Student Loans: A God-send or The Devil in Disguise?
A short time ago I read an article on FoxNews.com (click for that article) that got me thinking about student loans and the effect they have had on our nation (actually, I was a little angry after reading it). Before I move into facts, figures, and suggestions, please let me rant a little. If you don’t want to read my rant, click here to skip it.
The article starts with a sad story (no sarcasm here) about a couple’s daughter that died at a young age about 4 years ago. The parents co-signed their daughter’s $100k in private student loans for a nursing degree. The parents lament that the debt, now around $200k, has devastated their financial standing with $2,000/month payments. Yes, I agree that they are facing a very difficult situation caused by an even more difficult event, and I do sympathize with them.
But the part of the article that caused the blood to start boiling was their blatant ‘passing of the buck’ of their responsibility that they signed up for and their failure as parents to prevent the debt in the first place (a new nurse can expect to earn about $42k/year; how do you repay $100k, raise a family, and enjoy life in that situation?!?).
It’s extremely sad that these parents (who aren’t unique in this case) set up their daughter for failure by allowing her to go so far into debt when she was trying to start her life by co-signing the loans. Parents have a responsibility to be parents, not friends, of their children and guide them towards success, not set them up for hardship and failure!
The second thing that riled me up was that even though they knowingly signed as guarantor of the loan, they believe that they should be exempt from repaying the loan. They took out private student loans, so the death forgiveness clause isn’t applicable, so as co-signer, they are required to repay the loans. They are also upset that they can’t just walk away from their obligations by filing bankruptcy! The father claims to be a minister, on top of it all! I can’t imagine attending a church where the clergy don’t believe in personal responsibility. He believes that private student loans should be regulated the same as Federal student loans. Maybe he should have thought about that before signing his name? Maybe he should have read the fine print? Or maybe he should admit he made a big mistake and use this platform to warn others of the dangers?
I think that there is a lesson to be learned here; while my heart goes out to this family for their pain, had the story ended differently, without tragedy, would this have been a happy ending? Neither she nor her parents would have the freedom for her to choose her own path. She would almost be forced to work, and work a lot, to make the payments, instead of having the option to work less, or not at all, to spend more time with her children.
Talk to most students and their parents and they will tell you that “you can’t be a student without a student loan.” Is that true? Or just a popular excuse people use to justify a lack of planning and thought in school choice?
I’m not going to bore you with facts and figures. Instead, I’ll discuss a philosophy of college funding that gets almost no news coverage, is rarely recommended by ‘guidance’ counselors in schools, but is used by many people today (in fact, there is a book written on this subject that I HIGHLY recommend).
What you may not be aware of is that many students actually pay for college as they go! About 34% of college grads paid for their college without loans! “How did they do it?” you might ask. Each person is different, but you can point to a few things that made this possible for them:
- Parents who planned ahead (college funds)
- Scholarships (make it your job to apply for thousands of scholarships instead of [insert time waster here])
- Work (many students spend almost 40hrs a week watching TV, playing video games, and doing other non-study activities)
Lets look at college funds. If you are a parent of a young child, start saving NOW! Give your child the chance to pursue a higher education! You can use a 529 or Coverdale Education Savings Account (ESA) to save with tax benefits (your friends and family can even contribute!). If you have a child that you want to send to college, start saving now!
Scholarships. We all have heard of them, and heard that there is a lot of money out there up for grabs. There is. There are scholarships that are in the thousands, and others in the hundreds. There are some specifically targeting certain groups, and others that are wider. Chances are there are thousands of dollars of scholarships you can apply for. Follow all the rules/requirements when applying and you have a better than average chance of being awarded some cash for college! You might think that it’s not worth your time to apply, but consider this scenario: you spend a work-week (40 hrs) applying for a few hundred scholarships and are awarded a total of $2,000. That’s $50/hr, equivalent to $100,000 a year! You can’t make that much money at your part time job. Spend time that you might otherwise spend playing video games, watching TV, or hanging out at the beach applying for scholarships and you could end up with a large chunk of your tuition paid for!
Work. It’s a four-letter word in the college context. Many people think that if you work, your grades will suffer. Many studies suggest that working a part time job (around 20-30 hrs a week) will actually help your grades! Time management is one of the biggest skills learned while working in college, and it carries over into the workforce! Since the average student spends only 15 hrs a week studying, 15-18 hrs in class, that leaves plenty of time to hold a job (working 8 hrs Fri, Sat & Sun = 24 hrs), even during the work week. [I worked 40 hrs a week for 4 years, graduated with a 3.4 GPA engineering degree, so it can be done!] Working through the school year and working a lot in the summer can pay for an in-state degree! Especially if the summer job is an internship in the student’s field!
Maybe you are starting school this fall and your parent’s didn’t plan for your college and you don’t have any scholarship money coming, what can you do? I recommend paying as you go. You may have to take a year or semester or two off in the process, but when you graduate debt free, you will not feel the pressure to take a less-than-ideal job offer just so you can pay your loan payments. You can have the patience to pursue your calling!
One more, very important, thing to consider when figuring out how to pay for college: college choice. Unless you have a big, fat college fund, consider living at home and attending a local community college for the core classes then transferring to an in-state public school. Is there any real benefit to crossing state lines? Most likely not. Pedigree schools (think IV League)? There may be some very small benefit, but it rarely makes up for the extra you have to pay to attend!
Parents, this is a bonus tip for you: remember that your 17 year old doesn’t have the experience, maturity, or common sense you have. You are the parent, parent you children well and guide their college choice so that you are helping them, not hurting them, in the long run.