I’m a lucky guy.
My job gives me the opportunity to help thousands of people with some of their most difficult and stressful problems and make a real difference in their lives. It’s immensely satisfying.
I’ve heard all sorts of stories and situations that cause sleepless nights for people. One of the most common issues faced is how to pay for a child’s college education. As a parent of two kids, I get it. There is a tremendous amount of pressure placed on students to continue their education after high school because they’re told they’ll be inarguably better off for doing it, both personally and in their chosen career. But, college is expensive. What if they (students and parents) don’t have the resources available to pay for their schooling? Don’t worry! There are loans available for that “priceless” education, and with a few quick signatures on some forms, the cash can be had. If the student maxes their loans out, no problem. Parent Plus loans are just waiting to fill in the gaps.
This is how countless university educations have been funded, to the detriment of both the student and the parent, and it must stop.
Assuming a mountain of debt is precisely the wrong decision in the majority of cases. Even when it might make sense it should be considered very carefully. You and your child will need to come to terms with the amount of debt being required to assume to receive the education and the expected outcome of the education.
I spoke recently with a parent who has done their best to save and prepare their child for college. Based on the resources available and the student’s planned major, it made sense (in this situation) to use a combination of community college and state schools to provide the required classes for the degree. The cost of education would be affordable and would allow the student to graduate with a modest amount of debt. In this case, less than $20,000 (est) total for four years… at most.
Then came the wrinkle.
Not a month after both the parent and student had settled on the appropriate plan for education and who would be responsible for what cost-wise, the student was contacted by a private school with an offer. The school wanted the student to continue his athletic career at their institution and would be happy to provide some financial assistance. After all of the school’s scholarships and grants that could be awarded to the student were applied, the estimated cost for a four year education would come out to nearly $100,000. That would require the student to take every penny they could in Federal loans as well as require the parent to stand chin-deep in a pool of Parent Plus loans.
The expected annual income for the career the student is pursuing? $35,000 – $40,000.
To put that in perspective, $100,000 in student loan debt on a 10 year repayment plan is going to look like $1,000-$1,200 per month payments. That’s unacceptable, and darn near impossible for someone making $35,000 – $40,000 per year. I know, some of that debt would be under the parent’s name. I don’t think that really makes it better, though. Sure, the student may be able to manage the piece of debt they’ve saddled themselves with, but the poor parent… They will have essentially decided it was in their best interest to pony up tens of thousands of dollars for their student to play travel sports in college at the cost of their own retirement.
This opportunity just doesn’t make sense. The parent understood. The student was going to struggle with admitting it, though, and I can understand why. It’s flattering when a college pursues you to attend their institution for any reason. Getting attention for all of the hard work you’ve put in (athletic or academic) by people that are qualified to recognize and appreciate your talent is an amazing feeling at any age. In your late teens, though? It’s positively euphoric. I can easily understand how that kind of acknowledgement could make someone want to look past the enormous financial ramifications of the decision.
A mindset of cost consciousness should be held by the rest of us, too. If you and your student are considering an education with an expected annual cost of $23,000 at one school and $51,000 at another school, you’re going to need to determine if/why paying the extra $28,000 a year makes sense. The cost difference doesn’t need to be $20,000+ to have this conversation, either. This is a core consideration that should be at the heart of the decision making process for a majority of us. The discussion will unquestionably be an emotional one. Be honest with yourself and each other. Give yourselves permission to feel frustrated if the “dream school” just doesn’t make sense for what your student’s goals are, or if the funds aren’t there to make the dream a reality. But, remember that over-paying for education doesn’t benefit the student or the parent and should be avoided with every effort.
Continuing your education can be a wonderful thing and potentially provide opportunities that would otherwise be unavailable. But, opportunities have costs. It is everyone’s responsibility to ensure the final choice makes sense.
Damian is the lead Financial Concierge on Your Money Line, the financial help line serving all Pete the Planner® Financial Wellness clients. Damian is a CERTIFIED FINANCIAL PLANNER™ professional and loves answering your money questions. Despite sharing a last name and sense of humor, Damian and Pete are not related.