Student loans are in the news every day, almost every hour really. Many students come out with considerably more debt than they are realistically able to pay. This can cause lifelong financial independence issues. They may have to move home, live with roommates, delay home purchases, marriage and even having children. People can be saddled with this debt well through the time they should be saving for their retirement and accumulating assets. All of these side effects start with one choice, going to an expensive college without any idea of what sacrifices they will have to make later.
As a parent of a high school aged child, you have a responsibility to help them make an informed decision. This does not mean that you are responsible for paying for their education or co-signing loans to help them through.
Step 1- Decide how much you would like to contribute to their education costs. Consider how much you can afford, take into account your own retirement savings. Saving for your retirement may sound selfish but in the long term it is the opposite, by being able to financially support yourself, you will not become a financial burden on those same children. They can take loans for school, or decide on a less expensive option, you cannot take a loan for retirement.
Step 2- Communicate your contributions with your children upfront and early. Let them know if you are planning on paying for everything, nothing, or something in between.
Step 3- Look at what your child is interested in, unfortunately if they are looking to be an art history major, they may have a terrible time find a job that has a salary high enough to support $200,000 in student loans. We all want our children to follow their dreams and passions, in order to encourage that, they may want to select an in-state school or community college to be able to afford the rest of their life.
Step 4- Help your children navigate through their university selection including looking at the complete cost for the education. This includes obvious things like tuition, but also books, cost of living in the area, room and board and possible travel to and from home. Websites like money.Cnn.com/tools/collegecost/collegecost.html can assist in your calculation.
Step 5- Compare average starting salaries against their monthly student loan payment for a real life wake up call. Outline a quick budget with your student to illustrate affordability of the payments they are about to sign up for. There are many websites available that will estimate student loan payments based on loan type and interest rate. One we have had success with this one on the Federal Student Aid website.
If you walk through these steps with your children, you will both be much more informed about the loans he or she is about to take as well as which school is the best financial decision. This decision will affect so many aspects of the rest of their life.
Lastly, be careful how much you co-sign for. Be prepared to pay those estimated payments if your child is unable to get a job, or afford the payments.