The Money-Guy show is back this week and Brian and Bo are talking about the importance of figuring out how to pay for college.
In light of a recent New York Times Op-Ed piece written by Lee Siegel, Why I Defaulted On My Student Loans, Brian and Bo wanted to offer more helpful and proactive advice to parents and students out there contemplating the cost of college.
Fidelity published a great article around the same time, titled How Much College Can You Afford? The Money-Guys take a look at both sides of the coin in this episode and suggest how you can plan for the cost of college (so that you don’t need to worry about defaulting on loans).
How Planning Ahead Can Prevent Dire Situations
After reviewing Lee Siegel’s story, Brian and Bo discuss how proper planning, including calculating how much student loan debt you could reasonably afford to take on, can help avoid those kinds of financial situations.
Another article, Student Loans and Defaults: The Facts, was published after Siegel’s piece ran and took a deeper look at the details. This piece reveals that Siegel graduated from Columbia University with a bachelor’s degree and two master’s degrees. Obviously, that must have cost a pretty penny! Considering Siegel wanted to be a writer, were three degrees even necessary?
The typical writer’s salary isn’t going to cut it when paying back loans for three degrees from an Ivy League school. Siegel attempted to blame the broken student loan system for his predicament, but there’s an element of personal responsibility to consider here, too.
Don’t let this happen to you or your kids. There’s no reason to consider defaulting on your student loans and ruining your credit score because you didn’t plan ahead properly.
How to Plan Ahead for College Expenses
How can you plan ahead for college, especially if you’re a parent whose kids aren’t sure what they want to do or where they want to go? Fidelity’s article has some great insights.
First, you need to consider salary projections. If your child knows what they want to major in, they can use this handy calculator from finaid.org to figure out how much debt they can truly afford. The average starting salary for a particular field is taken into consideration, and this provides you with a reasonable estimate of how much student loan debt your child will be able to handle based on that salary. Student loan debt shouldn’t exceed more than 10% – 15% of your income.
Second, create a realistic budget. Figure all the possible costs associated with college — not just tuition. Include post-graduate education if it’s required for the field your child wants to study.
Third, encourage your child to help pay for their education. According to Fidelity’s article, more and more parents are choosing this route as they plan for college alongside their retirement. (After all, there are no loans for retirement!) Students can work part-time during college, live at home and commute, go to a public university (instead of a private college), or set aside savings.
There’s no excuse for not planning ahead. You don’t have to end up in a situation where you think your only option is to default on your loans. Defaulting has serious consequences that Siegel downplayed in his article.
When you sign your promissory note, you’re making a promise to repay your loans. Be responsible about your choices and fulfill that promise.