The Financial Crisis

Parents Forum
1

<p>I'm in a bit of a dilemma here, and I'm hoping you parents can help me sort it out. I've been accepted into my great, large (read: gigantic) state public university (School 1), into their most exceptional honors programs. Excellent. Unexpectedly, though, I received an acceptance letter from School 2, a college which I never in my wildest dreams expected to get into. This was my super-reach school, my dream school that I never really even discussed with my parents because it was a non-issue.</p>

<p>Although School 1 is a great school and a great program, it just isn't the school that I feel fits me. It's a huge public, in my home state; I dreamed of a small school on the west coast. School 2 gives me just that.</p>

<p>The problem, though, is that School 1 is a helluva lot cheaper than School 2. ~$20000/year versus ~$45000/year for School 2. My parents informed me before I started applying to schools that they had enough money put away for me for ~$30000/year. My goal, now, is to convince my parents that School 2 is a doable option for me. And my question to you is a) Am I being completely ridiculous in even pursuing School 2 and b) If I am not being ridiculous, is my plan of attack for convincing my parents a good one.</p>

<p>So basically, going to School 2 would put us roughly $63000 in debt paying full freight, while School 1 would leave about $40000 left over if I chose to go on to grad school. I calculated out that with the money my parents would save on me foregoing any summer/spring break/thanksgiving/whenever vacations ($2000/yr), bday/xmas gifts ($400/yr), gas $ for car($360/yr), and by selling my car (~$3000), I could reduce that direct debt onto by parents by ~$27,600. I am also willing to give them $2000/yr from summer jobs or internships for my for years in college. This saves another $8000. </p>

<p>This would leave my parents paying $27,000 on top of the $120,000 they are already capable of paying out of pocket. I am going to ask my parents to allow me to pay off this $27000 to them over 5 years (~2700/6 months) after I graduate from college w/ inflationary interest. This would hopefully leave my parents without having to pay more than their saved $30000/year.</p>

<p>And yes, I do love my dream school this much. Is this a doable plan? Or am I in wayyyy over my head? (I am only a high school senior...I've never actually dealt with these kinds of money issues before in my life.)</p>

<p>Thank you Thank you Thank you for any advice you can give me. Let me know if anything I've said is unclear as well!</p>

2

<p>Luxar:
It really depends how much of a dent the extra expenses would make in your parent's financial situation. Have you also factored in tuition hikes? At about 4.5-5% per year, by the time you are a senior, the tuition, r&b at the dream school may be over $50k per year. Did your parents include an increase in the the $30k sum per year they have set aside ? I would also not calculate the savings you might make so generously. It's better to err on the side of caution when making these calculations. For example, savings from break, thanksgiving, are not real cost reductions (these are not factored in the tuition, r&b). When calculating savings from summer jobs, remember that unless you live at home, you'll have to pay for r&b also. And so on. So I would not rely on being able to whittle down the extra costs from around $63k to $27k. Maybe down to $45-50k.</p>

<p>More importantly, I'd suggest making a list of the good points of the Honors program at your gigantic state u. The program may make it feel a lot smaller than it would for regular students. Then make a list of what you like and what you don't like about both schools. You may feel more positively toward the gigantic state u. But then, your parents' finances might stretch a little further. So talk to them about how much more they could cover without stretching themselves too thin (do you have other siblings who will be attending college? Will they need to dip into their retirement fund to help you out? They should not do so).</p>

3

<p>"So basically, going to School 2 would put us roughly $63000 in debt paying full freight, while School 1 would leave about $40000 left over if I chose to go on to grad school."</p>

<p>So the "price" of School 2 over School 1 is $103,000. I don't care particularly what the schools are so long as it isn't a specialized school like MIT or something, for me I can't imagine ANY school (including all the Ivies) offering $103,000 worth of better educational opportunities than an exceptional honors program at a "great" state university IF you were going to spend the $103,000 on other things. Two years of med school. 5 trips around the world. Three years volunteering in Africa to work on water systems; two years in Italy learning to paint, $103,000 in a business start-up. Two years of an M.A. program where the M.A. is the working degree (like public administration or social work). </p>

