Making Tough Choices About Student Debt

Why Is It So High and Can It Be Controlled?

Student debt is a hot topic these days. President Obama made news talking about it, presidential candidates include it on their “stump tours,” and a journalist recently captured attention when he wrote that he purposely defaulted on his student loans. These episodes generate media “buzz,” but they don’t really get down to the reasons behind the debt, and talk about what can be done to control it.

Recent figures show that the college class of 2015 graduated with an average debt of $35,000.

Does that seem like too much debt to acquire knowledge that can be used over the course of a lifetime? Maybe it does seem like an unsurmountable amount to someone who just graduated and has not yet landed a high-paying job or found a long-term career. On the other hand though, the average price of a new car is about $33,000. Many people happily take on that debt at higher interest rates, with shorter repayment terms, for a purchase that diminishes in value over time.

It can also be informative to see where this debt is building up. Some of the most famous universities which have higher costs may also have higher endowment funds which allow them to be more generous with their financial aid. A great deal of debt is racked up by students who pay hefty costs to attend private for-profit institutions like the University of Phoenix and DeVry University, instead of non-profit or government-supported institutions.

What can parents and their students do to control their own level of debt? The answer might require some tough choices:

  • Save more money earlier: Families that have not saved money regularly to put towards college expenses are behind the eight ball right from the start. Money borrowed for students entering college accrues interest for four years. Saving should start as soon as the child is born and continue right up through the college years. Budget an amount to be set aside every month, just like you do for every other household expense.
  • Have clear money expectations: Too often parents do not communicate with their children about money expectations. Involve your child as young as he or she is able to understand money so you can work towards the goal as a family. Educate your child often about credit and budgeting, and explain how much of the college costs he or she will be expected to pay.
  • Consider the college carefully: Choose a college where you get the most “bang for your buck.” Get hard numbers about how many incoming freshmen graduate in four years, how many get jobs, and what their starting salaries are. The best college is the one that gives your child the skills he or she needs to become a success.
  • Minimize debt: Don’t borrow the maximum amount available. You’ll be tempted to spend the money just because it’s there. Look closely at the college’s costs, develop a budget with your child, and only borrow what is needed. The same is true for credit card debt. Only give your child pre-paid credit or debit cards which you have loaded with the specific amount of money needed to meet the agreed-upon budget.
  • Learn about repayment options: Many student loan repayment options, such as deferment, forbearance, loan consolidation, or income-based plans are available. Choose the one that makes the most sense for your individual situation.

    Going to college is about learning to make decisions. Start now with learning how to make more well-informed decisions about student loans.