The cover of the August 2016 Consumer Reports reveals a sad reality for many young adults in America; “I Kind of Ruined My Life by Going to College.” The accompanying article “Lives on Hold” quotes Jackie Krowen whose $152,000 in student debt has had life altering effects on her decisions, relationships, and plans for the future. She is not alone. 70% of students now graduate with college debt. As documented by Donna Rosato, in her article, “Having the College Money Talk,” “45% of borrowers say, knowing what they know now, their college experience was not worth the cost.”
Why does this happen? According to Rosato, “As students and parents get wrapped up in the emotional quest for a ‘dream school,’ they can lose sight of the financial consequences of the decisions they make.” She continues to say that the average 4-year degree at a state school, including room and board, is $78,000. That number is more than double at a private university. Compare those numbers to the cost many parents paid for their own college education, and you will find up to a 1000% increase.
Rosato continues with words I have mentioned repeatedly in my College Prep course, “College is an expensive place to ‘figure out what you want to do with your life,’ yet many students head off not knowing. They change majors, transfer schools, and often take and pay for too many classes that don’t count toward the degree they eventually choose.”
According to the National Center for Education Statistics, only 39% of college students graduate in 4 years. A majority of students take 6 years. Rosato notes that those who graduate in 4 years owe an average of 40% less. This statistic alone proves that students should make informed and strategic decisions that will allow them to graduate on time and avoid student loan debt.
Rosato suggests 10 key questions every family should discuss before college:
What does your student want to get out of college? If he or she does not know yet, there are options available to help, including job shadowing, career exploration in high school, or a gap year.
How much will college cost, bottom line? Few people pay the actual sticker price. How much you pay depends on your family’s financial situation, the student’s academic record, and other factors. You can use a net price calculator to estimate the net cost to you.
How much federal financial aid can your family really expect? You can use the Department of Education’s FAFSA4caster tool to get an idea.
Are financial aid offers good for four years? Not always. Be sure to research this important detail in the fine print of your financial aid offers.
How much debt can one student manage? The article states the rule of thumb as being “the amount of student loans shouldn’t exceed the salary the student expects to earn annually.” However, I take a more conservative approach and suggest financial consultant Liz Weston’s 2/3 formula for student debt. Take your first-year salary, multiply it by 2/3, and do not borrow more than that.
Should parents contribute, and if so, how much? Most financial advisers tell parents to prioritize their savings for retirement over paying for their kid’s college. While you can borrow for college, you can get a loan for retirement. Always favor federal Parent Plus loans over private loans.
What about community college? Starting off at a community college can be a big money saver. The average tuition and fees are just $3,435 annually, compared to $9,410 at a public in-state school or $32,405 at a private nonprofit college, not including room and board. Some states, such as Tennessee and Oregon, even offer free tuition programs.
Any other ways to cut cost? Consider (ROTC) if you are interested in a military career. You can receive various levels of scholarship, up to full tuition. You can also consider studying abroad where tuition costs are significantly lower. The UK and Canada are the top choices of American students.
How can we know if this expensive education will pay off? Look at student outcomes like graduation rates and postgraduate earnings to get a sense of the quality of education at a particular school. You can use the College Scorecard tool from the Department of Education to filter schools by graduation rate and 10-year median salaries of graduates.
What if my student has trouble repaying his debt? First, make sure you do everything possible to make wise choices about college financing, like choosing an affordable school, graduating on time, understanding the job market you are entering, and avoiding private loans. If you are still struggling, some students are eligible for income-based repayment programs or loan forgiveness programs.
Remember, 42 million people owe $1.3 trillion in student debt. Student loans have passed credit cards and auto loans to become the second biggest source of personal debt in the U.S., trailing only behind mortgages. We cannot afford to send our kids to college to “find themselves.” There are less expensive ways to explore. A college education is likely the most expensive product you will ever buy. We must invest wisely.
“Having the College Money Talk” goes on to say, “A student who has a few years till college can get a better sense of his options by exploring different kinds of careers, whether by working as a volunteer or part-time, or by doing job ‘shadows’ following a worker through a typical day.” I strongly agree. I designed my entire program around these very facts. I believe there ARE ways for students to avoid debt and graduate with a career they love. But they must take initiative early in order to maximize their college investment. The high school years are the time to start “figuring out what you want to do with your life,” but most students need guidance in the process. Unfortunately, many of our kids are too busy checking their Instagram feed or researching their first car to take the time to invest in their future career. As parents, we can, and must, help them do that. There is a lot on the line.
To receive my free infographic “Is Your Teen Ready for College?” as well as an index of the most helpful websites for college and career research, click here.
To read the full investigation that the Consumer Reports article was based on visit: www.revealnews.org/studentdebt
To read the full articles this report was based on, visit these links: