I have spent a good deal of time on this blog talking about our own struggle with student loans. I have talked about how I was an idiot for taking out the loans I did because I had my schooling paid for. I did it to finance my lifestyle instead of living bare bones like I should have. Because of that decision I am now paying for it. Next month will be my 10 year anniversary of paying back my loans and I am not even 40% of the way back yet. I have resigned myself to using PSLF but that is another 9 years of student loan payments.
I wish someone could go back in time and face punch me.
Ladies and Gentlemen we need to do the same thing with students who are going to school now.
Part of this post comes from a conversation that Mrs. ROB and I had with a young lady at Michael’s (the arts and craft store the other day). She was describing her student loan situation to us. She had over $68,000 in Parent Plus Loans, plus private loans that she was barely paying on. Her partner had over $100,000 in loans, primarily private loans, and her payments weren’t even touching the interest. They both have bachelor’s degrees and are probably close to $200,000 in debt. They both went to private schools.
Now I am not against private schools. I went to a private school and don’t regret it. However, most of my schooling was paid for by scholarships. I actually had very little student loan debt leaving my undergraduate degree.
We need to start talking to our students about student loans.
Think about it this way. When students are 18 or even later in life we want them to have a great experience, but no bank in their right mind would give tens of thousands of dollars to an 18-year-old to start a business without some kind of collateral or co-signer. So then why should we allow 18 year olds to be taking out tens of thousands of dollars in student loans to go to a private school or an out-of-state school where the cost of tuition is triple for what it is for an in-state school.
We need to start to have some honest conversations with young people and others about their choices in schools. Parents should not be allowing their kids to take out over $100,000 in student loans so they can go to a college, public or private. Because here is a little secret: The place you get a degree is often less important than the degree you get, the internships you do, the activities you get involved with campus with, and the potential international experiences you take.
Now I know what some people will say: We need to make college tuition free or more low-cost. And I don’t necessarily disagree with that sentiment. I am a fan of engaging in a model like in Europe or even Australia where loan payments are based upon your degree, job, etc.
But let’s live in reality. Until that happens we will continue to have students who will be taking out tens of thousands of dollars in student loans to go to their “dream” school.
Solving the Problem
Until Congress or the President agree to solve the problem in higher education there are some things we can do in talking to students.
First, encourage students to go to a community colleges. Community colleges are a fantastic resource for students who want to get a good education. They cost about 1/2 of the tuition of normal colleges and the vast majority of credits taken can be transferred to a four-year institution.
Second, encourage students to go to an in-state public university. Now I am somewhat biased because I teach at a public university, but I see all kinds of students (because I conduct workshops for hundreds of transfer students every year) who come back to our in-state university because they couldn’t afford the out-of-state tuition and room and board at the private or public school out-of-state. Those kids should be advised in the first place about what it will cost them.
Third, apply for scholarships like it is your full-time job. Many students think that they only get scholarships if they are the smartest students out there. Now getting good grades of course helps, but there are all kinds of different scholarships. Scholarships that focus on a particular major, a particular company, a particular organization, etc. Your financial aid office can help you identify a variety of scholarships and I would argue you should be applying for as many as you can, as long as you qualify.
Fourth, minimize student loans as much as possible. I want all students to go to the college of their choice, but sometimes that might not be possible. Parents, friends, and other people who they trust have an OBLIGATION to talk to students about the potential financial burden that student loans bring. Perhaps that means students work for the first two years of schooling, paying for a community college education, and then take student loans out for the last two years or whatever it might be. However, students should be working at some level during their college education. They shouldn’t be buying new cars or whatever (not that a lot f people are). They should be using the money the earn to pay for some of their schooling at some level (even if that is books).
Fifth, try to save a little for your children’s education, if you can. I know this can be a real problem for people early on (including us). However, if you can save even $100 a month for your kid’s education it will pay off in the long-run. If you start with just $100 a month when the kid is born and do that for the next 18 years you will probably have about 40 to 50k, if not more to help pay for tuition. Of course this is dependent upon your ability to do so. You should PAY YOURSELF FIRST, then pay off debt, then fund education for your kids. Opening up an ESA (Educational Savings Account) or 529 plan is a fairly easy thing to do. It is just like opening up an IRA, but with some different restrictions.
Finally, parents should NOT stop saving for retirement to pay for their children’s education. I know that parents want their children to have it better than they did. That is natural. However, I know of several couple friends of mine who have stopped saving for retirement and even taken out home-equity loans so that their kids can go to their dream schools. To me that is NUTS! You are potentially doing more harm to yourself than you are by helping them out. As I said there is nothing wrong with your local community college, in-state university, or even working for a bit to go to school. We already have a huge problem with saving for retirement as it is. Don’t put it off another four years to finance your kids education. Don’t let them take out $100,000 to go to that dream school. There has to be some balance.
The Bottom Line: I want my children (hoping I do have some) to have the best education possible. But I also don’t want them to sacrifice their future (and mine) so that they can go to some school that will cost an arm and a leg. We need to have a serious conversation with people about student loans the economic consequences. Banks, in their right mind, would never loan an 18-year-old tens of thousands of dollars for a business unless they had some collateral or a co-signer. However, we do it with student loans.
We have 1.3 trillion dollars in student loan debt. It is a crisis. And we all bear some responsibility for it. I hope that someday we do reform how we fund higher education. But until that happens we need to have some serious discussions about how students pay for school. Until Congress acts it falls upon us. There is nothing wrong with shedding some economic reality on their potential choices and offering them alternatives.