Don’t go broke to send your kids to college
Here are 5 reasons why you should think twice before going into debt to send your child to college.
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UNITED STATES TODAY
We are approaching the time of year when students announce their plans for college in the fall, and parents are spending too much money to make it happen, or feel very guilty for not doing so. Paying for college is one of the biggest expenses most individuals or families will have in their lifetime. Today a typical baccalaureate costs $ 85,000.
There is hope for parents: Here are five reasons why, despite enormous pressure, having to mortgage your financial future to send your child to the college of their dreams is not the right decision.
First, if you burn yourself out financially to make a college dream come true for your child, you lose your ability to be your child’s financial support. While college is a good bet, it is risky. It might not be a golden ticket to success and prosperity. Federal student loan programs now have characteristics that save borrowers from having to make unaffordable payments, but even that is sometimes not enough to ensure that student debt is not a burden. Protecting your financial future means that you will be able to help your child in an emergency. Keep your savings until you are able to repay the loan. Maintaining your financial ability to lend a helping hand is a far more important gift for your child than a ticket to an expensive dream school.
Take out loans
A second reason to keep your savings is that paying for college through a student loan taken out in your child’s name is a safer option. Federal student loans – not private student loans – protect borrowers from having to repay their debt if they are unable to start a career or earn a living despite graduating. The Department of Education offers guidelines for these loans through income-based reimbursement programs. A federal student loan is an insurance policy. By comparison, tuition fees paid by parents or through other government loan programs such as the parent loan PLUS are gone forever, whether the degree is worth it or not.
Additionally, with the ongoing political changes, there is a chance for more generous freebies to college graduates in the form of a bulk loan discount. Supported by the progressive wing of the Democratic Party, these loan cancellation proposals, whether through existing safety nets or new policies, continue to make the news. A student with a federal loan could have a good chance of not having to pay off their debt.
Above all, don’t even think about tapping into your retirement savings or taking equity out of your home to pay your child’s college bill. Both options are much more expensive than the heavily subsidized interest rates on federal student loans. And that’s before taking into account the federal safety nets mentioned earlier.
The last but most important reason not to go bankrupt while making your child’s college dream come true is that an unaffordable price might not be worth it. Colleges have become quite luxurious and full of expensive equipment that will not offer career opportunities. Paying a lot is worth it when you earn a lot, but don’t make the mistake of so many people in higher education who think a high price is indicative of value.
Instead, use a data-driven approach to shopping for college. Through the University scorecard, today’s youth have access to data that shows how much alumni (of all accredited colleges) earn after graduation. Use the data to do a cost-benefit analysis with your child so that you both can understand which costs are worth it and which are not. Hopefully they will remember the session when they decide to enroll in basketry or bookkeeping.
Too much pressure to send kids to expensive universities
In many communities, there is increasing pressure on parents to send their child to an elite (i.e. expensive) college. Over the past decade, borrowing from families using the federal PLUS parent loan program has increased by almost 50%. At the same time, a growing number of parents in trouble to pay off those debts.
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Remember, you are doing your child a favor by saying no to a “dream college” you cannot afford. There are many other avenues of higher education that your child can take without the burden of unsustainable debt. Other options include public colleges, home living, or even virtual education. While these might not be appealing to your kids today, they’ll thank you later when they realize you’ve made the smarter choice for your family by providing them with the economic security your family deserves. .
Beth Akers is a resident researcher at the American Enterprise Institute. She is the author of “Charging college: economist explains how to make a smart bet on higher education. “