"while how much you add to your human capital is anyone’s guess. "
This is one of the reasons that higher education (and thus the possibility of taking on debt) may not be a good idea for everyone.
“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.”
I do not know how this is related to my thesis: “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.”
“I wouldn’t encourage people to look to the housing market as the way to think about education loans.”
I respect you point of view. We just see things from different perspectives.
“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. 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 I LOVE IT! My feeling exactly.
If by irresponsible borrowing one contributes to a bust, the rest of us will have to pay for it either directly or indirectly.
The rosy outcomes are easy to see. But there are 60 YO parents that borrow a quarter million from the 401k, then kiddo drops out and moves to Belize instead of Wall Street. That debt doesn’t go away, and they work until death. This is a possible outcome too.
A good balance is hard to find; it doesn’t just affect the borrower.
My point was that it is important to do thorough financial analysis… not just over-stretch because the family likes the result.
I’ve read lots of posts of parents saying thngs like, “we’ll find a way to make it work… sweetie pie LOVES the school”, and I’m not sure they really have studied impact on retirement etc. (assuming jobs stay OK). If the parent loan repayments are going to be far greater than what they’ve been saving monthly for college in recent years, then ya gotta wonder if it can work.
The reason it is important for us strangers to say these things bluntly here is because worried friends/family may be hesitant to say so in person. Many readers may find it offending and should ignore. If 1 in 10 readers avoids unwise debt burden because of these threads, then we’ve done a good service.
I am currently struggling with this. My son who will be a music major has been accepted to state and private schools. Two of the private schools are ranked in top 20 in country. One is his dream school. I am a single parent and appealed the financial aid. The university won’t budge. Loans would be at least $60000 if not more. It’s heartbreaking.
Yes, IMHO it’s very sad, but HEARTBREAKING is when folks have a huge debt burden that they are saddled with for a decade or longer and can’t get out from under that limits their options, makes retirement impossible, keeps them from other opportunities.
Oh no, I meant it’s heartbreaking not being able to attend the dream school. And yes I agree with what you said about the burden.
There are many families in this country who work hard but live paycheck to paycheck, and financial planning isn’t really feasible. Some may end up on substantial financial aid, which is fair. I do know of families with incomes that are high enough but they have not done the financial planning that IS possible for them, and those kids suffer because financial aid isn’t available to them, only loans. And of course some families do responsible financial planning but do not get financial aid, and cannot afford high loans. And some have the money, period. I think it is hard to discuss the issue of loans without context.
Another topic we cannot discuss generically is retirement, and there are many references to retirement in these kinds of threads. What exactly does that mean? Many of my friends, whose kids did graduate, live in low income senior housing, live on meager social security, and their idea of entertainment is a $5 art class at the local senior center. They get rid of their cars because they are too expensive, and think about which grocery store has fruit for 30 cents less.
Some people really prefer to spend a lot of money on their kids’ education even if it means selling the house and living in a studio. Or if it means their old age is going to be spent in low income housing. Then again, some people want a “retirement” with travel, two homes, nice car, and lots of enrichment and hobbies. Some just want to stay in their house and be able to eat out a few times a week without stressing about money.
It is really hard to talk about how much debt parents should take on without context, but clearly debt on the part of the student is severely limiting in terms of options for work. So I think the real discussion should be, not only how much debt, but how much the student’s debt is versus parents’. If debt is taken on, I think parents should handle most of it even if it curtails the ideal retirement.
There are cases where debt is entirely worthwhile. I know a kid who works for Disney mainly because of where he went to school, and he has paid off an enormous debt in two years, not even living at home. Aside from career outcome, the experience at some schools is most certainly worth some debt, if the family can afford it. As long as it is reasonable, which is hard to define in an absolute way.
Finally, some families avoid debt entirely. They pay cash for cars, pay off the house as quickly as possible, and are frugal. Avoiding interest at all costs. Taking on college loans means interest. So another position to take is for kids to only attend schools that you can afford to pay for in cash, now. Whether you make a million and can easily do this, or you make under $60k, this is still a good strategy for many. Even if it threatens our golden years.
