Why Parents Should Say NO to College Loans

Parents Forum
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In a question published by The Ethicist at the NY Times, a parent is asking to be released from her co-signer responsibilities of college loans, as the parent/student arrangement was that the student was going to cover the entirety of the loans. The parent’s financial situation has changed and being a cosigner on the loan has led to other credit restrictions (such as getting a loan for a new house):

(ETA: That is a gifted link…anybody should be able to read it.)

In an ideal world, students should attend college debt-free. As the world is not ideal, however, families may need students to take up to the maximum amount of federal loans allowed (about $27k). Such an amount is likely to get someone to a bachelor’s (if they do community college for two years and then local 4-year college for two years…assuming that the family can’t contribute anything but a room in their house). That student will graduate with a college degree. I would strongly (vehemently) urge families not to take out any additional loans beyond that amount. Loans beyond the federal limit would need to be co-signed by a parent. The article is just one example as to why this is inadvisable.

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I think that parents should consider what they are willing to contribute whether it be from savings, current earnings or loans. The child is responsible for the rest. If it’s not affordable then it’s not affordable. That said if the parent chooses to take out the loan then it is their responsibility. Everyone may have the best intentions when the acceptances come in but the parent must be prepared to meet the loan obligations. I have to agree with the “Mother’s” response. The parents are the adults in the room. They never should have agreed to fund the education with loans.

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This video contains a very good rule of thumb for figuring out how to manage student debt levels for the whole family. It works.

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This is a subject near to my heart, after seeing good people bury themselves in debt. Too many families buy into the narrative that it’s okay to borrow more than necessary to get a degree. It’s not. I have seen the families who know it’s risky to borrow that much but choose to do it … the families who refuse to listen when told that it’s too big a stretch … and the families who don’t understand that it’s too much debt & no one explains that to them. Everyone wants what is best for their kids, but it’s so important to understand the crushing effect of compound interest. It’s so important to understand how difficult it is to swim when you’re wearing an anchor made of debt.

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This is exactly right, and is largely the point. You cannot expect a 17 or 18 year old student to fully appreciate the risks involved with taking out $100,000 in loans. Sometimes the parents need to act like parents, and be willing to say “no”. I would have hoped that a parent saying “no” would have started long before the child graduated high school.

Once the parents have said “yes” to taking out this much in loans they need to understand that they are on the hook for most of it.

It was a kid agreeing to this. My 22 year old university graduates understood why this was not practical, particularly once they got their first paycheck (with deductions) and their first rent was due. That does not necessarily mean that my 18 year old high school graduates understood this at the time.

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Heck, my colleague had a student tell him that she thought she had borrowed “the kind of loan you don’t have to pay back.” My boss had a student threaten to sue her because she said that she didn’t bother to read the information before she borrowed student loans, and she didn’t believe that anyone could possibly have expected her to read it. Young people don’t necessarily get it, which is why the amount they are allowed to borrow in federal loans is capped.

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This may make me sound old and out of it (which I guess I am), but I don’t understand the ethicist’s last sentence “Stop dragging your daughter.” What does that mean?

Edit: Oops, I see it is Social Qs not The Ethicists, but either way, I don’t know this phrase.

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It’s something we see every year on these student forums. “Is it totally worth taking out $100,000 in student loans to go to my favorite college?” For a bachelors degree? That’s financial suicide. Even lawyers have a hard time paying back that kind of money. A doctor can defer their loans, but your kids will be teenagers by the time you’re making enough money pay off the loans.

The only way for $100,000 to be even possible is for a parent to co-sign. There’s a simple solution. “NO.” A 17 year old doesn’t have the financial understanding or experience to make an informed decision like that. There’s always another option. If you can’t afford it, and your kid didn’t apply to the affordable in-state option…tough luck. It’s better to start at community college than walk into a financial death trap.

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Parents should definitely step up and be the adults in the room. 17 and 18 year olds just don’t understand all the risks involved with getting a loan for that much money. They just see their fun dream school and they don’t even think about how they’re going to pay that all back. It’s like swiping a credit card and racking up credit card debt.

We made it very clear to our kids about what we could and could not afford. If they or we had to take on a lot or even any debt to afford a school, that school was off the table.

Debt can really hold you back. Even if you get a high paying job right out of college, stuff can still happen. You can loose your job, you could end up getting a terrible illness where you can’t work, you could live in a very high cost of living area, you could end up having a lot of other expenses and financial obligations, and so on.

My niece went to USC and become an accountant. She made good money and did have some loan debt. But nothing that crippled her. At the same time, she got some scholarships and also did work study and worked during summers and school vacations, to help pay tuition and minimize the amount of loans they took out. It helped that she was a very good student, so her grades helped her get some scholarships. She had a high paying job so paying back the loans wasn’t an issue, but still it meant that she and her husband couldn’t buy a house as soon as they would like. They also had a smaller wedding and a less expensive honeymoon. And she couldn’t build her savings as quickly. But, by working and getting scholarships, she was able to avoid having crippling student loan debt.

