Student loans. Ahhhh. Do those words make you cringe? If so, you’re not alone.
We’re going to divide this topic into two different blog posts. This one will focus on student loans from the parent’s perspective, while the second article will provide sound strategies for paying off your student loan debt.
Personal student loan debt in the US is higher than credit card and auto debt combined.
Read that again.
And now for another meaningful stat: according to this WSJ article, the ability of young adults to save 20% for a home down payment varies drastically. For those with a college degree and student loans, it takes 10 years on average. College degree and no student loans? Just 5 years. Talk about a WHOPPING 5 YEAR DIFFERENCE!
What to focus on instead
Do you just succumb to the idea that college is out of reach for your child? No. If you must take out loans to pay for your child's college tuition, consider Federal PLUS or private loans. As this LendEDU article mentions, private loans may be a viable alternative to PLUS loans if parents earn a steady, high income and have a strong credit history.
Now, here are some words of wisdom to pass along to Junior:
1. Avoid student loans if possible
Scholarships and grants are still readily available for students who excel academically or through extracurriculars. Keep options open by applying to different schools that offer varying financial aid packages. If your child is admitted to both a top and second tier school, but the tier 2 school offers a more competitive scholarship, strongly consider the latter. Also investigate outside private scholarships. Review the family budget to see if you can redirect any spending, too.
2. Get a job
There are so many benefits to working, especially during the undergraduate years. For starters, your child can use the position as a resume builder. Students with a job history during college will have much better career prospects after graduation. Working also enhances time management.
3. Employ creative strategies
As a parent, your natural inclination is to provide everything for your kids. Unfortunately, many of us are not in the financial position to pay 100%, particularly higher education costs. Please remember that you cannot jeopardize your financial future to pay for every financial need or want of your sweet kid. BUT maybe you can offer help on creating a repayment plan BEFORE your son or daughter incurs student debt. Have a thoughtful discussion up-front about how much money you can provide each year, and let them know any shortfall is THEIR responsibility. Spell out the terms, and draw a clear line on when your financial support will end. You’ve raised them, and it's your responsibility to set them up for success rather than failure.
A Personal Take
While these concepts are great in theory, practical applications are equally important. Here’s a personal story as it relates to student loans …
Frugality and hard work ethic are a core part of my DNA. I started working at an early age and have always been a “saver”. Generally speaking, my parents had white-collar positions with good pay and we always lived within our means. They saved for retirement and even set aside college funds for me and my older sister. My parents had those necessary yet uncomfortable conversations about financing college, and they laid clear expectations from the beginning.
When researching college, going to an in-state public university was the least expensive option; my parents would have covered the full cost if I went this route. However, I yearned to get out of my hometown and wanted to attend a smaller private school. Fortunately, I was offered a scholarship worth about ½ the starting tuition cost. The scholarship plus my parents’ support meant I was on the hook for the rest … about $15k in total student loans.
It took a lot of perseverance, but part-time work throughout college allowed me to pay off student loans while in school! I graduated from undergrad debt-free and immediately entered the workforce full-time.
Even though your kids are older, you have more influence than you think. Sit down and have the tough conversations NOW because the decision to take on student loan debt DOES matter.
Want a personalized plan to pay some of your kid’s higher education cost or reach other financial goals? Hiring a fee-only financial planner who only makes recommendations in your best interest can help. Schedule an initial, free consult here.
Already have student loan debt that you need to pay off? Stay tuned for the next post on student loan repayment.
Deb Meyer, CPA, CFP®