Thursday, April 11, 2013

Debt And The Modern Parent Of College Kids


Its college touring season and many parents are on the road with their teenagers, driving from school to school and thinking about the college application — and financial aid — process that looms ahead. Many baby boomers have already been through this stage with their kids, but because the generation spans about 20 years, others still have kids at home. 
Think about college costs in chunks.
Let’s think about the $60,000/all-in four-year cost. He basically looked at it like this: Think about saving $20,000 before the kid starts, which is a reasonably easy thing to do if you do it over 18 years. Then spend $20,000 out of your current earnings during the time that your child is in college. It might mean some sacrifices — some very careful budgeting, a lot of rice and beans on the table — but it's doable. 
Your kid has been admitted to an expensive private school? Time to get real.
"You have to begin by having a truly honest conversation with yourself about the emotional framework for this decision because that's where all big-money decisions start. First, there's this feeling of 'Can I or should I say no to my child who wants to go to a $60,000-a-year school when they've already gotten admission to the flagship public university in our state that only costs $20,000?' And then there's the question of 'Is it worth it?
Is there a hard line to draw for taking on debt?
"For kids, I just think it's unwise to take on any debt beyond whatever the federal student loan limits are. They're generally just above $30,000
How old are the parents? How much money do they already have saved in retirement? Do you have the ability to earn income if you deplete your assets or don't save as much for retirement because you're paying $60,000 a year instead of $20,000 a year?
Worst-case scenarios
There are series of stories about student debt and all of the consequences of taking too much on and more than a handful of cases where it wasn't the students who were in bankruptcy court, it was the parents ... or sometimes a grandparent or an aunt or an uncle who had signed on as a co-signer to a student loan.