25 and Deep in Debt

Paying for College
61

<p>

And that is part of the problem. The parents keep refinancing into new 30-year mortgages, and are still paying on them when the kids start college, which is why they don’t have any money to use toward the EFC.</p>

<p>Just as the kids are being told they can afford these student loans, the parents are being told they can afford these mortgages - but it’s being done in a vacuum. If you bought you house at 22, with a 20-year mortgage instead of 30 (or payed it off as a 20-year loan), and had your first baby at 24, you would pay off the house in time to help with tuition. But so many start with a 30-year making minimum payments, then refinance a few years down the road, for lower payments (or for a bigger house with the same payments). The mobile workforce is partly to blame for this too - as people move for their career, they’re buying and selling homes, and have the equity from the last home as a new downpayment on a new 30-year loan…</p>

<p>I’m with JonLaw - pay ALL the loans down as quickly as you can. It’s beneficial in many ways. Your monthly expenses go down significantly (freeing up money for tuition if you have to pay it), and if your kids don’t go to school using CSS profile, you’re “money” is tied up in the house which is a protected asset. The problem isn’t just the young woman in this article, but her parents too.</p>

62

<p>Two comments - I know this family and the parents are college educated - dad is an engineer. I was shocked when I read Katie’s article. You never know how people are financing their lives.</p>

<p>Second about mortgages - we watched as our friends “moved up” during the housing boom and we stayed put! We will now have our house paid off when s15 goes to college.</p>

63

<p>I think the H.S councilors also have some blame. They usually say to go to the best accredited schools you get into, not the one you could afford.</p>

64

<p>At least the parents are not letting her have her old bedroom back. Making her sleep in the basement. Should have shown her this kind of “tough love” before she borrowed the 189K. Old bedrooms are for closers; always be closing.</p>

<p>??</p>

<p>Do we know that to be true? Her bedroom may have always been in the basement. My in-laws had 2 bedrooms, a laundry room, and a rec room in their basement, and 2 kids used those bedrooms.</p>

<p>I don’t think these parents have any kind of moral authority to be using “tough love” on her unless they refused to co-sign those loans and she found some other fool to do so.</p>

<p>Two comments - I know this family and the parents are college educated - dad is an engineer. I was shocked when I read Katie’s article. You never know how people are financing their lives.</p>

<p>Well, if dad is an engineer, then he certainly could have “done the math” and have foreseen this disaster. If he was against the borrowing and didn’t co-sign, it would be one thing, but if he has dirty hands then shame on him.</p>

65

<p>I think blame is to be had on all sides. </p>

<p>I am 25 years old – my parents’ generation was full of people who made a nominal investment in their college education and, which paid off in major ways. Seems like good advice going forward, but when you take into account that the inflation-adjusted cost of attending school has more than tripled and that there are more people these days with college degrees (thus making its competitive advantage less striking)… it becomes less likely that this investment is going to pay off any time soon.</p>

<p>Kids in my generation have been told for years, from people on all sides, that education is of utmost importance because to be without a degree is to shortchange yourself when it comes to your future. You need to work hard, pursue the best grades you can, get into the best school you can, etc. Attending a less prestigious school is somehow seen as a bad thing. Not necessarily harmful advice on its face, but when it fails to take into account financial trends, it very easily becomes bad advice.</p>

<p>High school typically doesn’t come with a personal finance class – so by the time college choices roll around, kids make decisions when they are the least-equipped to understand the tradeoffs. You’ve got parents condoning hefty loans, financial aid officers telling you “Oh, yes, that’ll be affordable, no worries,” and lenders actually approving the loans. It can be very difficult for the uneducated borrower to intuit that they may be making the wrong choice and that there isn’t necessarily a safety net embedded in the system for preventing bad investment decisions. Even if a kid strikes out to resolve his/her own ignorance by learning more about the finances, there’s bad advice and misinformation all over the place.</p>

<p>It becomes even harder when you constantly hear that top employers use college degrees as proxies for determining whether a candidate is worth interviewing, since there is simply not enough manpower for a firm to interview EVERYONE who applies for a particular position.</p>

<p>Lastly, many students, who ARE aware of the numbers, have no reference point for them. How much is too much? $10k? $20k? $40k? $50k? $100k? Even if a student understands what is being borrowed here, they may shrug it off and assume that it’ll be taken care of by expected future income.</p>

<p>In other words, there are social pressures in conflict with an overestimation of college benefit and an underestimation of college cost. It’s very much similar to the credit crisis. Except in this case, you can’t declare bankruptcy on college loans.</p>

<p>And, also much like the credit crisis, there’s more than enough blame to go around the table. It’s a systemic problem that is both cultural and financial in nature, consisting of many participants who all try to act in their own self-interests but may not be fully aware of the long-term consequences.</p>

<p>EDIT: I also want to point out that just because someone is college-educated/an engineer/someone with a powerful job/someone well-off/etc doesn’t mean they necessarily understand personal finance. Much of personal finance revolves around decision theory and understanding and parsing the underlying statistics/risks, which people are notoriously poor at understanding.</p>