While I agree that “enormous” debt is bad, but how do you define what that number is. I have no problem at all with students borrowing the maximum amount of Stafford loans as an undergrad. The debt burden for that is not much more than the cost of a car.
What really irritates me about this whole issue is how rankings, the Common App and the schools all conspire to yank our chains. Quite frankly, most kids are going to do well or not based on their own abilities, and not based on anything about the school. A decent state school, as long as it has the major your child wants, is usually going to be just fine.
I was at Pomona with my daughter and they said, “Over 90% of our students who apply to medical school get in.” That really made me laugh. The students there are all at the tippy top academically, that’s how they got into Pomona in the first place- OF COURSE they’re going to get in med school! They’d get in if they went to Cal Poly Pomona.
There have even been studies proving this, and articles about said studies written in the NYT and other places. But we still all get sucked into the prestige thing. Why, for example, would I pay and shed blood sweat and tears for a spot in the Ivies when my kid wants to be an engineer. MIT or Caltech I could see (only if my child wanted to be an academician, but they don’t). Now, if my kid wanted to be a Supreme Court Justice some day, it might be worth it. If he needed to meet the right people and become a Fortune 500 CEO, I could see it. The prestige factor really can help you out there.
The real problem isn’t the Ivies or Stanford, though. The real problem is that the vast majority of expensive private schools don’t have the name recognition of an Ivy, and the vast majority of kids don’t want to be Supreme Court Justices or Fortune 500 CEOs. But parents are still running up the same amount of debt as if those things applied. Schools are not magic. We need to have more faith in our children- they make the school, not the other way around.
Both low income housing and expecting Medicaid to pick up any long term care in retirement could be viewed as examples of cost shifting.
PBD- I agree 100%
sushiritto:
Are you implying that you must go to an expensive, private college in order to develop a strong social circle and “great life”?? The kids whose parents spent beyond their means are now working alongside people who attended a variety of colleges–many of them state schools and for a fraction of the cost.
Original post>>“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”
@harper8 Thanks. I’ve more or less known this all my life. I grew up in a tiny town in the middle of nowhere, went to a good but not great private school on a scholarship, and ended up at the UCSD school of medicine alongside Stanford, Yale and Berkeley grads. (Among other things, being a big fish in a little pond gets you really wonderful lab jobs and fantastic references). My oldest went to a great but not fantastic tech school, and ended up in a fantastic grad school, and works in a lab alongside MIT grads, which is the top school in his field, though his is not far behind.
Now, we are science nerds, obviously. A big-name school with a lot of intangible benefit might be worth it in some fields where merit is harder to quantify. But, at the risk of repeating myself, most kids aren’t at those schools, and yet their parents are spending close to that amount, or more, as the Ivies have generous endowments for merit aid. I can afford to blow the money, though I don’t want to. Luckily, the middle child who went to a private-but-not-Ivy school got merit aid so I didn’t have to.
It’s hard if they are disappointed. I’ve tried to tell the three of them how fabulous they are, and that a school is lucky to have them, and if the school doesn’t want them, or doesn’t want to give them merit aid, then pfffft. Someplace will, and why not go there? So far, so good.
Excuse me, I made a mistake. The Ivies usually have generous endowments for need-based aid, not merit.
And some Ivies give full scholarships to illegal immigrants which irks my soul.
Yale cough being one of the.
I guess it depends on what your child wants to do and what their major is. If your child is a music major and wants to live and work in manhattan, some would say they need to be in college up north, more specifically a private college up north. The advantage being better connections and proximity of where they want to end up.
@hannuhylu It does indeed, when we taxpayers are giving those same Ivies enormous tax breaks because they are “nonprofits”. I’ve heard Harvard described as a college attached to a very large endowment.
Of course, this may all come to an end as quite a few people are starting to notice all the taxes they’re not paying on all that money.
One deeply flawed study about what happened to students who entered college in 1989 doesn’t prove anything. However, your larger point is correct. Too many people are taking on too much debt for college.
It doesn’t have to prove anything. Generally, studies have to prove the variable makes a difference, if not one assume there’s no difference. That’s the null hypothesis, and where the burden of proof lies. Especially given the money and effort involved in this particular instance.
What has to be proven is that there’s a difference between a great student at a good school or a great student at a great school.