Something I have learned over the years, is that providing assistance and resources to families is one thing, but it can be totally different when you actually go through it as a parent. Every child is different and unique in their own way. They all have different needs, likes, dislikes, abilities, and goals. Sometimes, parents have never been through this process before and are not sure how they can help their sons and daughters. I don’t have all the answers, but here is a little advice when it comes to paying for college.
Plan ahead and be willing to say “no!” Sometimes I think it is difficult for parents to say no to their children when it comes to choosing a college and paying for it. They want the best for them and maybe do not think about how much “the best” might cost.
I see many examples of families who have not considered in advance how much college costs and have not planned ahead as to how to pay for college. They have not saved for college and find themselves turning to student and parent loans.
When planning for college, parents should be up front with their students as to what they can afford. These discussions should take place throughout the college planning process so that there are no misconceptions as to what the expectations are when it comes to paying for college. Unfortunately, I think many students are under the assumption that their parents will pay for everything (they have up to this point, haven’t they?) so why should they worry about paying for college? Parents might think that the student will apply for and receive thousands of dollars in scholarship money. There might be a disconnect between what is expected and what actually might occur.
Just recently, I saw an example of a student borrowing over $23,000 in student loans….for his first year of a four- year degree! If the student continues to borrow at that rate, he will graduate with over $90,000 in student loan debt (monthly payment of approximately $900 per month for 10 years)! As a rule of thumb, students should not borrow more than what their first year’s starting salary will be when they graduate.
Financial aid is to be used as a supplement in paying for college, and student and parent loans should only be considered as a last resort. Loans can be helpful; however, they eventually have to be paid back with interest.
Parents also need to understand how borrowing a parent loan can affect their own financial future. Here is an example is of a parent who was in my office a year or so ago. At the end of an appointment to complete the following year’s FAFSA, she wanted to ask a few questions about her PLUS loan she had borrowed for her son’s first year of college. She was not required to make interest payments on the loan, however she had been. The most recent interest statement she received had doubled and she wasn’t sure why. It turns out that she had been paying interest on the first half of an $18,000 loan and now that the 2nd half had been disbursed, it caused the interest to double. She told me she could not afford the full $90 of interest that had accrued so she sent in $50. I explained why it increased and she understood. Then, she went on to ask me how she could borrow an additional $10,000 so that the student could study abroad for the next semester. Like the example above, this was the student’s first year of college. This parent was having difficulties in making interest payments on a loan she had already borrowed and wanted to borrow additional money for the current year. What's going to happen in years 2, 3, and 4?
Remember, if a parent co-signs a student loan and the student cannot make payments, or, if a parent borrows a parent loan, the parent is responsible to pay the loan back with interest when the student graduates or drops below half time.
On our website, www.icansucceed.org, we have many resources and tools that parents and students can access to help them plan ahead. Under our Planning Tools and Resources section, there are several Budget Calculators that can be used. One of these calculators is called the Student Loan Game Plan. This can be an eye opening tool for both students and parents when deciding whether or not to borrow loans, and if so, how much they can actually afford to borrow.
Here is a direct link to this useful tool:
http://www.iowastudentloan.org/smart-borrowing/smart-borrowing.aspx
Another resource worth checking out is a documentary entitled, “Broke, Busted, and Disgusted.” It is a documentary filmed in Iowa about the repercussions of borrowing too much in student loans. It can be viewed for free on one of ICAN’s partner’s (Veridian Credit Union) website at this link,
https://www.veridiancu.org/personal/advice/college-and-career-planning.aspx
https://www.veridiancu.org/personal/advice/college-and-career-planning.aspx
Remember that the staff at the Iowa College Access Network is here to help you as you navigate this process. Feel free to make an appointment (www.icansucceed.org/apt) to explore your options as you go through this process.
