I’ve had the pleasure of speaking with groups of high school seniors as they are about to start their college careers, and help to educate them about handling their finances. We talk about checking accounts, utility bills, the benefits and pitfalls of credit cards, and financial aid. While I’m no expert on the subject of financial aid, I have spoken with lots of people in the 20s and 30s that have excessive student loan debt many years after college. It seems that there’s a missing piece in the college selection process that sometimes causes us not to pick the college with the right price for us.
Choosing the right college for yourself or your child can be exciting and fun; it can also be emotionally charged and stressful. For some people, there is a balance to be struck between the perceived quality of a school and the price to attend (aid packages included). For others, price doesn’t factor into the equation – the school perceived to have the best quality is where the student must go; they trust that the education will pay for itself down the road.
When I ask the seniors what they want to do after college for work, a couple have an idea but most don’t. Even the ones that do aren’t sure what the starting salary is for that type of position. After they’ve received their financial aid responses, most still don’t know how much in loans they will have and what that will cost to service when they graduate.
As part of the framework for choosing the right college, we must include the financial implications on the other side of the diploma. One basic rule of thumb is that the total amount of debt accumulated by graduation should be no more than a year’s salary after school. Anything more than that and the newly minted graduate lives below the poverty line, or back home with the parents for a long time.
I came across this article last week which is one person’s story along these lines. I recommend it. One thing that it helped me realize is how the colleges themselves don’t have any interest in the student’s ability to repay their loans after school. The colleges get paid up front and the banks and the government take the risk – though since it’s so hard to discharge student loan debt in bankruptcy court now, the real risk is that the students will end up slaves to their student loan obligations – forget about buying a house someday or prepare to work multiple jobs for years. It just doesn’t seem right for college financial aid and admissions offices to not be proactive about this, which is why we need to educate each other to protect ourselves from getting into trouble. Here’s the link to the article:
http://www.nytimes.com/2010/05/29/your-money/student-loans/29money.html
Here’s another link to a helpful resource for students heading off to college:
http://www.smartaboutmoney.org/portals/1/resourcecenter/40moneytips07.pdf
There is no better investment than educating oneself. But there has to be a limit on the cost; at some price it does more harm than good to our future self. I think that this is the start of a longer conversation about the costs & benefits of college. Hopefully this gets the ball rolling. Got any questions, thoughts, advice to share? Let’s discuss in the comments. My best wishes to you today!
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