Hollywood Star Is Still Paying Off Student Loans
Student loans are a fact of life for all those who owe toward the $1 trillion due to the government in school-related debt. How do you pay them off when you’re a parent who also needs to save for kids’ college? Experts give their 2 cents (Photo: Kevork Djansezian/Getty Images).
Miles Teller has fame (from starring in Oscar-nominated Whiplash), fortune (from gigs in blockbusters Divergent and the Fantastic Four series) and…debt (from $100,000 in student loans that he racked up while studying at New York University until 2009). “My business manager says the interest is so low, there’s no sense in paying them off,” the 28-year-old recently told Vulture.
But even though Teller could easily settle up, a staggering number of people can’t easily escape similar financial burdens. The New York Times reports that student loans “now constitute a larger portion of household debt than credit cards or car loans,” and identifies the $1 trillion in school-related loans owed to the government as “the second largest source of consumer debt in the United States.”
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When you’re a parent facing this reality, saving for your children’s college tuitions can seem frankly impossible. “It’s a more common problem than people imagine,” financial adviser Scott Palmer tells Yahoo Parenting. “It’s a huge issue.”
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Through their company The Money Couple, he and wife Bethany Palmer counsel parents struggling to sort out this debt-and-saving quagmire and he blames the ever-competitive work environment that often forces professionals to go back to school for advanced degrees after they’ve had kids. “Forget about paying off just the 4-year degree,” says Palmer. “I talk to couples all day long and at least 40 percent of them are dealing with student loan debt from their graduate degrees. It’s not just the 24-year-old recent grad. It’s people starting their second career or who have gone back to get their PhD because they’re finding that they need that added education.”
The trick to tackling seemingly opposite priorities of paying off debt and saving for kids’ college is to focus funds on the immediate goal: getting out of debt. “A huge mistake we put on ourselves as parents is thinking that we have to give our kids a full ride and that they have to go to a big, expensive school,” he says. “But you can only do what you can do.”
Make the minimum payment required on the loans and if you have extra money at the end of the month, chip in more – unless the interest rate you would earn in a 529 college savings plan is higher than the interest rate that you’re paying on the loans, Mark Kantrowitz, senior vice president and publisher of Edvisors.com, tells Yahoo Parenting. “There are no pre-payment penalties on federal or private student loans. And you’ll be able to pay off the loan quicker.”
To get the ball rolling for kids’ savings during this pay-down period, just put $50 a month in a 529 savings plan. “It’s better than nothing,” says Palmer, who recommends that when you settle your loans, put all the money you’d been putting toward repayment into the 529. “You’ll definitely be a little bit behind but the reality is we don’t even know what college tuition is going to look like in the future.”
And take comfort in the fact that for most people this split priority phase doesn’t last long. “It’s not very common for parents to be in this situation after the child turns 10,” says Kantrowitz. The important thing is to face your financial situation head on, adds Palmer. “You have to have a plan to knock out the loans so that you’ll have more money free in the future to make your family’s life better.”
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