Jan 11

When School Loans Aren’t The Answer

No parent wants to sit across the dining room table with their son or daughter who is beaming with excitement over their acceptance letter to NYU and have to tell them that they cannot afford to go to school there. It is a parent’s job to guide the child through the trials and tribulations of life, but in the case of going to their number one choice for undergrad, parents seem to be blind to the finances of the decision.

There are many factors that need to be considered and countless fallacies that must be ignored when making this decision. Making the wrong decision could end up with the student starting life out with so much debt that they cannot even afford to live on their own even if they are lucky enough to land a job.

The first factor that needs to be analyzed is the amount of cash and cash equivalents that are currently put aside for the college fund. At the point when your child is a senior in high school, most of these investments should be converted over to cash and ready to be dished out. It is a mistake to keep this money locked up in anything but a certificate of deposit as it will be need within few years. If you are going to need the money in less than five years, it needs to be in cash.

Another important factor to consider is the amount the student will be receiving in scholarships. Scholarships are an amazing gift from generous benefactors that never need to be paid back. A gift of education that will last a lifetime is one of the most powerful gifts someone can receive. Many of the largest universities offer many free-ride scholarships to ensure they yield the best of the best students for their classes. They can then publish these statistics and draw in future classes of highly intelligent and highly sought after students.

A factor not to be ignored is the field the student will be going into. Though many students change their majors many times, a best estimate forecast based on the students’ passions and desires should be taken. I am all for learning poetry and English if that is your passion, but I am skeptical about paying $200,000 for an undergraduate degree in the field especially if the degree needs to be financed. There is no way that the student will be able to make enough to cover the loan payments. A state school is an option here or even majoring in something with a higher paying career and minoring in the passionate discipline.

Is the student planning on going to graduate school? Many times a student will have so much debt from undergrad that they cannot even afford to go on. Having a degree in pre-med is fine and good, but eventually you have to be in position to attend med school to benefit fully.

Some parents think that they should borrow from or cash out their retirement plans to fund the child’s education. Though this is very thoughtful it will end up causing a lot of trouble for you when it comes time for retirement. Another issue here is that your kid could start life with a degree and no debt, but then have to take care of their elderly parents because the parents had nothing in retirement to support themselves with.

A top school does not necessarily translate into a top salary. Entry level is entry level, do not get swept away with the notion that you should send your child to a top school and they will automatically graduate with some great job making six figures. This is a dangerous fallacy. A top school will open a few more doors in the work place and graduate school than a run-of-the-mill state school, but there are no guarantees and no promises. Sometimes luck is the most fascinating aspect of a successful person’s biography!

Education is an asset that a person will carry with them for the rest of their life. A bachelor’s degree is a qualifier and will open doors in life, but it will not determine a life.  It is likely that a student will be doing something entirely different with their life in ten or twenty years than they expected they would be doing as a teenager.

Deciding where to attend and what to study are very important decisions, but not the most important determinate of success. There is no substitute for hard work, a creative mind and financial discipline. Financial discipline, when taught at a young age and exemplified through the reasonableness of college decision-making, will be the greatest education a child can receive.