<p>It MIGHT be doable (I know nothing about your parents' finances). But if they clearly don't have a lot of extra bucks sitting around, I have trouble imagining a scenario where it is worth it.</p>

4

<p>Thank you for the advice, marite! I have thought about the tuition hikes, and would plan on using my own savings account (I have about $6000 in it right now ) to cover the increases. I tried to err on the side of caution as you have suggested, but I entirely neglected the r&b I might have to pay for summer internships if I can't find any close to home(I am in Houston, though, so there will hopefully be many opportunities.) Thanks for the reminder.</p>

<p>I have weighed the pros/cons of the schools quite heavily, and have visited the state u many times over the past two years (my brother currently attends). And I certainly wouldn't let my parents dip into their personal savings(they've worked way too hard to achieve the comfortable lifestyle they live in, and I would never dream of asking them to give it up).</p>

5

<p>Mini, thanks for the perspective. Perhaps I really am being irrational :.</p>

6

<p>Luxar, Everyone here would love to be able to tell you "go to the dream school" but as Mini wisely points out no one here knows your family's financial situation, how old your parents are, their other obligations, etc.. I would recommend that you and your family analyze carefully whether the amount of debt will be realistic to pay back, and then decide if the academic experience between the two schools is worth it. Sometimes working with real numbers can give you a surprising answer, and much also depends on your anticipated future earnings. (I am assuming you are not expecting your parents to take on $63,000 in debt without you helping to paying it off). </p>

<p>Two online debt calculators that I'd recommend you and your parents run some numbers and scenarios through are:</p>

<p><a href="http://www.csumentor/edu/Finad/SLOPE%5B/url%5D"&gt;http://www.csumentor/edu/Finad/SLOPE&lt;/a> - which allows you to look at how realistic different levels of debt are for different careers</p>

<p>and</p>

<p><a href="http://www.mapping-your-future.org/apps/debtwizard/%5B/url%5D"&gt;http://www.mapping-your-future.org/apps/debtwizard/&lt;/a> Debt Wizard, which lets you calculate what income you would need to carry different amounts of debt.</p>

<p>Good luck with your decision.</p>

7

<p>carolyn; I cannot get your first link to work. Thanks for the tips, though! As I mentioned, I am looking to pay off $27,000 of that debt on my own. I am looking at law as a career (which is why debt is a big issue...I can make good money, but I also have to go to law school.)</p>

8

<p>Just out of curiousity, I ran some numbers for you through the Debt Wizard.</p>

<p>First, your parents will have opportunity costs associated with "loaning" you the $63,000 - that's money they could invest elsewhere, and that they also won't have available for other uses, including emergencies. So let's say, to be fair, you pay the amount back at 4% interest over 10 years. Let's also assume that you do not have to take on other debt to pay for graduate school.</p>

<p>That would require a monthly payment to your parents of $637.84 cents a month. That amount would require a salary of $95,676 a year (or $7,973 a month) to safely carry. </p>

<p>Now, the question becomes: Can you honestly say that you'll earn that sort of money right after school? Granted, your salary will likely rise over the ten years, but you're offering to start paying your parents back (I assume) as soon as you enter the work force. Also keep in mind the other "things" you'll want/need in your twenties - a car, a house, perhaps starting a family. </p>

<p>Only you can decide if the $687 a month will be worth it. Play around with those calculators and run some other scenarios to see how things might work out. Good luck with your decision.</p>

9

<p>Try this link instead, Luxar3000:</p>

<p><a href="http://www.csumentor.com/FinAid/SLOPE/%5B/url%5D"&gt;http://www.csumentor.com/FinAid/SLOPE/&lt;/a&gt;&lt;/p>

10

<p>Sorry, I missed a period with the first link. It's <a href="http://www.csumentor.edu/Finaid/SLOPE%5B/url%5D"&gt;www.csumentor.edu/Finaid/SLOPE&lt;/a&gt;&lt;/p>

11

<p>Thanks Mootmom, I see I also ran the wrong numbers. OK, let's run the numbers for $28,000 to allow a little lee way -- That becomes more manageable. You're then looking at a monthly payment of $283 a month, and would need a salary of $42,525.</p>

