Resources to help in college planning.
Saving for college usually starts when a child is born or even before. Why? Because parents know how high the costs for a student are to go to college. Â Here are some of the current tuition costs for public and private school. If your child attends a private four-year school, the total bill could be at least $140,000.
When families are not able to save enough for college or cover most of the costs, the student is the one who will have to get a loan and pay their educational bill. These are the same students who have yet to start working or will start at an entry level position once they graduate. These newly minted college graduates will often make a lower salary and have yet to afford living on their own.
This is where the looming college loan crisis comes in. Students will end up with thousands of dollars in loans, loans that they might not be able to pay until they are well in their late 30’s or even early 50’s! The high college costs added on to the fact that most students will not make six-figures after having just graduated starts off a dangerous domino effect. They are already way over their heads in school debt, add to that car payments, credit card debt and possibly mortgage payments and the outcome might not look good for someone who is already struggling.
The high debt these students start off with could also have a rippling effect. Many will opt to not buy a home, save less towards retirement or future college costs for their own children. Some might even hold off on starting a family until they feel they are more settled.
Some reports are already indicating what is happening. Students are defaulting, they are not able to keep up with their student loan payments.
The U.S. Department of Education says that the national student loan default rate has increased from 11.3 percent to 11.5 percent for students who entered repayment between 2013 and 2014.2 These default rates will likely rise if something is not done. The number of Americans already behind on their student loans without having yet entered default rose from 18.6 percent in 2016 to 18.8 percent in 2017.
What can we do? How can we help as parents and as much as our resources allow?
Here are some suggestions:
Learn as much as we can early on about the college costs rates and where they are going.Research websites like The U.S. Department of Education.Know how your financial aid is awarded.Check out: College Scorecard
Take a look at this College Pre-Approval worksheet provided by Capstone Wealth Partners. I thought this was very useful. We have to get pre-approved when we apply for a mortgage, if the debt to equity ratio is too high, the banks won’t lend us the money we need to buy a home. So why can’t we do that for college loans? Banks are giving private loans to 16 or 17-year-old students for college of thousands of dollars without any foundation or support to build on, only the promise that they will pay when they start working.Also, look closely at the degree the student wants to pursue. The average earning potential of a student with an education degree who wants to be a teacher will be less than a student who has a computer science degree. Think about how quickly the degree will pay off the educational investment you want to put in.Know what your EFC will be. This is the figure schools use to calculate financial aid. For example,
COA (Cost of College each Year) – EFC (Expected Family Contribution) = Financial Aid Need
Also, be aware that some schools do not offer needs based financial aid only merit based aid. Yale University is one school that does not provide need based financial aid. Make sure you are aware of these facts when shopping around for a school.
To learn more about how to decrease college debt, check this article out, "16 Ways to Reduce & Avoid Overwhelming College Student Loan Debt" by MoneyCrashers.com.
With enough planning, foresight and knowledge we can make sure that our children are headed in the right direction with the tools they need to succeed and without the burden of high debt. Use these resources to help!
Sources:
https://trends.collegeboard.org/college-pricing/figures-tables/average-published-undergraduate-charges-sector-2017-18https://www.ed.gov/news/press-releases/us-department-education-releases-national-student-loan-fy-2014-cohort-default-rate