Can Saving $10 Per Week Really Pay Half a Student’s Student Loan Debt?
New data from the College Savings Plan Network (CSPN) estimates that just $10 stashed away per week in a 529 plan will raise about $15,000 in 18 years. That’s half of the estimated student loan debt facing new graduates, according to CSPN.
At first blush, that seems like a fairly good deal. $15,000 is nothing to sneeze at, and getting to that savings benchmark for just $10 a week doesn’t involve too much heavy lifting.
Before we get into the numbers, though, just know that the CSPN the $15,133 saved for college via weekly $10 contributions comes with some important caveats:
The total debt numbers will actually be higher in 18 years. While the $15,133 saved does indeed comprise about over half of the estimated $30,000, on average, that student loan borrowers face when they graduate, the catch is that the $30,000 estimate is calculated on today’s numbers.
In reality, 18 years from now the total estimated student loan debt will be much higher – likely around $51,000, assuming a 3% annual growth rate. In that light, the $15,000 gained by saving $10 each week for 18 years, it won’t come near to covering half of a college student’s estimated loan debt in 2037 (assuming you’re starting this year). It’s closer to a third.
You actually do have to save $10 every week. The CSPN numbers count on the college saver to not miss a single week of those $10 contributions. However, when real life gets in the way and bills pile up, saving for a goal 18 years away when you need to pay the utility bill now becomes a lower priority.
Yes, you can double the payment the following week to $20 to cover the missed 529 payment contribution, but know that it’s up to you to be disciplined enough to save $10 each week, no matter what the household fiscal situation.
It could curb your student financial aid. The more you put into a college 529 plan, the better – at first glance.
But there is a downside to racking up the college 529 dollars and it involves your financial aid eligibility.
In a word, the more you have stashed away in a 529 plan, the less you’ll likely get in financial aid. That’s because the FAFSA considers your household’s assets, not just income, when you file the form.
The more robust your 529 savings, the less you’ll receive in federal grants and scholarships, work study opportunities and subsidized loans for your college-minded son or daughter.
None of the above realities are meant to forego saving in a 529 plan – the benefits definitely outweigh the negatives. Just know that when you start regularly putting away money for college in college 529 plans, there are some factors you need to know to maximize your entire college savings funding over an 18-year college savings campaign.
What the CSPN is Saying about Regular 529 Plan Contributions
The College Savings Plan Network is doing a good job in drawing attention to 529 plans, and the benefits of investing in one regularly. The fact is, too many college-minded families are not only eschewing such plans, they’re not even aware that college 529 plan even exist.
According to the CSPN survey, only about a third of Americans have heard of a college 529 plan (that’s an astonishingly low figure, considering the rising costs of college) and only 20% actually knows what 529 plans do.
To get those numbers up, CSPN is pushing the narrative of college-bound families investing early and regularly in college 529 plans. In doing so, the organization acknowledges the branding campaign faces an uphill climb.
“To help minimize student debt for future generations, we are working to reverse the ‘never heard of it’ statistic,” says Young Boozer III, chairman of the national 529 campaign., which seeks to raise the profile on 529 plans “To invest in a child’s future, you don’t need to make a lot of money. All it takes is consistently saving over time with a 529.”
To raise that profile, the national 529 campaign aims at to emphasize that households that are aware of 529 plans have the best chance of saving enough for college costs – even at a $10 contribution level contribution rate each week.
“In this country we’re having a healthy debate on how to minimize student debt for future generations,” Boozer said. “Unlike other proposals, the 529 approach is not hypothetical. It is real. Parents, grandparents, aunts and uncles can take matters into their own hands today to lessen what a child has to borrow tomorrow.”
“It can be done with as little as $10 a week.”
Ranking the College Funding Vehicles
CSPN also seeks to leverage the power of compound interest that comes, part and parcel, with 529 plans, against other college saving strategies.
Here’s how the organization stacks up its $10 per week 529 plan against traditional bank savings accounts and borrowing student loans.
- Saving $10 per week at low- or no-interest rate savings accounts. Here, a $10 per week contribution that either doesn’t earn interest or earns very little (these days, most big banks offer 0.01% interest rates with their basic savings accounts) yields $9,360 over 18 years.
- Saving $10 per week in a 529 plan. Invest $10 per week in a 529 plan over 18 years (assuming 5% interest earned) would gain total savings of $15,133, the organization estimates.
- Borrowing the money with student loans. According to the CSPN, borrowing the $15,133 you’d earn with the $10 per week 529 plan strategy would rack up a whopping $6,571 in interest, at current student loan interest rates (a 10-year term at 7.6% interest rate.) That will cost you a total of $21,704.
This demonstrates that it is cheaper to save than to borrow, and you can maximize your savings in a 529 plan through the power of compound interest.
That’s a good case to make for organizations like the CSPN who tout college 529 plans, who are going full speed ahead with their 529 public branding campaigns.
Full Speed ahead on 529 Plan Awareness
As of December 2018, more than 13 million 529 accounts were open with an average amount of $22,500, according to the College Savings Plans Network. “The national campaign hopes to spark an increase in the total number of accounts by “making 529 a household number,” as stated by Boozer, and a term as recognizable as 401(k).
Coupled with parallel track initiatives, like the ongoing 529 plan campaign ads airing on the PBS children’s television show, Daniel Tiger’s Neighborhood, and the effort is on to get the word out.
Make no mistake, 529 college savings plans work and students and families need to get to know them.
Even at a contribution rate of just $10 per week.