<p>Of course, you are making some assumptions that might not pan out -- what if you can't earn $2,000 one summer? What if there's a family emergency (health, unemployment, caring for grandparents, etc.) and your parents can't make up the difference one year? What if, as Marite suggests, the cost of attendance rises over the four years?</p>

<p>And, the above doesn't take into account the debt you might need to take on for law school or for other purposes (including credit card debt, car loan after you graduate, etc.). Law school would also probably delay your being able to start paying your parents back for another three years or so, so that means more opportunity cost on their part. Therefore, you may want to adjust the 4% interest assumption.</p>

<p>Running these kind of scenarios, and discussing the results calmly with your parents is the best approach. Strangers on a discussion board can't give you the answer you seek -- only you and your parents can weigh all of the factors. So, the sooner you sit down and talk to them, the better.</p>

<p>Good luck!</p>

12

<p>First, kudos to your parents for telling you up front what they have determined what they can afford. Secondly, congratulations to you for respecting their determination and trying to figure out ways to finance the additional cost for attending your "dream" college.</p>

<p>If you merely assume that college costs will increase by $3000/yr, that will put you at a whopping $83,000 over your family budget and I doubt that included provision for T'giving and spring break vacations and does not cover cross country travel at the start of the school year and a semester break or two, a cost which would be in their budget calcualtion.</p>

<p>Because you appreciate that your state university has a reputation as a high quality institution and you have been invited into it superior honors program, the very large cost differential seems to be a non-starter. And if you wanted to continue your education after graduation how could you reasonably think yoiu could pay off a $60,000 loan off in 5 years.</p>

<p>Because you knew the financial constraints going in, its now up to you to accept the consequences, as disappointing as they may be now.</p>

13

<p>Luxar, I just did a search and found that the two schools in question appear to be UT-Austin and Emory. In terms of getting you where you want to go (law school), both are excellent choices and will do the job nicely. </p>

<p>So, carefully consider all possible consequences, run the numbers, and then discuss this with your parents. We would love to tell you "sure, go for Emory" but this is really a decision only you, and your parents, can make. I know this isn't easy -- and I wish you the best.</p>

14

<p>Actually, Carolyn, the second school is Pomona College in California. You were dead on with UT-A, though.</p>

<p>And originaloog, thank you for your perspective on the issue. I certainly value your opinion.</p>

15

<p>Luxar, I just want to say that whatever you decide, I really respect the approach you are taking with this. </p>

<p>I see too many posts on this board from whiny teenagers who are angry at their parents for not simply giving them whatever money they want. </p>

<p>And here you come along, respecting your parents needs, with a specific plan laid out to pay the difference. Whether your plan works or not, it shows that you intend to take responsibility for solving this problem on your own, rather than expecting your parents to simply fork over the money. </p>

<p>If I was your mom, I would be very proud of you, and I certainly would welcome the opportunity to sit down with you, listen to the pros and cons, and work towards coming to a fair agreement. </p>

<p>It may be when you do all the math you will see that you are better off with your in state public -- but I think we all have to agree that there are intangibles that may make the reach school a better choice for you. </p>

<p>Keep in mind that even if your family does not qualify for financial aid, there are unsubsidized and private loans that you can take out in your own name. You should also keep in mind that $30,000 can be leveraged into a higher amount by using part of it for up front payments and part of it for loan payments -- in other words -- you probably could figure out a way to make that $30K cover all current payments, without your parents having to pay a cent, but knowing that in the end you will have payments to make on loans. </p>

<p>In other words, as a parent I know that I can borrow with a PLUS loan at a fixed 8.5% interest rate, and that it will cost me about $100 in monthly payments for every $8000 that I borrow. So if I was your mom, with $30K available, but needing $45K, I could decide to borrow $20K, for about $250/monthly loan payments, or $3000 a year. So I pay $25K cash, and make $3000 in payments on that loan, spending $28K in order to pay out $45K -- this leaves me with $2K left over to apply to the following year. </p>

<p>Obviously, the downside of this arrangement is that at the end of 4 years, I'm almost $80 in debt with $1,000 in monthly payments to deal with: but if my agreement with you is that you will take over all or part of those payments, then maybe that's not so bad. Of course, you have to think about whether you want $1000/monthly payments to deal with the day you graduate from your dream school. ( I think that is a LOT for undergrad... so I'd say no, but keep reading) </p>

