What to Do If Your Student Loan Debt Is Keeping You From Funding Your Child's Education

Student loan debt can have a huge impact on every aspect of your financial life—studies have found that the burden of student loans delayed plans to buy a home, save for retirement, and even create an emergency fund for many millennials. But on this week's episode of the Money Confidential podcast, host Stefanie O'Connell Rodriguez explores another huge impact of student loan debt: An inability to save to help with college costs for children.

Rita (not her real name), a 40-year-old mom of two in Columbus, Ohio, is struggling under the weight of student loan debt. "My kids will be graduated from college and we're still going to be paying off his loans," she says.

Rita says that the lack of ability to put money away for her kids makes her feel like a parental failure, since she can only put away $50 per month in a 529 plan for them. "My parents were able to do it for me—I want to be able to do it for them," she says.

O'Connell Rodriguez turned to Ron Lieber, author of The Price You Pay For College: An Entirely New Roadmap for the Biggest Decision Your Family Will Ever Make for advice on how to think about the college journey for your kids. He points to the emotions of fear and guilt—and a little bit of snobbery—that may be fueling every parent's attempt to try to make Ivy League and highly competitive schools a possibility for their kids.

—Ron Lieber, author of The Price You Pay For College: An Entirely New Roadmap for the Biggest Decision Your Family Will Ever Make

Ron suggests taking a good look at your finances and having a realistic talk with your child about what you'll be able to afford—and do that early on, when your child's in 8th grade.

Consider options for reducing the cost, such as covering the basics at a community college, before moving on and finishing a four-year degree at a prestigious university. And consider whether those high-end schools really provide a high-end education vs. more affordable options. "Parents need to flip their thinking about that entirely," Lieber says. "Because the point of the exercise is not some nameplate college. The point of the exercise is a well-adjusted adult who goes out into the world and finds something that they're passionate about and becomes happy in whatever it is that they decide to do with themselves for the rest of their adult life."

Check out this week's episode of ­Money Confidential—"I still have $51,000 in student loan debt. How can I save for my kids' college education?"—for O'Connell Rodriguez and Lieber's full conversation about balancing paying off your college debt, and saving for your child's education. Money Confidential is available on Apple podcasts, Amazon, Spotify, Stitcher, Player FM, or wherever you listen to your favorite podcasts.

Transcript

Maria: You know, if he wants to go to college, I want to be able to say, yes, I can help you. That would be so hard if I were to say I know you want to go to college, but can't make your dream happen because I'm still paying, you know, $600, $700 of student debt.

Stefanie O'Connell Rodriguez: This is Money Confidential, a podcast from Real Simple about our money stories, struggles and secrets. I'm your host, Stefanie O'Connell Rodriguez. And today our guest is a 40-year-old mom of two children living in Columbus, Ohio, who we're calling Rita—not her real name.

Rita: I think I have a really great relationship with money but our student loan debts are this black cloud that's been over our lives forever.

Stefanie O'Connell Rodriguez: A 2021 survey of US millennials between the ages of 33 and 40, found that 23% were limiting retirement contributions, 27% were delaying buying a home and 24% were cutting back on building up their emergency savings as a result of ongoing student loan payments.

Rita: I was fortunate enough to have had my student loans paid off by my family. My husband went to school later on in life. So that means his debt started in his early thirties and he ended up taking out more than probably he ever needed to, and now we're stuck.

After paying really heavily over the past eight years, we're still at about $51,000 in debt. It seems like we're chipping away at a mountain that's never going to go anywhere.

His balance started at around $65,000.

So we were at one point spending almost $750 a month and combined we were making like $50,000. So when we get like tax returns or something like that, we'd throw some money at it.

And then probably about three years ago, I started applying more towards the principal. So we were able to pay around 50 to 100 dollars more towards principal, depending on where we were at financially

And in March of 2019, we sold it to SoFi, so we could have that fixed interest rate, because that's what kept killing us, that fluxing between our paychecks or, you know, what we were making was killing us. We also had two kids at that time, too. So it was like, okay, we have to do something to keep this the same payment, which then, unfortunately set us back to being like, oh, you have 20 years to pay this off now.

Stefanie O'Connell Rodriguez: How do you feel when you think about that?

