently paying on high-interest students loans costs you money each month and may be higher than any returns you may realize from a tool like a 529 savings plan. Make paying your student loan balances a financial priority, and take advantage of tools like Fifth Third Momentum, which automatically rounds up your debit card purchases to the nearest dollar or by a full dollar, and applies the difference to your student loan balance to make a dent in your debt, little by little.
Identify a student loan balance you’d like to reach.
Whether your goal is to reduce your debt to a specific dollar amount or to minimize the number of student loan balances you have, identifying a debt-reduction goal helps you stay focused on your mission, and signals a tangible point at which you can feel financially comfortable setting money aside for your child’s college (even if you still have some of your own debt to pay off).
Choose your savings plan.
It’s always wise to diversify your assets when you’re saving for a big financial goal like your child’s college. Our calculators can help you determine how to save for college using a variety of tools, including a section 529 plan, a Coverdell ESA, a UGMA/UTMA account and/or a taxable account.
Determine how much you can afford to save.
Calculate how much you’ll need to save for your child’s college using one of our calculators. Establish automatic transfers either monthly or from each paycheck to the savings or investments accounts you'll use to build your child's savings to encourage consistent contributions. As you pay down student loans, you may find that you can gradually put more money into to your child’s account.
For more advice on managing your own student debt and saving for your child’s future, contact a Fifth Third expert near you.