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College Debt
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For many, the college dream has become a nightmare. Rising college costs and a bad economy have left graduates with student loans that they cannot pay after graduation when they cannot find a job. Some students’ loans are so large that they cannot expect to pay them off, even with a great economy.  And parents who cosigned loans are also liable.  

Even bankruptcy may not eliminate student debt. It stays due. Rack up enough debt and you and your children spend the rest of your lives paying it off. Even Social Security retirement payments can be garnished for outstanding student loans.

Avoiding debt problems requires planning – before college, by both parents and children. Keep college debt from becoming a nightmare through:
  • Focus:  Send your child to college with a goal – learn to be something, or discover eternal verities. Goals can change. A friend’s son started in engineering, and upon graduation became a minister. But he always headed towards a goal, providing direction. You can fill four years figuring out what do with the rest of their life without incurring college debt.
  • Budget: Spend as much as you want on college – but do not borrow more than appropriate. College goals set the level of debt.  

    Attending college just for the love of learning? Treat college like you would treat a vacation. What practical difference is there between an extended round-the-world cruise and a four year voyage of discovery at college? Both are great learning experiences, but are either worth breaking the bank for?

    Going to develop specific job skills? Then college becomes a capital cost – the price of accumulating the tools to do a job. Successful businesses limit capital debt by the expected rate of return. Similarly, limit total student loans to the median annual starting salary for the degree to be earned if possible. Never borrow more than twice that for an education. That may mean borrowing less to become a social worker than an engineer, but it reflects economic reality.
  • Saving:  Start setting aside money for college early. When my first son was born I began buying savings bonds. When I cashed them in for college, the oldest bonds were worth four dollars for every dollar I paid to buy them. If your children take summer or after-school jobs make them save at least half for college. Look for scholarships, but only take those not increasing overall costs.  
  • Economizing:  Advanced Placement tests yield credit towards graduation. One son placed out of a semester’s worth of classes. Employers only look at the school issuing the degree, not the years spent there. Consider attending a local community college for the first two years; attending Prestige U for the final semesters. Attending a local college eliminates dorm fees. The degree from a local four-year college is often as useful as an out-of-state school.
Your children should pursue their dreams – but not over an economic cliff. Parents need to help insure their children’s college dreams do not become nightmares.

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By Mark N. Lardas. Copyright © 2014 by GraceNotes. All rights reserved. Use of this material is subject to usage guidelines.

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