Rita: It's laughable. I literally laugh because I'm like, my kids will be graduated from college and we're still going to be paying off his loans.

I don't even know what else to do at this point. Like I've tried the throwing money at it. I've tried chipping away at it. It feels like nothing's working, that number just hangs over our head constantly.

We also have an almost two-year-old and a four-year-old that we're trying to save for them to not be in the same situation we're in.

Stefanie O'Connell Rodriguez: Like Rita, many millennials now have their own children and are starting to think about how to save for their college education, oftentimes, while still working to pay off their own student loan debt.

So, given your experience with higher education and the student loan process how do you think about that when it comes to what you would tell your kids to do to for college?

Rita: Oh my gosh. I feel like. My husband and I both really pursued our passions. I got an art degree, he got an English degree, right. So no one's going to make a ton of money doing either one of those things. But what I think I'm going to have to tell my girls, or what I think about is, start at the community college level, see how much you love what you're going to be doing.

And if you love it, we'll find ways to get scholarships. If you don't, we haven't invested a whole lot of money into it, you know? It kills me because I want them to do what they want to do. I want them to be whatever they want to be and have the opportunities like we had. But I don't want this to be happening to them when they're 40.

Stefanie O'Connell Rodriguez: How does the idea of not contributing to their education financially make you feel?

Rita: Oh, like a failure, like a parental failure.

My parents were able to do it for me. I want to be able to do it for them.

Here in Ohio, there's something called an Ohio 529 account, which is for savings for my kids. So as soon as they both were born, we opened up accounts for them and put $50 for each of them in a month.

But I know when I look at those numbers of what we've accumulated for them in that account. I mean, by the time they're 18 that will probably pay for a semester. It doesn't seem like it'll pay for much

Stefanie O'Connell Rodriguez: You seem to have a much more clear and intentional structure for saving for their college than you do for your own retirement.

Rita: Oh, absolutely. Yeah.

Stefanie O'Connell Rodriguez: Where do you think that is from?

Rita: Mother's guilt maybe? I really do think it's because I want the best for them and I'll figure out the rest for me. They're going to come first no matter what.

I mean, honestly, I'd have to maybe decrease each one of the girls' payments by $25 a month. So put $50 in ours and $25 for each one of them. You feel defeated.

Stefanie O'Connell Rodriguez: The habit is more important than the amount—you can always optimize, change, shift later on. I think just getting this in place where this is something you're incorporating into your plan, even if it's not at the level that you want it to be at. It's more about the habit and having that in place than it is about having it perfectly in place. how did you find out about the 529 plans?

Rita: I had a friend who had already had a child and he was like, you got to get this 529 thing for your kids and he kind of turned me on to it. So I like dug in a little deeper. I was like, okay, this is easy. there's a little portion of it where you can have grandparents or a relative contribute, which at the head of like every Christmas email or every Christmas season, I'm like, please, they don't need any more toys. Just contribute to their education.

Stefanie O'Connell Rodriguez: Do you have a sense of how you would begin the conversation around college and affordability?

Rita: I think that just being as transparent with money is how we're going to have to approach things.

And there is no magical safety net that's going to pull them out from some of the decisions that they're going to make so being really mindful about how you're spending your money. That's how my parents kind of taught me to think really critically about the money, and getting them a retirement account as soon as possible.

Because I mean, I didn't have that until my thirties and, and my husband still doesn't and he's in his forties, so making sure that they are set up for success before they even start their careers or start their schooling for their careers.

But definitely like trying to teach them from as soon as they can retain how these little things with your money and credit cards and student loans and retirement, they all affect each other, and they're going to affect you later down the road. And that's when you're really going to feel it because you're not going to feel it right away.

When you're 40, this is going to be like, on your mind every night before you go to sleep, like you're never going to sleep again. The wave is crashing on you and you don't know what's coming. And then you're underwater thinking you're a failure.

Stefanie O'Connell Rodriguez: Even though many still feel burdened by their own student loans, 77 percent of older millennials said they would put off their retirement to pay for their kids' education if they had to.