H has an old college friend whose daughter became an engineer. She wanted to go to an expensive private school, which would have required taking out loans, her parents said no. She ended up going to their very good, not too expensive, state flagship. She had a great time, was able to study abroad (which she would not have been able to do at the private school), and graduated with no debt. She did still work part time during school and during summers, but that was just to pay for entertainment and fun money. If she had gone to the private school, she would’ve had to work to pay tuition. She makes good money as an engineer and has been able to build up a good nest-egg and buy a house much sooner then expected because she had no debt from college. If she’d gone to the private college, she wouldn’t have been able to build up her savings as much, she also would’ve had to wait longer to buy a house, etc.

Her dad also made the same points to her, that I mentioned up top: What if you loose your job? What if you get tired of engineering and want to do something else? What if you get sick or injured and can’t work?

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Debt is a tool. Plain and simple. I dislike the demonizing of debt; you don’t blame a hammer for not being a wrench- learn to use the correct tool to solve the problem.

I took on WAY too much debt back in the dark ages to go to grad school. The crowd on CC would have had me drawn and quartered. But there were loose controls back then (other than mandatory credit counseling before you signed) and I found a bank willing to lend it to me. Commercial rates were above 12% at the time; I had some government subsidized loans (thanks to all of you, the taxpayers) and some at commercial rates.

I tripled my salary less than two years after quitting my job to do a full time grad program; there were some lean years for sure, and a few VERY truncated maternity leaves (wanted to keep paying off the loans which meant going back to work as soon as I got the OK medically) but I ended up paying them all off early.

I bet on myself-- and won.

YMMV. I tell this not to brag, not to encourage other people to go above the federal limits (which are rational for sure) but to note that debt is a tool. Use it appropriately and it’s great- use it stupidly and it’s insane. Interest rates were so high at the time that I had many classmates who borrowed at the subsidized rate and then invested in CD’s-- they were making money on the spread; plus inflation was high so they were paying back with “cheaper” dollars even though they didn’t need the money for tuition. That was too rich for my blood…

I’ve got nephews and nieces and extended family members who all took out loans- including a few parent plus loans in the mix (yes, we’ve discussed this). Every single one of these kids have made every single payment on time (and a few paying off early). Nobody’s parents have ruined their credit score or trashed their own retirement; nobody has been taking loans with one hand and buying fancy cars or expensive vacations with the other. They’ve taken loans to get the education they wanted, and are responsible, tax paying citizens are a result.

A blanked “say no to college loans” doesn’t help people. A nuanced “here’s how to use debt to finance your education” is a LOT more helpful and powerful. There’s smart debt and stupid debt. Just like everything else.

And I’m hoping the “just say no to college loans” are people who do not buy high end cars, do not pay retail for high end jewelry and watches (typically losing 50% when they walk out the door), or buy insurance for their kid’s electronic doo-dads (a money maker for the insurance company which means a money loser for YOU) or pay extra for dental or vision insurance at work. Or invest in crypto right before it crashes, or put in a swimming pool in the backyard in a neighborhood of modest, pool-less homes. Not to mention trading up their phones every year, over-insuring their vehicles “just in case”, or paying for a rider on their homeowners for items which they could easily afford to replace.

People make all sorts of dumb financial decisions every single day and nobody writes articles about THAT!

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It’s only a tool if it doesn’t hurt you.

Then in their case, they probably didn’t take on debt that they couldn’t afford to repay.

Many people take on student loan debt they can’t afford. People should try to avoid debt if they can. If they can’t, then that’s a different matter, and they should avoid taking on too much debt.

Uh, actually they do.

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I think that, in our family, we believed that as long as our kids were “great” students, they would be subject to any scholarships and grants because these children were “wunderkind” athletes and scholars. A lot of people make this stupid, naive assumption.

We also made the stupid mistake of telling our children they needed to maintain excellent grades and then we would pay for wherever they wanted to go. That was when they were in middle school because, at that time, we assumed certain dollars in our accounts, and that things weren’t going to be “crashing”.

We also assumed that they would receive lots of scholarships based on their grades, sports and URM status. ASSUME (When you “assume” you make an A$$ out of U and ME.) Lesson learned, don’t plan with hopeful expectations.

Reality hit in high school, and our investments were tanking, so we told them, things have changed in our budget and you have this much in your 529’s. That’s your budget. See if you can get and apply for scholarships (competitive, extra work laden apps, 1 yr limits, not large enough).

We told them that they could apply for small loans and any on-campus jobs, which they did.
I was basing everything on my campus experiences with loans. My husband’s family paid cash for his degrees and he paid half of his grad school fees with summer engineering internships. He never had to take out loans (except for our mortgage.)

I agree that we shouldn’t say NO to all loans because then, I wouldn’t have attended my universities, received my degrees nor never would have met my husband.

