According to its most recent survey of college pricing, the College Board estimates that an “average” four-year private university degree now costs $197,280, with that amount expected to double by 2030. As a result, more than two-thirds (68%) of today’s graduates are entering the workforce with college loan debt, and the average outstanding debt amount per student exceeds $30,000.1
More than ever before, graduates are feeling the crushing weight of debt. Not only is it a likely contributing factor to the advancing age at which major life events (e.g., getting married, purchasing a home, and having children) now take place, but it’s also having a negative impact on retirement savings for millennials as they postpone or reduce their 401k contributions in an effort to pay off loan balances.
Easing the burden
As parents or grandparents, what can you do to help? If you have the luxury of time, there’s no more effective means of preparing for the skyrocketing costs of higher education than a state-sponsored 529 plan college savings account. Contributions to a 529 plan account grow tax deferred (they may also be eligible for state tax deductions) and distributions are federal income tax free for qualified education expenses such as tuition, room and board, fees, books and supplies. Regardless of income or age, any individual can make an annual contribution to a beneficiary’s account in an amount up to $14,000 without incurring gift taxes. You can even contribute a lump sum of up to $70,000 for each beneficiary gift tax free if you elect to spread the gift evenly over a five year period. That means a married couple has the ability to make a one-time tax-free gift of $140,000 for each child or grandchild, as long as no additional contributions or other gifts are made to the beneficiary over the subsequent five-year period.
Urge your high school aged teens (regardless of how many extra-curricular activities they may have) to secure a part-time job, and make sure they contribute at least a small portion of their take-home pay to their college savings. There are few lessons more important for them to learn than the value of money earned versus money given.
If your child or grandchild is already burdened with student loan debt, it’s still not too late to help. There are a number of financial planning strategies that may allow you to help your graduate pay down their loan debts while simultaneously affording you with an opportunity to remove assets from your taxable estate.
The sooner you begin planning, the better the likely outcome. So talk to your advisor at BLB&B today about how we can help jump-start your educational savings.
1 The Institute for College Access and Success, October 2016