But with the oldest members of the millennial generation, like Rita, at or approaching 40, future levels of Social Security unclear, and more weight on personal retirement savings, as jobs with pensions and even 401ks become less and less accessible, the balance between paying off the past while saving for the future —both your own and your children's —can feel impossible

So after the break, we'll talk to New York Times columnist, Ron Lieber, about how to manage the financial and emotional minefield of saving and paying for college—when, as Lieber points out in his new book, The Price You Pay for College, your total tuition bill could add up to more than what some families pay for their homes.

Ron Lieber: It's a really large number. It's super confusing. It involves our children. It's, you know, the kind of thing that's just like custom built to keep you up at night, but putting it off and not planning is not a recipe for happiness. It's just a recipe for future anxiety and possible disappointment, including disappointing your child.

Stefanie O'Connell Rodriguez: That's Ron Lieber, the "Your Money" columnist for the New York Times and author of The Price You Pay For College: An Entirely New Roadmap for the Biggest Decision Your Family Will Ever Make —Just a note, I interviewed Ron via video chat from his New York City home, so you may hear the occasional sirens in the background of our conversation.

Ron Lieber: It is tempting to turn financial planning and all of the tradeoffs involved, into a sort of like bloodless economic science, but that's not what it is at all. And because there's so many feelings involved, particularly when children get in the mix, that it's almost impossible to give people practical advice that is based entirely on science and data that's divorced from the strong feelings that we have about wanting to take care of our children. Right? So in this particular context, you know the advice about the trade-offs between saving for college and repaying debt and saving for retirement. Um, you know, often goes something like this, right?

If anything bad happens and the oxygen masks fall, put them on yourself first. Right? It's just goes against all of human nature.

I do encourage people to confront the math. And so if your student loan debt is ticking away at, you know, seven or eight percent interest, because you didn't consolidate at two or three percent and you have the opportunity to save for retirement in a workplace plan, that'll match your savings. You know, that matches up at 50% return or a 100% return right away. I would argue that it is foolish to turn that down, right? So maybe you only save as much so as to get the match and then you divert the rest, you know, towards your debt at 8%, and then you save 50 bucks a month for your kids starting as soon as possible.

So that at least you're gonna be able to make fewer trade offs or have more choices on the back end. But, look, for all of us in our financial lives almost every day involves some kind of a trade off. And because college is so expensive, the sad fact is is that something like 90% or 95% of us are going to have to think hard about money in this context.

Stefanie O'Connell Rodriguez: When something is so emotionally charged, how do you find that you can bring in a little bit of the math while still giving credence to the emotional experience?

Ron Lieber: I think this has to start with reckoning with the emotions that are most likely to present themselves when it comes to college in particular.

So there are at least three that are almost always present in, in some amount. The first one is fear. Fear that your kid is going to go tumbling down the social class ladder if you make the wrong move, if you don't spend enough, if you don't borrow enough. Right. All of these plans that you've made for this kid for two decades will all amount to nothing.

It's not necessarily grounded in reality, right. But people are likely to experience fear around their kids for all sorts of rational or irrational reasons. And especially if you spent decades yourself kind of clambering up the social class ladder in adulthood from wherever it is that you've started, or if you've experienced downward mobility yourself.

You don't want your kid to continue to experience that. So there's fear there. Then there is guilt—guilt that you do not earn enough, guilt that you have not saved enough, guilt that you are not doing for your kid, where your parents were able to do for you.

Guilt that you're not paying full freight for your kid. When you promised yourself for decades, that you are going to create a situation much different from the one that you went through, right. You can send yourself on like a thousand different guilt trip itineraries.

And then there's snobbery, right? Private must be better than public. More expensive must be better than less expensive. The brass name plate must be meaningful and is worth stretching and borrowing an extra tens of thousands of dollars for so we have to confront each of these things, recognize them for what they are, have honest conversations with ourselves, with our spouse or with some trusted advisor or therapist or friend who is just better at clear-headed emotional and financial thinking, right? So you confront those emotions first and then you look at the trade-offs.

And part of confronting the emotions, it's just saying to yourself, you know what. Things are different now than when I went to college —if I went to college. Things are different from when my parents were or were not providing for me. Things can be radically more expensive. And it is also clear that a perfectly good education is available at hundreds and hundreds of residential undergraduate institutions.

