Despite Our Student Loan Debt, Here’s How We’re Filling Our Children’s 529s

By Alaina Trivax, WCI columnist

More than 70% of 2021 graduates left medical school with at least one student loan debt, according to the Association of American Medical Colleges. The median debt burden for these new doctors, not counting undergraduate student debt, was over $200,000. These statistics certainly touched my family and, as the math suggests, impacted many other WCI readers as well.

My husband, Brandon, is a PM&R physician in private practice, and I teach at an independent school in Southeast Michigan. Brandon and I certainly know the impact of student debt. He took out loans to pay for his bachelor’s and master’s degrees, but most of his debt comes from medical school. Even at a state university, the costs were still significant. I attended a private college for my undergraduate studies; I was offered a scholarship which made it the second cheapest option. Yet I graduated with about $30,000 in student loans. I continued my masters studies and received a scholarship which financed almost all of my studies. Since I was also working as a college teacher, I was able to collect the balance of the tuition bill and ultimately graduated with this second degree without any debt.

After all that studying, Brandon and I ended up with a combined total of over $330,000 in student loans.

This debt influences many factors in our lives: the house we live in, what we spend our money on, and the vacations we take. We’re nearly two years into it as a participant, but we’re still “living like residents” as we prioritize paying off those student loans. But that’s not all we prioritize.

How we chose the right plan 529

Our experience makes us want to be sure that we can support the educational goals of our children. Even before they were born, we started this planning process. Brandon and I share our financial responsibilities—he takes care of long-term things while I handle the day-to-day—so he did some research to select a 529 plan for our two boys. We live in Michigan, which has a pretty good 529 plan: the Michigan Education Savings Program (MESP). In fact, WCI previously gave the Michigan 529 plan a high rating, and over the past 10 years the MESP has consistently received gold and silver ratings from Morningstar in recognition of its asset allocation approach, proper oversight, and of its low costs.

Our two boys are still quite young, so their funds are invested in an aggressive growth account consisting of:

  • TIAA-CREF Equity Index Fund: 48%
  • TIAA-CREF International Equity Index Fund: 20%
  • TIAA-CREF Emerging Markets Equity Index Fund: 4%
  • Vanguard Real Estate Index Fund: 8%
  • Vanguard Total Bond Market Index Fund: 14%
  • Vanguard High Yield Corporate Fund: 2%
  • Schwab US TIPS ETF™: 4%

The total annual asset-based fees for the various investment options offered by the MESP range from 0.065% to 0.185%. The aggressive investment allocation program our money is invested in has a rate of 0.105%.

Basically, we aim to pay for most or all of their undergraduate education. We hope they will get scholarships and we may ask them to contribute to the costs in some other way. We’ll probably be able to afford some of the expenses as well, so we’re not necessarily trying to have enough money for the four years of study in advance. In fact, we have not yet defined a specific objective. Our priority is to repay our own student loans; we’re only sending a few hundred dollars a year to their 529 plans at this point, so we’re certainly not in danger of overfunding.

Recently, we reflected on how the current economy and the bear market play a role in our savings strategy. Should we contribute more to our sons’ 529 accounts to buy these “for sale” investments? Our formal financial plan states that we will prioritize saving for our retirement, maximizing available pre-tax benefits and paying off our student loans before doing anything else. Once we achieve these goals, we will begin to fund the children’s 529 more aggressively while saving for our next home. Our financial plan keeps us from being tempted to try to time the market to maximize the funds in our boys’ college savings accounts. We know our priorities and are confident in our strategy. (Brandon and I have our semi-annual financial meeting soon where we’ll review our investment accounts and net worth and assess our progress toward our goals. I’ll report back if anything changes!)

More recently, instead of buying a present for our 2-year-old birthday boy, we sent $200 to his college savings plan. We celebrated anyway by inviting family and a few friends over for a birthday dinner, and he had a blast. Our adorable little boy has everything he needs and a lot of what he wants (or more accurately, given his age, what we want for him). Rather than giving her another toy to play with, supporting her future goals seems like a much more meaningful gift.

I hope we raise our boys to understand the privileges and opportunities that money can provide. In this case, a college savings account will allow them to pursue a field of their choice and start their professional career without any debt. As I get older, I’d like to imagine our sons will appreciate the gift of a contribution to their 529s.

Key phrase here: “I’d like to imagine.” In reality, we’ve probably got a few more years before our two boys understand birthdays enough to expect presents. Once that happens, I don’t think we’ll get away with a 529 contribution instead of a gift. At this point, we hope to have a little more flexibility in our budget and can simply match the cost of their birthday present with a bonus deposit into their college savings fund.

Should we ask extended family to contribute to a 529?

saving for children 529

It is absolutely our responsibility to fund our children’s future education, but we would like our extended family to contribute to our children’s 529 plans instead of providing birthday and holiday gifts. As someone who currently sorts all of our toys, I can confidently say that the boys have plenty to play with. However, I haven’t figured out how to make a 529 contribution seem like a cool giveaway. When family and friends asked for gift lists, I included the suggestion of a college savings contribution as well as ideas for toys and activities.

It feels a bit like a cash grab to only offer the 529 option, though. Our children are small and it’s fun to see them open a new toy. Aunts, uncles and grandparents want to give them something to play with. I understand. Earlier this year, I bought us all tickets to a Thomas the Train extravaganza just to see my 2-year-old’s face when a real live Thomas train rolled up for him to ride on. Will he remember? Probably not. Worth it? Absolutely.

On the other hand, is a 529 contribution an exciting gift? Uh, not really. Worth giving, anyway? Absolutely.

As Brandon and I work hard to reduce our own student loan debt, the impact of a 529 contribution donation is clear to us. A fully funded college savings plan will allow our boys to start their adult lives without the burden of student debt we currently have. My own extended family helped me throughout my studies and I remember and appreciate their support. As a student, I traveled and studied in Costa Rica, Nepal and parts of Europe, which I could not have done without this financial aid. I want this for my children.

Beyond the financial benefit of having college fully paid for, I want my boys to know that not only Mom and Dad believe in their dreams, but Grandma and Grandpa, Nanna, and their aunts and uncles also do.

Student loans and the many programs and options are difficult to navigate. If you need help, check out StudentLoanAdvice.com, a WCI company.

Did you contribute to a 529 plan while paying off your own student loan debt? How did you manage? Or is it a better idea to finish your debt and maximize your retirement accounts before worrying about a 529? Comments below!

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