Millennial parents may still be paying off student loans when their kids get to college, but they’re going to make sure history doesn’t repeat itself.
To avoid driving the $1.3 trillion in student loan debt any higher, 57 percent of parents are saving for their child’s college education, up from 48 percent this time last year, according to a survey from lender Sallie Mae and Ipsos, a research company. Millennials are especially motivated and confident they’ll save enough, the survey found.
And it isn’t just how many are saving, but how much. Last year, parents were putting away an average of $10,000, while this year, that number skyrocketed to more than $16,000.
“The findings from this year’s study really highlight the different ways that different generations view and value a college education,” says Julia Clark, senior VP of Ipsos Public Affairs. “And, critically, their differing approaches to financial planning when it comes to their children’s future.”
College is worth it, but who should pay?
Most Americans believe college is worth the cost, even if it sinks us further into debt now. But according to the Sallie Mae/Ipsos study, there’s a generational divide on who should pay for it.
Millennial parents are the most confident and prepared about meeting the cost of college, while Gen X and baby boomers are saving less.
“When it comes to paying for college, 38 percent of millennial parents believe the parent should be solely responsible, compared to 26 percent of Gen Xers and 18 percent of baby boomers,” the report says.
Strangely, millennial parents and future college students agree here. Most kids expect their parents to pay for any college they want, regardless of costs. This could explain why more than half of parents in the Sallie Mae study have a plan to pay for college, and on average, parents who have a plan save almost double what others do: $18,389 vs. $10,468, respectively.
Does the savings plan matter?
As long as it’s not with a credit card, most college savings plans are good. The Sallie Mae/Ipsos survey says 529 plans have risen in popularity, with 37 percent claiming to have one this year, 10 percentage points up from last year. However, most parents are saving with a traditional savings account, which could be because a 529 plan is only for college. What if your child grows up and decides not to go college? You could lose out on some serious cash.
Most parents, 61 percent, prefer a traditional savings plan and 38 percent even use a checking account to save for college — both more than the 529 plan users. The survey says non-529 plan savers aren’t aware that they can save without being taxed on that money.
But what about financial aid and scholarships? Saving parents probably hope their child qualifies for some assistance. The good news is that families can apply for scholarships and financial aid sooner than ever: if you’re planning on heading off to school in the fall of 2017, you can submit your federal financial aid applications as early as Oct. 1, three months earlier than before.