And so if we are not able to afford the place that I went to 20 or 30 years ago, that has now become very fancy and expensive and selective, this is not the end of the world. You are not a failure as a provider.

Stefanie O'Connell Rodriguez: One of the things that's always frustrated me about the conversation around college, was the framing of college as the ultimate end goal, as opposed to a stage that you pass through.

It almost feels like we're setting ourselves up for a framework where of course we're going to sacrifice everything because that's it, that's the end, as opposed to that was just the beginning.

Ron Lieber: Absolutely. So from a parenting perspective, it's easy to get all kind of bollixed up in your head about this stuff, right? Because as a parent, this feels like they are leaving and they are not coming back. Maybe they're coming back for summer. Right. You don't really want them to come back when they're 22, cause that's a sort of failure to launch.

Right. You know this is the end in many ways and where they get the bumper sticker, you put on the car, right? Or the Facebook sweatshirt reveal or Instagram for the kids. Right. You know, it feels like a trophy, a gold star measure of your own achievement, not just as a kid raiser, but as a provider.

And I would just encourage people to, to flip their thinking about that entirely. Because the point of the exercise is not some nameplate college. The point of the exercise is a well-adjusted adult who goes out into the world and finds something that they're passionate about and becomes happy in whatever it is that they decide to do with themselves for the rest of their adult life.

That is your job. We are in the adult-making business as parents. We are not in the business of manufacturing college students where success is only measured by whether your kid gets to go to a place that only accepts a single digit percentage of students. That's not what this is about.

Stefanie O'Connell Rodriguez: Yeah, I think that's a really good reframing of how we think about the value of a school emotionally. And I would wonder what you use as a framework for assessing value of a college education financially.

Ron Lieber: Sure. I guess on the most basic level, we have to start with the data that exists in the data is pretty scant, right.

But one primary kind of baseline point of going to college is to finish. Right? And it turns out that all sorts of schools, including plenty of ones that you've heard of and feel quite desirable only 50 or 60 or 70% of the people who start there as 18-year-olds actually finish within six years.

So they need to finish. They need to graduate hopefully with a reasonable amount of student loan debt. If you cannot afford to write a check for the cost and some schools are better than others, both about keeping their costs down and not kind of nudging or slyly encouraging both the undergraduates and the parents in particular to take on more debt than they should.

So we have data on completion. We have data on average debt amount, both the students and the parents. There's some data about starting salaries about what happens to people after they do finish.

Now much of that depends very much on majors, right? And a computer science major at the University of Texas at Arlington, you know, they're going to have a starting salary is not going to look all that different from what a comp sci major Rice University might be making, even though those schools are a quarter of a million dollars apart in their price tag over four years. It's certainly worth looking at those things.

It gets much harder when you try to measure things that either are more qualitative. So the whole question of how much somebody learns at any given institution. This is not information that we're actually privy to. They're not testing them on the way in and on the way out. And if a big part of what you think you're paying for is for your kid to get an education we don't actually know that much about that.

If you're buying them a network, and you think the network at Rice University is going to be better than the network at UT Arlington. You know, Rice University isn't exactly standing up in the group information session for high school seniors offering quantitative data on the percentage of undergraduates who get internships that are paid with Rice University alumni. Like this is data we don't get, right? We should. And we certainly don't get consumer reports type customer satisfaction data where they're talking to alumni one year out, five years out and 10 years out.

We can figure out how well the Toyota Camry held up after a decade, but we don't know how well the Rice University degree holds up and how people feel about it 10 years later when they still have $22,000 in student loan debt. I wish we did.

If you are shopping for more information about what people are earning five years out in particular degrees. If you are shopping for graduate school admission odds, you know, by major if you are shopping for what percentage of the time in my classroom will I be taught by tenured faculty or people on the tenure track?

If you are shopping for information about how connected alumni stay 10 years later, right? If you are shopping for information on diversity and how well supported people feel if you are shopping for more information about satisfaction on the career office, if you are shopping for information on how long it takes to get an appointment at the mental health counseling center during this epidemic of mental health need and demand for services on these undergraduate campuses, you will not find it. And if you do find it, you won't be able to compare it across institutions. And yet these are the things that are most important to the college shoppers that I spent years talking to, and it absolutely sucks that we can't get access to this information.

