Student Loans: Finding a better way

Are you sacrificing yourself on the altar of your child’s education?

A new survey revealed 50% of millennials would give up their right to vote in the next two presidential elections in exchange for wiping out their student loans (according to Credible, a personal finance website). It’s no secret that student loan debt is out of control. Maybe you are strapped by student loans or have been there before. Maybe it’s your children or grandchildren who face the seemingly insurmountable cost of higher education. Tuition costs have risen at close to twice the rate of general inflation for decades. Access to debt has undoubtedly increased these costs and that vicious cycle has only increased the need for loans. Provisions to help borrowers manage cash flow by limiting repayments tied to income only kicks the can down the road (and ultimately fuels more borrowing).

The total student loan debt is $1.3 trillion just in the United States according to Forbes. Young borrowers then entering the workforce have less money for savings, housing, raising a family and charitable giving. Starting a career and entering adulthood can be stressful enough even without the added burden of debt. But the burden is not limited to young people. Parents and grandparents who co-sign or initiate debt for their children or grandchildren can struggle with payments. Some even have had Social Security income and tax refunds garnished while delaying healthcare needs and retirement. The Wall Street Journal reports “Roughly eight million Americans owing $137 billion are at least 360 days delinquent on federal student loans, nearly the number of homeowners who lost their homes because of the housing crisis.”

Whether this is a “bubble” with wide economic implications or not, the consequences are already hitting home for many. Passively waiting for a government fix is not the answer. Rather, your family is what matters first when it comes to higher education costs, so prioritize wise decisions.

Here are ideas to navigate the high cost, high value education dilemma:

• Be aware that borrowing can be a high price to pay — even for education.
• Even if you think you are late to the party, it can help to save money.
• Utilize community college and online coursework. Transferring to a four-year university after completing general education requirements at a community college is looking better and better. Consider also taking less expensive courses online or at community colleges during winter and summer breaks.
• Complete financial aid forms accurately and on time. Federal and State-specific deadlines for the Free Application for Federal Student Aid (FAFSA) can be found at www.fafsa.ed.gov. Private Universities may have their own forms and deadlines also.
• Pursue private scholarships. Companies, organizations and families give away money for education. Some scholarships are general and many of them are focused on students with specific interests, heritages or community activities. Completing an application and perhaps writing an essay or completing an interview is worth the time. Even if you don’t win the scholarship the process can be immensely valuable.
• Work part-time while going to college. Yes, a full college course load is challenging, but the time management skills needed to balance work and school are valuable. Asking your student to contribute a manageable amount towards their education is perfectly valid.
• If loans are needed, set clear payback expectations between student and parent. Students should plan to devote a significant portion of income toward paying off loans in the early years. Get it out of the way and move forward with life.

Hopefully enough collective wisdom over time can help solve the broader problem or maybe the market will forcibly solve it for us. In the meantime, you can only do what’s best for your family. Don’t follow the crowd when it comes to choosing your school or excessively borrowing money for college.

Plan wisely and keep debt to a minimum…