<p>My math above was for the PLUS loan, which has to be in the parent's name, but you can find info about other loans that might be available to you here: </p>

<p><a href="http://www.salliemae.com/get_student_loan/find_student_loan/undergrad_student_loan/federal_student_loans/stafford_loans/%5B/url%5D"&gt;http://www.salliemae.com/get_student_loan/find_student_loan/undergrad_student_loan/federal_student_loans/stafford_loans/&lt;/a>
(For info about unsubsidized Stafford)</p>

<p><a href="http://www.salliemae.com/get_student_loan/find_student_loan/undergrad_student_loan/private_student_loans/%5B/url%5D"&gt;http://www.salliemae.com/get_student_loan/find_student_loan/undergrad_student_loan/private_student_loans/&lt;/a>
(Private loans)</p>

<p>As you have already figured, there are all sorts of ways you can cut down the costs -- you can get a job during the school year, get income from summer employment, get an RA job at your college after the first year to save on expenses, etc. So one thing you could be doing is either accumulating money or paying down loans as you go to avoid needing to borrow so much. </p>

<p>I usually tell students to be cautious about borrowing, but it seems to me that you have a very good head on your shoulders and will do a good job of running the numbers and figuring out the long-term impact by yourself. I have to say that my daughter is at an elite private college and I do see the "value added" aspect of that sort of education. I don't think it's worth $103K more over 4 years (mini's math) - but I do think it is worth both my daughter and me taking on a manageable amount of debt for. </p>

<p>What mini didn't include in his calculation was the "opportunity cost" represented by whatever Dream College offers over State University. Proceed with caution -- don't simply assume that the more prestigious school offers the better education. But take a long hard look as to what it DOES offer.</p>

16

<p>calmom, thanks for the level and logical advice. I'll definitely consider your loan ideas. For now, I'm going to bed, I'll have to catch up with this later. Thanks all, feel free to keep posting advice!</p>

17

<p>This story has the potential to be an "Evil Robot" Part Deux. Not for the exact details, but for the detailed financial analysis of the options. </p>

<p>The choices are extremely hard. Even without the big dollars, the difference might not be THAT great, especially when factoring the Honors component at UT. The OP mentioned being admitted "into their most exceptional honors programs." and I believe that there are least two that deserve that qualification. </p>

<p>As far calculating the variables, the OP should increase the potential summer income by a good percentage. I don't have exact numbers for Pomona, but the juniors at the poor cousin next door are now routinely getting close to $15,000 for their 10 week summer internship.</p>

<p>This said, I think that having money in the bank would be a wonderful start for graduate school.</p>

18

<p>Calmom -</p>

<p>I DID take into account opportunity cost at school #2. I am saying - point blank and unequivocally - that I know of no school (other than perhaps a specialized one where the product itself is not available elsewhere) where that opportunity is worth $103,000 worth of educational opportunities in addition to a four-year education at a "great school" in "an exceptional honors program". None. Nada. Zippo. </p>

<p>If the family has that extra $103k to spread around anyway then it wouldn't make any difference, but then we wouldn't be having this discussion.</p>

<p>(and as for internships, etc., I expect the top students in that exceptional honors program are likely to have MORE opportunities than the average student behind Door #2. Of course you don't know that until you are there.)</p>

19

<p>Yeah mini, but you didn't grow up in Texas like I did. There is a "get me out of Texas" factor that -- at least in my book - would easily be worth $100K. Twice that. Easy.</p>

<p>As I said, there are "intangible" factors.</p>

20

<p>Xiggi, it is that detailed financial analysis that make me feel that it is worth exploring options. I am so sick of reading kids with pie-in-the-sky ideas of the big salaries they will fall into their laps because of their bumper-sticker college name degrees, makilng it oh-so-easy to pay off $80,000 of debt for undergrad -- I know those kids don't have a clue. When someone comes along who is sitting down and running the numbers ... it is a different matter entirely. It shows he is seriously considering the options and the real-world impact of various choices. It may still be pie-in-the-sky in the end... but whatever choice gets made, Luxar is going to go into it with open eyes understanding where it will lead him.</p>