So I just encourage people to ask more and more pointed questions. I'm basically trying to raise an army of better informed consumers who feel entitled to more data. And we should feel that way when the rack rate on these experiences now tops $300,000 for four years.

Stefanie O'Connell Rodriguez: Yeah, I very much agree with that and I do feel like a lot of this frustration with a system winds up getting misplaced into judgment on the way other people are financing their kids or their own college education. I see a lot of this shaming of, well, you should have gone to trade school or you should have gone to a community college.

Ron Lieber: I have every sympathy for parents who go tens of thousands of dollars into debt or co-sign on 50 or 75 or a hundred thousand dollars to provide the sort of dream school education to their teenager. I totally get how that happens. And the schools are absolutely trying to push you to do that in many circumstances through the way that they package their financial aid offers.

And so no judgments from here. You know, I would encourage you to ask yourself some uncomfortable questions about how it might feel to need to work another three or four years on the back end. And what happens if you can't work physically or nobody wants to hire you at that point.

Like what sort of decades-long sacrifice might that mean in terms of your retirement lifestyle and what are the odds that your kid's going to have to bail you out? Right? These are real questions that I want people to consider. But no shame, no blame on whatever choice you make for yourself.

Given all of the complexities and the potential cost for a standard issue, residential undergraduate education it's so tempting to try and beat the system through various means.

And there's a bunch of ways to do it, right. You can go to community college and you can start there for two years and then transfer.

You can enroll in an honors college or an honors program. You can go to college outside of the United States. You can try and pursue an athletic pursuit that gives you better odds of admission or maybe even a scholarship. You can take a gap year to try to improve your odds of admission that way, or increase the amount of maturity you're bringing to bear on your education.

You can join the US armed forces. These are all things that you can do, right. But you can imagine all of the pitfalls and trapdoors that exist with community college, you're gonna have to work really hard and pay very careful attention to make sure that you get all of the courses that you need that have a 100% guarantee of transferring to the four-year school that you're trying to get to.

And. What degree program are you going to try and pursue at the four-year school? And what if that changes and what if the course requirements change? And you know what, if you can't get into the classes that you need at the community college, because it doesn't match your work schedule, your commuting schedule, or the availability of the one professor who teaches the thing that you need, that the UCSB you know, biology program is going to want you to have as a prerequisite, right?

This stuff is not simple, and it's hard for a teenager to be directly on top of it, you know, for two straight years, but it's possible right? Now. Same thing's true for something like going to an honors college or honors program. The very basic question that most families fail to ask is, oh, that's interesting.

Very cool that you have this kind of like elite clustered off program. What percentage of the kids who start actually stick with it? Well, it turns out it can be is low as 15 or 20 or 25%.

Right. So you need to ask kind of basic consumer questions about whether the value that you think that you're deriving or the shortcut that you think that you're going to be able to utilize. Is it actually gonna work right?

How often does it work the way that you think it will and what are the downsides?

Stefanie O'Connell Rodriguez: Speaking of teenagers how does a parent facilitate that dialogue, especially when it comes to thinking about the price tag?

Ron Lieber: Sure. I mean let's begin with what's just totally, completely wrong about the system, right? Which is that college is wasted on 18-year-olds. It's completely bonkers that we're sending these teenagers off on this incredibly expensive experience.

Right. You should go and do something else for a year or two or three. And bring that experience back to bear on your undergraduate education. And no gap years are not just for the rich and entitled. There are all sorts of ways particularly now with the labor shortage that exists in the United States to go off and earn $20,000.

And, you know, if you can stomach living at home and if your family's willing to let you stay, you can put up a pretty big chunk of that money away. You can learn a lot about the world and what you might want to do in it.

Now if you're not going to take that route and most people don't, despite my best efforts you're going to need to have some pretty grownup conversations earlier than you might think. I'm a big believer in sitting your eighth grader down, like right before high school starts and beginning to have the money conversation about college.

I feel like it's only fair that every teenager know what their parent or parents are able and willing to do for them when it comes to college. And by the way, if there's a big gap between what you're able to pay and what you're willing to pay, you better be ready to explain that in terms that make sense, right?

