By Alaina Trivax, WCI Columnist
More than 70% of 2021 graduates left medical school with at least some student loan debt, according to the Association of American Medical Colleges. The median debt burden among these new physicians, not including undergraduate debt, was more than $200,000. These statistics have certainly touched my family and, as the math suggests, have impacted many other WCI readers, as well.
My husband, Brandon, is a PM&R physician working 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 some loans to pay for his bachelor’s and master’s degrees, but most of his debt is from medical school. Even at a state university, the costs were still significant. I attended a private college for my undergraduate schooling; I was offered a scholarship package that made it the second cheapest option. Still, I graduated from there with around $30,000 in student loans. I went on to pursue a master’s degree and received a scholarship that funded almost all of it. Given that I was also working as a middle school teacher, I could cash out the tuition bill balance, and ultimately, earned this second degree without any debt.
After all of this education, Brandon and I ended up with a combined total of more than $330,000 in student loans.
This debt influences so many factors of our life—the house we live in, what we spend our money on, and the vacations we take. We’re nearly two years into his time as an attending but are still “living like residents” as we prioritize paying off these student loans. But that's not all we're prioritizing.
How We Decided on the Right 529 Plan
Our experience makes us want to be sure we can support our children’s educational goals. Even before they were born, we began this planning process. Brandon and I divide our financial responsibilities—he does the long-term stuff while I manage the day-to-day—so he did the 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 a top rating to the Michigan 529 plan, and over the past 10 years, the MESP has consistently received gold and silver ratings from Morningstar in recognition of its asset-allocation approach, appropriate oversight, and low fees.
Both of our boys are still quite young, so their funds are invested in an aggressive growth account comprised 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 that our money is invested in has a rate of 0.105%.
Loosely, we’re aiming to pay for most or all of their undergraduate schooling. We hope they’ll earn some scholarships, and we will perhaps ask them to contribute to the costs in some other way. We’ll probably be able to cash-flow some of the expenses, too, so we’re not necessarily trying to have enough money in there for all four years of college in advance. In fact, we haven’t set an exact goal quite yet. Our priority is paying off 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 at risk of overfunding.
Recently, we have been thinking about how the current economy and bear market play into our saving strategy. Should we be contributing more to our sons’ 529 accounts to buy these investments “on sale?” Our formal financial plan dictates that we will prioritize saving for our retirement, maximizing any available pre-tax benefits, and paying off our student loans before doing anything else. After we have fulfilled those goals, we will begin more aggressively funding the kids’ 529s along with saving for our next home. Our financial plan prevents us from being tempted to try timing the market to maximize the funds in our boys’ college savings accounts. We know our priorities and feel confident with our strategy. (Brandon and I have our semi-annual financial meeting coming up soon during which we’ll review our investment accounts and net worth and will assess our progress toward our goals. I’ll report back if anything changes!)
Most recently, instead of purchasing a gift for our 2-year-old birthday boy, we sent $200 to his college savings plan. We still celebrated by inviting family and a few friends over for a birthday dinner, and he had a blast. Our sweet little boy has all of the things he needs and much of what he wants (or more accurately, given his age, what we want for him). Rather than getting him another toy to play with, supporting his future goals just seems like a much more meaningful gift.
I hope that we are raising our boys to understand the privileges and opportunities that money can provide. In this case, a college savings account will enable them to pursue a field of their choosing and to start their professional careers without any debt. As they get older, I’d like to imagine that our sons will appreciate the gift of a contribution to their 529s.
Key phrase there: “I’d like to imagine.” In reality, we probably have a few more years before both of our boys understand enough about birthdays to expect presents. Once that happens, I don’t think we’ll be getting away with a 529 contribution in lieu of a gift anymore. At that point, hopefully we’ll have a little more flexibility in our budget and we can just 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?
It’s absolutely our responsibility to fund our kids’ future education, but we’d love for our extended family to contribute to our kids’ 529 plans instead of giving birthday and holiday gifts. As the person currently sorting through all of our toys, I can say with complete confidence that the boys have plenty of things to play with. I haven’t figured out how to make a 529 contribution seem like a cool gift, though. When family and friends have requested gift lists, I’ve included the suggestion of a college savings contribution along with ideas for toys and activities.
It feels a little like a cash grab to only offer the 529 option, though. Our kids are little, and it’s fun to watch them open up a new toy. Aunts and uncles and grandparents want to get them something to play with. I get it. I got us all tickets earlier this year to a Thomas the Train extravaganza earlier 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 it? Probably not. Worth it? Absolutely.
On the other hand, is a 529 contribution an exciting gift? Eh, not really. Worth giving, anyway? Absolutely.
As Brandon and I work hard to knock down our own student loan debt, the impact of a 529 contribution gift is clear to us. A fully-funded college savings plan will allow our boys to begin their adult lives without the student debt burden we have now. My own extended family helped me throughout my education and I remember and appreciate their support. As a college student, I traveled to and studied in Costa Rica, Nepal, and throughout parts of Europe—something I couldn't have done without this financial help. I want this for my kids.
Beyond the financial advantage of having college completely paid for, I want my boys to know that not only do mom and dad believe in their dreams, but Grandma and Papi, Nanna, and their aunts and uncles do, too.
Student loans and the many programs and options are challenging to navigate. If you need help, check out StudentLoanAdvice.com, a WCI company.
Have you contributed to a 529 plan while also paying down your own student loan debt? How did you manage? Or is it a better idea to finish off your debt and max out your retirement accounts before you worry about a 529? Comment below!