Save For College Now!Sierra Black
The New York Times reports this week that thousands of young professionals are drowning under student loan payments, and their struggles might swell to a debt problem akin to the sub-prime mortgage crisis.
That could have big implications for our kids’ futures, even if they’re not relying on loans to pay for school. Massive student loan defaults would force a change in the system that could make it harder for kids to get loans, and push education costs up even more.
We all want our kids to go to the Best School, but the reality is that the cost of a private university education is more and more out of reach for middle-class families. Tuition increases have been outpacing inflation for over a decade, and salaries for college grads are not keeping up with the extra debt today’s students are taking on.
There’s a reckoning coming. The rising cost of college educations is no more sustainable than the housing bubble. How can you keep your kids from getting caught up in the mess when it bursts?
Per the New York Times, 10% of new college graduates have more than $40,000 in student loan debt. The median debt for new grads from private colleges and universities is almost $23,000. That’s as much as many students will make at their starting salaries, assuming they can even find a job in the current economy.
The New York Times article blames parents, banks and universities for the mess these young adults find themselves in when they graduate.
To help your own kids avoid this mess:
- Start college savings now. Like retirement savings, the earlier you put even a small amount of money aside for college, the more those savings can grow for your kids. Do it today, even if it’s just a few dollars a week. Give up a latte if you must.
- Use tax-preferred accounts. There are state-run 529 plans and Coverdell IRAs that offer tax protection for education savings accounts. If you’re planning long-term college savings (and you should be), it’s worth learning the details of these accounts and choosing one that works for your needs.
- Don’t expect your savings to cover everything. A realistic rule of thumb is to save one third of your child’s college costs, pay one third out of pocket during her college years, and expect her to pay the last third through part-time work, scholarships or loans.
- Make financial literacy a priority. Starting with your five-year-old’s allowance money and continuing through financial aid applications, make sure your kid understands how money works in the world. Shocking numbers of Americans are just financially illiterate, and really don’t know how loans work or what they can afford.
- Be realistic about what an education is worth. College grads have higher salaries and more career choices than those who don’t go to college. But not every degree is worth $100,000 in debt. What will your kid earn post-college? How will she pay those loans back with her women’s studies degree? These are questions you should ask as a parent.
- Adjust your expectations. If private college costs continue to escalate as they have been, they’ll become out of reach for most middle-class families. Get used to the idea that just because your kid can get into MIT doesn’t mean you can afford the tuition.
Photo: Stuart Pilbrow