Because they're going to swim right into that gap between ability and willingness and make you feel really lousy if you don't have a logical explanation for why you may have the ability to pay full price for Southern Methodist University or Emory but don't have the willingness because you think well, Emory is not Duke or SMU is not Rice.

And people make all these nutty distinctions like, well you know, great or state, right. What does that even mean? Right. Great for whom? You're basing off the US News list? Like you're gonna make distinctions based on Ivy League schools that are worth paying for? Well, it turns out that a lot of the Ivy League schools don't provide a very good undergraduate experience. Shh, don't tell anyone.

And you know, and if there's not very much you're going to be able to afford, that's okay. You don't have anything to apologize for it. You've almost certainly done the best that you can.

But kids should be ready to go into high school. You know what the head of steam, if they're going to need to in effect earn their way into the schools they want to go to through academic scholarships qualifying for admission at selective schools, they're going to be willing to give them the need-based financial aid that will make it affordable.

So don't just spring this on them junior year.

Stefanie O'Connell Rodriguez: I feel like, if you're bringing up a money dialogue with your kids for the first time when you're talking about college, it's going to be really hard to have open honest conversation about value.

And since we're talking to somebody who has young kids in this episode, I wonder if you have any thoughts about, "Okay, How do we make sure that we start these conversations early and what are the best practices for conversations around value more broadly with children?"

Ron Lieber: Thank you so much for bringing that up because you are absolutely right.

If the summer after eighth grade is the first time you have a serious money conversation with your child. It's not going to go very well because they're not going to have context for these large numbers.

Starting with smaller numbers when the kids are single-digit ages and you go from, you know, a $4 a week, uh, monthly allowance to you know, thinking about two digit purchases when you're buying something inside an app to like contemplating a bicycle that you want that might have a three digit costs.

And then, you know, there's the conversation where every kid wants like the high-end phone that now costs like a low four digit amount of money. And then maybe they want a car when they're 16 and like a used car that won't kill them is probably four or $5,000 at least. And so these numbers get ever bigger, right?

And you begin to introduce to them some of the components of the household budget. So by the time you're ready to talk about college, they have a pretty good sense of what these larger numbers mean and oh, by the way right around then, if not sooner, they're going to ask you what you earn and what you have.

And if you want those numbers to make any sense, um, you're gonna need to have been explaining these smaller ones all along.

Stefanie O'Connell Rodriguez: How can those parents who might not know what the post-secondary educational landscape will look like in 15 years, how can they think about what they need to save for college?

Ron Lieber: This is a hard one. I took this question to the guy who literally wrote the book on the topic. There is a book out there called The End of College, which makes a very good case for the best possible case that really could be made for the eventual disruption of residential undergraduate education in America and he's got a daughter who is now maybe eight or nine years old now. And I asked him, all right, well, what are you doing? And he's saving in a 529 college savings account, just like the rest of us.

So I would encourage people to save.

Stefanie O'Connell Rodriguez: In both my conversations with Rita and with Ron, it's clear that decisions around what, whether and how to pay for college are fraught with as many emotional considerations as financial considerations —and maybe even more so for parents who are still in the process of paying off their own student loans.

So to Ron's point, it's important we recognize and work through those emotions —the fear, the guilt, the meaning we attach to what our kids' college choices say about us as parents—by talking through them with a spouse or a counselor or even our kids, so we can get to a space where we can start thinking more clearly about the real value of a particular college experience and the trade-offs we are and aren't willing to make to afford it —asking ourselves and the schools pointed questions about completion rates, average student debt levels at graduation, starting salaries, long-term student satisfaction—and involving our children in those conversations as soon as possible.

At two and four years old, Rita's children might not be ready to dig into all of that, but in the coming years, they can be introduced to small financial conversations—concepts of savings vs spending vs sharing, and what makes something a good value —so that by the time they reach high school and start thinking about these things in relation to their education and their future, they'll be better equipped to understand them.

As for Rita, by setting aside even small amounts in a dedicated 529 college savings plan now, she can take pride in the fact that she's already setting her children up for success —no matter what that balance is, if and when they need to tap into it.

This has been Money Confidential from Real Simple. If, like Rita, you have a money story or question to share, you can send me an email at money dot confidential at real simple dot com. You can also leave us a voicemail at (929) 352-4106.