We all know that student loan debt can be crushing.
But earlier this month, Mark Kantrowitz, the publisher of FinAid.org (a great resource website) published an analysis of student loan debt in which he points out that extreme borrowing – $100,000 or more – is far less common than we might think. Well, OK – but that doesn’t mean that you, and your student, should rest easily about lesser amounts. Student loan debt doesn’t have to be $100,000 or $50,000 or even $35,000 to have crippling effects on a student’s life after graduation.
We think the outcomes of a college education should include all kinds of options for life in career choice, avocation, geographic location, and civic involvement. Even a little student loan debt will begin to limit those choices.
Based on a one-to-one income to debt ratio – a college graduate will have to find a job that pays at least as much as the loan debt, simply to tread water financially. A basic budget for a recent college graduate will begin with the monthly student loan payment – and whatever amount is left after that to pay rent, food, transportation – and then for the “fun” stuff if any money is leftover.
In The Financial Aid Handbook we devote an entire chapter to talking about debt, for in our conversations with students it has been obvious that they truly have no understanding of what having debt will mean to them. Our advice – have a basic financial literacy conversation with your student – including creating a hypothetical monthly budget for after college graduation. Websites like mint.com or collegeboard.com offer tools to help steer the discussion.
Not just debt for your teen
And as onerous as debt can be for a recent college graduate – it can be just as bad – or worse – for parents. Encouraging your student to get into the “best” school they can and then determining a way to pay has made for bad adult financial decision making. Does it really make sense for parents to take on loan debt – often in ginormous amounts – so Susie can attend a college with which she “just fell in love?” We don’t think so – borrowing against a 401K (or eliminating monthly contributions) or taking on PLUS loans in the amount of a mortgage –when you are 45 or 50 years old – ouch.
The solution to all of this is simultaneously simple and complicated. The simple part: factor cost into the college search process. The complicated part: doing so.
It will require that you begin with a frank assessment of what you can afford, talk with your student about that, and then assist them in a cost conscious college search. Like any other major investment – this will require some effort on your part. And unlike those other investments – if done well – the return will be not only financial, but in personal growth, fulfillment and satisfaction for your student as well.