I made this thread as I see many kids asking about taking huge sores of loan. I have two wonderful daughter who work in finance field, What they have taught me about finance, and what I understand that parents/kids please please do not take huge loan that are unmanageable and may make you a debt slave.
Prestige is good but not that good with huge amount of debts. If one wants to take risk and want to pursue what they would love to do after graduation, debt can make those plan in jeopardy. Debt may forbid you doing something that you love, take ample risks but no too much loan. Borrowed money that one can not pay is very dangerous. Do not rely on future income as you do not know what life brings, interest may change. Therefore do not take a huge loan there are some exception like a Doctor where one can pay money easily . And if you still do, please think long and hard. good luck in your college acceptances.
Disclaimer: Sorry for my unwanted advice, do not want to offend any one.
College sneaks up on no one. You can start planning and saving before they even hatch. 529’s, Ed Ira’s, etc. You can go to a CC for the first two years and TF. You can go public not private and still get a quality education, the student makes the degree valuable, not the school, and get into honors colleges and so forth. If you go public and play your cards right you might not pay much more than the public which can be very attractive.
If you wait until the kid or kids are 18 and have saved a grand total of $.35 you really do not need to be advising anyone else about financial planning and should you do that I would advise anyone listening to not put much stock into your advice. Not saying you OP; just saying.
Wanted or unwanted, this is very good advice. This is also very timely since right now (in April) is when most students decide which university they are going to attend from among the various offers they have received.
There has been a lot of discussion of how much the cost of university has increased over the years. There has been some but a lot less discussion of what we might call “degree inflation”. Today in many cases people need a Master’s degree for what used to require a Bachelor’s degree. With this in mind, I think that students should try to ensure that they can get as far as a Master’s degree with a debt that is no larger than their expected first year annual salary out of college. Long ago my debt out of college was about half of my first year’s salary (and I had a practical degree), which is significantly more manageable. Twice your first year’s salary will be quite painful. Anything greater than that has a risk of being catastrophic. Also, students need to be cautious when predicting what their first year salary is likely to be: Getting any job at all can be quite difficult for someone straight out of university.
One thing to ask students as they choose which university to attend: After graduation, do you want to be so far in debt that you will have to live with your parents for years after graduation in order to save money to pay off your debt? In looking for your first job, do you want to be constrained to working within an hour’s drive from your parents house so that you can commute from there?
Also, if a student is going to do require a Master’s degree, then where they do their Bachelor’s degree becomes less important. If you get a Bachelor’s degree from a “pretty good” university (say, top 200), and then do a Master’s from a top 20 university, it won’t matter much where you got your Bachelor’s degree. Thus having the grades as an undergraduate to get into a top Master’s program is going to be a lot more important than the name of the university.
Depends–how big are the loans? What is parents’ household income vs debt? How old are parents and how healthy are they? How secure are their jobs? How many other children also need to be educated? What other options are available?
What you pay for an education is considered an investment. It’s like anything else. A degree won’t necessarily guarantee you a great job. The student should research the field they are interested in to understand the demand for the degree and the kinds of jobs they might be eligible for and what salaries they could potentially be earning. Some jobs could earn you six figures in no time while others will never get you to six figures. I would never advise anyone to forego an education because a degree will get you further ahead and in many cases a loan is the only way to go. Doing your research will allow you to make better decisions about what schools you could attend that will provide the greatest value. This is why State schools have become so competitive because you’re better off with in-state tuition and there are many great in-state schools to choose from that will keep the cost down. I do not agree with the Masters degree comment above. A bachelors degree should be sufficient to start with until you have gained some experience. The only exception to that is where a Masters degree may be required such as teaching. You can decide later if a Masters will help you get ahead with your career. I wouldn’t waste my money on a Masters degree right away. There are sooooooo many jobs you can get with just a bachelors and again it all depends on the degree.
“What you pay for an education is considered an investment.”
Absolutely. However, with any investment you should give some attention to how much you pay for it.
“I wouldn’t waste my money on a Masters degree right away.”
Whether a Masters is needed will depend upon the field. A Masters tends to be quite focused on the major and maybe a few very closely related subjects. Thus, you need to be pretty sure that you are studying the right subject before you go for a Masters degree. Working for a few years first can help to clarify in a student’s mind just what Masters they might want to consider, and whether they need one at all.
However, I do think that if students want to study in a field where a Masters is reasonably likely, it is a good idea to budget for it (in the same sense that parents with a kid in grade 8 might want to budget for university at some time in the future). We have seen on CC some posts by students who are sure that they want to get an MBA, but are considering universities for undergrad that are going to put them so far into debt that a Masters seems quite unlikely to happen.
