The cost of a college education continues to rise, and along with it, student debt. Roger Michaud, senior vice president and director of college savings for the Franklin Templeton 529 College Savings Plan, and Mike O’Brien, director, Program Marketing, Global Client Marketing, look at how mounting student debt could have a long-term impact on one’s future. They explore one solution to help finance education—a 529 Savings Plan—along with some myths and misconceptions about these plans. You may be surprised to learn they aren’t just for college, nor are they only for children.

A Look at the Numbers

Student loan debt in the United States has continued to mount. As of the first quarter of 2018, more than $1.5 trillion in student loan debt was outstanding, triple that of 2001.1 Various estimates show the average student loan is now more than $30,000 at graduation—a sizable sum to be saddled with.

The amount of student-loan debt actually exceeds that of US auto- or credit-card debt. We are even starting to see a new generation of parents who are still paying off their own student debt while raising children of their own. These parents are stuck in a student loan debt sandwich. Not only do they have their own student debt, but they have to finance their children’s education, sometimes with more debt.

As a result of a high debt burden, many recent graduates are living at home with their parents instead of moving out, and/or staying at home longer than they anticipated. Researchers at the Federal Reserve recently studied whether student-loan debt might be acting as a restraint on US economic growth. While increases in debt payments since 2001 appear to have had only a small direct effect on consumption overall so far, increased student-loan debt may have other impacts, including the loss of access to other types of loans, for a car or house, for example.2 So, many young adults may be delaying purchases or even putting off getting married or buying a house of their own due to financial constraints.

If one is paying off a loan for 10 or 15 years, that money is not available for other types of purchases—or for saving for a long-term goal, including retirement. Some individuals even wind up tapping their 401(k) plans to pay off student-loan debt. In fact, a 2015 Franklin Templeton survey revealed nearly a quarter of individuals (23%) would withdraw money from their retirement account to finance college education.3

Of course, once you already have the debt you can’t go back and erase it. Our focus should be on how to help prevent the next generation from being overly burdened with it.