66

<p>EDIT: I also want to point out that just because someone is college-educated/an engineer/someone with a powerful job/someone well-off/etc doesn’t mean they necessarily understand personal finance. Much of personal finance revolves around decision theory and understanding and parsing the underlying statistics/risks, which people are notoriously poor at understanding.</p>

<p>Well, generally a long-employed married father who is an engineer has enough financial-savvy to figure out loan payments, take home pay, etc. Engineers often have to deal with budget constraints, and as a home-owning father, he’s had to deal with “kitchen table economics” for years.</p>

67

<p>*Well, generally a long-employed married father who is an engineer has enough financial-savvy to figure out loan payments, take home pay, etc. Engineers often have to deal with budget constraints, and as a home-owning father, he’s had to deal with “kitchen table economics” for years. *</p>

<p>It very well may be the case; I can only speak to my own experiences, here: I was a Wharton student at Penn, and even when it came to my own top-tier business-oriented peers – many of which were sons and daughters of well-heeled college grads, engineers, financial workers, etc – almost none of them (who had loans), when asked, really had any clue about how much their loan payments or take-home pay would be. </p>

<p>Many of them don’t care, either, because there’s always this overestimated expectation when it comes to future pay: “I’m smart, so if I work hard, I’ll get a good job, and these loan payments won’t be a big deal no matter what they are.” Even if a field is struggling, the average student thinks he isn’t average and believes that the odds can be beaten regardless. </p>

<p>It’s the sort of thing I see time and time again, but it may be confirmation bias on my part – I don’t know.</p>

68

<p>Here here… to the last poster…legendofmax… I drank the cool aid for my daughter. </p>

<p>I’m pretty much a lurker, but have been having anxiety of late… with allowing my dd to go to U of D (OOS -Dean’s list currently a soph and only a 5000 merit award from UD) and take on the brunt of the tuition in loans. She couldn’t find a fulltime job during the summer, so didn’t make too much.</p>

<p>Hubby didn’t want to remortgage, take from our retirement, or parent plus loans… so between her savings and the very small gov loans we are allowed, the rest are commercial loans. I’m trying to come up with a way to talk her down from this school and move to one that isn’t going to keep me up all night. She claims she can’t work, due to the amount of workload she takes on to try to graduate in the 4 years, and other commitments (sorrority and required volunteer commitments). </p>

<p>I’m trying to explain her future bills, and all she has to say is… i’ll be able to pay them… ugh… “no you won’t”… and then the dreaded, why did you let me pick this school. She doesn’t want to leave… help any suggestions!!</p>

<p>Cool aid drinking mom… who needs a new cocktail!</p>

<p>ann</p>

69

<p>*It very well may be the case; I can only speak to my own experiences, here: I was a Wharton student at Penn, and even when it came to my own top-tier business-oriented peers – many of which were sons and daughters of well-heeled college grads, engineers, financial workers, etc – almost none of them (who had loans), when asked, really had any clue about how much their loan payments or take-home pay would be. *</p>

<p>Legend of max…</p>

<p>There’s a big difference between what the CHILDREN know and what those educated PARENTS know. </p>

<p>You changed the scenario. </p>

<p>Your point was that just because someone is an engineer or similar doesn’t mean that they understand finances. NOW, you’re saying the CHILDREN of such people don’t understand finances…HUGE difference. Of course many CHILDREN of well-educated parents don’t understand finances. That’s rather typical. However, since the parents are co-signing these loans, then they need to use their wisdom and economic experiences to bravely say “no” to such requests.</p>

<p>MrsMom…time to put the big girl pants on and tell your D that you won’t be co-signing any more loans so she needs to transfer to an instate school.</p>

70

<p>mom2collegekids: </p>

<p>Earlier, someone had said that “this family is college-educated/the dad’s an engineer… you never know how people are financing their lives” to which you said “The dad’s an engineer, so he could have done the math and foreseen the disaster” since he has likely “dealt with kitchen table economics for years.”</p>

<p>I do not mean to “change the scenario” – I’m arguing here that many kids lack financial know-how and much of it is because they don’t have parents/teachers/mentors who are giving them sound advice in these contexts (I gave some reasons why in my big post above). Those parents, even if they are engineers and so forth, are not necessarily capable of making sound financial decisions by simply “doing the math” since the “math” typically involves tricky subjects like probability/risk/being aware of financial trends (and sometimes their own personal circumstances made it such that doing the math wasn’t always necessary, either). Although even if they CAN do the math, understand that it is important, and simply choose not to, that’s just willful, dangerous ignorance.</p>

<p>I agree with you that parents should take a firm stand against cosigning big private loans, since at that point, odds are something is going terribly wrong in the decision chain. I am merely arguing that even smart people are not immune from ignorance/making poor decisions.</p>

