Stuff and Nonsense
/So much is being written about student loan debts crushing our young people and their parents that I’d like to add my two cents (or 25 cents adjusted for inflation). How did we get into this financial mess of delayed dreams and repayment horror stories?
Many will blame the educational institutions’ rising tuition and campus costs. And, sure, that’s a factor. One we can’t control. So, let’s move on to what IS within our control.
1) Set a total borrowing budget including any post graduate studies. Be realistic about how much can be handled in post-school repayments without compromising futures. For example, a 10-year payment schedule for $10,000 at 6% interest would be $111/mo. Stick to it. Make all decisions (school choice, time frame, course load, etc.) based upon this disciplined guideline and any non-borrowing fund sources, such as grants, scholarships, work-study and periodic employment.
2) Really ponder the choice of even going to college, or grad school or medical school or law school. Is it necessary? And right now? My daughter tried to find an electrician recently and found out it would be three weeks before someone could come. Maybe our mechanically talented progeny would find more productive employment within the trades. Jobs like hairdressers, plumbers or electricians can provide decent middle-class incomes and can’t be shipped to India. And, usually, one is qualified to start working after just a year or two of schooling. Compare that to the very educated young adults still living with Mom and Dad because of their underemployment.
3) How many times do we run across a highly educated graduate who decides s/he doesn’t really like being a lawyer or a doctor or whatever s/he is deeply educated to do. Going slow with education commitments like post-graduate studies could buy a young person time to try out the world first and have more practical information about a career choice. And it could save serious money.
4) Does your child who wants to be a mental health counselor need to go to a very expensive private university? I’ve often scratched my head observing families go into significant six-figure debt so the student can qualify for a lower wage job. Why is the expensive school being chosen? Ask yourself before mailing that application. Does the answer justify the extraordinary costs?
5) Young people today seem to be maturing more slowly than previous generations. Spreading an undergraduate degree over five or six years so a part-time job could be included in the ‘growing up’ experience would provide more years and income to come up with education payments. It also provides more time to figure out what the long-term employment goal will be. Less borrowing results and the student will still graduate at a young age.
6) Horror of horrors, how about the student living at home a couple of years while going to classes locally? Both parents and students often balk at this money-saving option, but we’re trying to avoid being crushed by student debt, remember? In Indianapolis, we are blessed with many off-campus education opportunities. With planning, credits earned can be transferred to a campus option in the future.
My final piece of unsolicited advice is to start saving for college the day the child is born. Open a 529 plan with as little as $10, contributing $10 a month. Increase the savings rate every time you get a raise. Encourage friends and relatives to make gift contributions to the account instead of buying the kid more stuff to put in the closet. You’d be amazed how much will accumulate tax-free over the next 18-19 years. And contributions to the Indiana CollegeChoice 529 plan are subtracted from your state income taxes, one dollar saved for every five dollars contributed, up to $1,000 tax savings. The age-based investment option put you on autopilot until matriculation.
Don’t let student loan debt just happen without a plan.
Guest blog written by Grace Worley, Retired Founder of Worley Erhart-Graves Financial Advisors