I didn’t have a choice on taking out loans because I could not afford to go to school without them. I was a B average, URM student. I didn’t know that there were prep courses to help increase your test scores to get you into colleges for free. I worked three jobs in college but my full education was sponsored by the federal government.

I worked hard to repay the loans and I am fortunate that my educational costs were not the crazy, outrageous sums that are currently charged. So I lucked out.
There is some educational information out there about having to repay loans.

I was fortunate that my old high school counseling staff gave the kids a “mini” test/rap during college info sessions:

A LOAN-Pay it back! Pay it back! Make it a very short, short stack cuz bankruptcy makes you pack!

A GRANT-I “grant” thee the power to go to school. . be cool. . don’t be a fool! Take it and make it!

A SCHOLARSHIP- You’d better stay a high grade scholar, cuz if you don’t, you’re gonna pay with dollars.

I know, cheesy, right (late 1970s-Rappers’ delight by the Sugar Hill Gang was out.) but it helped us when we received our aid packages.

Yep, not all loans are bad but stupid decisions are worse.

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We are primarily talking about undergrad because as a graduate student you are presumably older and can take out the loans on your own behalf. I agree that loans are a tool. Like most tools you need to understand how to use them safely. If you don’t they can be very dangerous. My opinion is that parents must tell their students what they will contribute. If that includes loans then the parents are the ones who are contributing that money. I think the problems arise when neither the parents or the child are paying attention to the opportunity costs and don’t understand how the tool is going to work.

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However, the 17 year old kids who have difficulty understanding that some things are too expensive may have grown up with parents who never talked about or set examples of non-overspendy personal finance habits. Such parents may never have said “no, that is too expensive” in the past 17 years, so it is less likely that they will do so now at college selection time.

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When our S19 got into his “dream” school and the cost wasn’t as predicted by the cost calculator, he wanted us to take out a loan that he would pay back. He had another acceptance, with a scholarship, that would leave him with about $7000 debt when he graduated, as opposed to over $35000. I’ll never forget how devastated he was and his friends kept telling him the school was worth the debt. He was angry and sad and we felt horrible, but we told him no - it didn’t make financial sense.
In his sophomore year he thanked us for saying no.

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He was two years ahead of my older daughter. He must be a smart kid!

I look upon debt as sort of like a chainsaw. They are both tools. They are both very useful when used carefully for the appropriate purpose. One needs to be careful when using either one of these particular tools.

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I definitely believe that debt has a place. I know that many of the students who attended one of the schools where I worked, which had a mission of access, would never have been able to attend college without taking on debt. I have no issue with debt when it’s taken on thoughtfully and with eyes wide open. Sometimes it’s best to go to community college for two years before transferring to university … but sometimes there is no CC or university within commuting distance, so the costs cannot be easily contained. Some families fully understand what taking on a particular amount of debt means, and they are willing to take it on.

Too often, though, there is a lack of understanding about how debt is repaid … that it must be the first line item in the budget, and it will dictate how one lives until it gets repaid. In my perfect world, people would understand what it means to borrow the amount they are borrowing. They would borrow a lot only when they are convinced that it’s worth it. Schools would not try to talk students into coming when they express financial concerns (yes, that does happen, and it makes my blood boil).

I dealt with a lot of different types of families and students through the years. I was always very honest about the costs, the reality of repayment, etc. I particularly enjoyed working with graduate students, because most of them understood what I was telling them when we discussed loans. Some chose not to attend after we talked, and that’s okay. Most of those who did borrow to afford the costs understood the costs of borrowing, and they felt that it was worth it.

Understanding what borrowing means is key to it being a wise choice.

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I don’t think “NO LOANS” is the way to go. My nephews wife, wouldn’t have been able to afford college without loans. That said, she went to her in-state university, so she got inexpensive in-state tuition, she worked all through college, and also got some scholarships to help offset the costs. She didn’t take out enough loans to cripple her after college and she also chose a school that wasn’t too expensive and also worked to help offset the costs.

I’ve also seen families whose kids could’ve gone instate and would’ve graduated with no or very little debt, but the kid wants to go to an expensive private school or go out of state. That is a scenario where I think the parents need to step up and be adults and say no.

There is a big difference between kids who have to take out loans to even attend college at all and the kid who could’ve graduated debt free from a state school, but wanted to attend a more expensive college that required taking out a lot of loans…

Well said! This is also an assumption, but I wonder if poorer/first gen college students are more likely to choose schools that are inexpensive that will lessen the amounts of loans they will need to take out? And they may be more likely to work and do what they can to keep the cost down?

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The national studies on student loans seem to suggest that poor/first gen students are the ones most likely to be victimized by for-profit colleges and their predatory financial strategies. Kids take out maximum loans, chew up their Pell, end up with degrees (Court Reporting, Travel and Tourism, etc.) in fields where they could have gotten jobs without a degree (and no loans in the process). And then struggle to pay off the loans.

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That is true…