<p>mrsmom1992:</p>

<p>I think the most sobering thing you can do is sit down with her and walk her through hypothetical scenarios and the relevant finances. What field does she want to work in, how likely is she able to land such a job, and what do the statistics suggest for average income? What city is she likely to live in after graduation (and thus what is the after-tax income percentage)? What kind of lifestyle is she planning to live? What does the housing/renting market look like? Questions like these help put things into perspective and put some numbers to the decisions instead of the sort of vague, “I’ll wing it and be fine” reasoning many students invoke.</p>

71

<p>There is an amazing amount of Kool-Aid around to be drunk, and a surprising number of people who you otherwise would think are too smart for that can be caught out drinking it. Case in point: the faculty advisors for Happykid’s career-related HS EC. After one-too-many “Oh she should apply to X because it is great for her future education and potential career in Y.” I flat-out told them that our budget would barely cover the cost of the local community college, and that suggestions of places where she could land the scholarship money to bring the cost down to that range were welcome. Despite a bunch of “We’ll help her get the scholarship money she needs.” responses, not one of them was able to come through. Because there just isn’t a boat-load of money out there for any one with her career goals, let alone B+ students whose parents have an EFC that is four times what they can afford to pay.</p>

<p>As I’ve written elsewhere, Happykid did end up at our local community college, where she got a nearly full tuition and fees scholarship (that I found for her on the community college’s website, and for which her guidance counselor wrote the letter of rec, by the way, not one of the “Oh gee she should go to X.” guys). The money we didn’t have to pay for those two years is now helping to pay for her expenses at a very nice in-state public U.</p>

<p>My take-home lesson from all of this is that the students’ families have to stay on top of this because no one else will.</p>

72

<p>Kook-Aid Mom -</p>

<p>Is you post correct in stating that you guys chose taking commercial loans over Parent Plus? I’m no expert but I thought the least to worst order was Fed, Parent Plus and then commercial?</p>

73

<p>mrsmom1992 - </p>

<p>You’re trying to come up with a way to “talk her down”?</p>

<p>Just stop cosigning the loans for her!</p>

74

<p>It’s obvious but sometimes worth reminding people: When you cosign loans for someone and they can’t pay those loans back, you’re on the hook for those loans.</p>

75

<p>*mrsmom1992 - </p>

<p>You’re trying to come up with a way to “talk her down”?</p>

<p>Just stop cosigning the loans for her!*</p>

<p>Exactly…and it’s best to tell her NOW that the co-signing stops, and transfer apps need to go in. I wouldn’t even let her return for spring semester. Get her out now. </p>

<p>The bottom line is that an 18-22 year old really cannot reasonably know whether she can pay back those loans. She really cannot demonstrate that she knows how much she’ll be earning upon graduation, how much her take-home check will be, how much will have to go towards: rent, utilities, health insurance, car, gas, insurance, cell phone, internet, cable, clothing, etc…and how much she’ll have left over to put towards loans.</p>

<p>Right now, she’s just parroting whatever it takes to get you to sign. She doesn’t have the discernment skills regarding this issue.</p>

76

<p>

Who can do this nowadays? Really?</p>

77

<p>Just a side note - the article writer attended an exclusive catholic girls high school. Current tuition is over $11K per year. Many of the girls from that school wind up at Miami since it is a great instate option about an hour away. Her parents must have spent all/most of their money on HS and somehow decided to borrow full tilt for college? Otherwise it would be hard to get to $188K. If so, that was just silly. And of all the Ohio state schools, Miami is the most expensive.</p>

78

<p>Just one more comment regarding mrsmom1992’s daughter . . .</p>

<p>Sorority? The reason she can’t work during the school year is because of her commitments to the sorority she paid to join??? And paid to join with borrowed money, to boot!</p>

<p>This seems to be the typical story of the student who wants that “four-year college experience” . . . and doesn’t realize that she’ll spend the rest of her life paying for it. And if mrsmom1992’s daughter has borrowed enough to pay for sorority membership, it seems likely that she, like the 25-year woman from Cincinnati, has overborrowed.</p>

79

<p>^^^</p>

<p>Oh wow…missed the sorority stuff…</p>

<p>* She claims she can’t work, due to the amount of workload she takes on to try to graduate in the 4 years, and other commitments (sorrority and required volunteer commitments). *</p>

<p>Why the heck do this happen? Time and time we see posts about students borrowing/struggling to pay school costs, and then there will be some mention about being in a Greek house. </p>

<p>I realize that some social Greek Houses cost more than others, but I don’t think any are free. When I was in a sorority back in the Stone Ages, the cost was $26 a month. The costs are much higher now. Also, I’ve noticed that membership now often involves a lot of “extras”…fancier formals, frequent Tshirt purchases, trips, etc. </p>

<p>If someone doesn’t have money for school, why do they have funds for a Greek House…especially if the membership means foregoing a JOB? That means that the membership is REALLY costing a lot more (dues/expenses PLUS loss of wages!).</p>

80

<p>Ok a recent twitter message my 16 year old got going around from the newly minted college freshman :</p>

<h1>college experience:What I’m getting is more like a vacation for 4 years at a dope a… resort with 6000 other kids"</h1>