It’s difficult to generalize. If you’re residential at your in-state flagship, list price for tuition+room and board can still be $20k-$30k/year. Some states have generous need based aid(ex. CA, NY), but others don’t. Some students will qualify for significant merit based aid. For students stuck paying something close to list price, perhaps the new normal is family debt(including student and parental loans) being 1-2x the expected first year salary. In some states(ex. CA), even the directional universities can be fairly good. In other states, the school quality and availability of courses and majors can be lacking outside the flagship.
@HImom a student with $39k in debt at an OOS public university who certainly can’t transfer to a more expensive university but dislikes any cheaper options because that would mean a downgrade in academic quality and a return to a home state which has painful memories for said student.
Again, you and your family have to consider the questions in post #8, and any others relevant to your situation. There is no ONE right or wrong answer.
Since kids can only take out very little in loans (like Staffords) I assume this is targeted at adults? You cannot imagine how exciting it is to see another thread with someone telling others how to spend their money and what to borrow/not borrow. If people want to borrow to invest in their kids - go for it. Kids, if your parents want to do this, let them. They are adults and can decide how they choose to spend their retirement. Let go of the guilt, go to college and work your tail off. (@Lbad96) Respect what they do for you. The most successful family I know sent several kids to private colleges and spent or borrowed (idk cause it’s none of my business) a million+ bucks to do so. Everyone of those kids is highly successful and has a great life ahead, strong social circle and earning power, and their parents are happy knowing they did all they could for their kids. Those parents knew what they were doing and did what they wanted. Others don’t spend nearly as much and could have same success or flop. Some families can’t see beyond the station they are in, and their kids remain there with them - maybe they are happy there, maybe they are not given chance for anything else. Point is, it is up to each family to decide. Sometimes borrowing for an undergraduate education is the best thing you can do for that kid - setting their course and setting them up for the rest of their life.
@scotlandcalling the slight issue is that my parents may want me to transfer to a school back home (even though I didn’t apply anywhere and the app deadlines have mostly passed) if they don’t feel I’ve done well enough for their standards.
" If people want to borrow to invest in their kids - go for it." - Perhaps… if they have done the due diligence to know what they are getting into. Sadly, that is often not the case… then it’s like somebody buying a house beyond their means - possible, but not wise.
Having a higher education and buying a house are too some degree similar. Both provide some happiness and both can be, but not always, a good investment. Buying a house is a physical investment. Having a higher education is a human capital investment.
Many households, particularly young households, use 20% of own saving and 80% debt for the home purchase. 80% debt is not generally regarded as enormous. In contrast, subprime has a bad name, and would generally has an even higher % of debt, which is sometimes or often regarded as enormous amount of debt.
I do not know what % of debt for higher education should be considered as enormous. But based on my observations, this % cutoff appears to be much lower relative to that used in home purchase.
I also sense that different cultural background seems to have different tolerance levels to the use of debt for funding higher education. At least in my Asian American circle, this tolerance or willingness to take on debt for higher education is quite high.
Overall, I agree with many posts earlier: whether to use debt to fund higher education is a very individual thing. It is not like people disagree with the notion that one should not take on “enormous” amount of debt; it is more about what constitutes as enormous. This cutoff has a very wide range.
^The difference in the investment analogy is home’s can have their value assessed, while how much you add to your human capital is anyone’s guess. There’s still not a lot of good data on outcomes showing what the salary range for graduates in a particular major at a particular college is 10 years after graduation.
Prof- your analogy doesn’t work in the real world.
First- a home mortgage is secured by… the home. Which a bank can sell. It may go up in value, it may go down, but at the end of the day, there is real property with some economic value underlying the loan.
Second- the 80/20 ratio works fine in some parts of the country and is terrible economic advice in others. Property taxes, heating oil, transportation to jobs, a grand list (my state has a personal property tax on vehicles for example-- the state I moved from does not), an assessment from a local home owner’s association— many young families get into real economic trouble by relying on a “formula” dictating how much home to buy and how much they can “afford” to borrow without considering actual cash flow on a month in/month out basis.
I know lots of families with zero equity in their houses. A better job comes up three states away? It’s a tough decision to figure out whether dumping the house- essentially watching their down payment go down the tubes, let alone the zero equity “growth” they never experienced, in the hopes that with a higher salary and a more forgiving housing market they can recoup.
I wouldn’t encourage people to look to the housing market as the way to think about education loans.