Parents have sacrificed their financial futures on the altar of their children’s education. Fueled by easy federal money and self-interested colleges, the result is a student loan crisis that appears already to be eclipsing the catastrophic proportions of mortgage indebtedness leading up to the financial collapse of 2008.
Please allow me to disclaim a few things:
- I’m not anti-education. In fact, I valued my college education so much that I went back to teach at my alma mater, Towson University, for seven years.
- I believe that a college education is a) inherently valuable, b) an enhancer of career prospects and c) fertile ground for unforgettable life experiences beyond the classroom.
- I’m a parent. I’ve encouraged my two sons, 13 and 11, to strive for a college education, and I’ve also offered to share in the financial burden.
- I’m not a prognosticator. Therefore, I’m not predicting an imminent crisis akin to the Great Recession, led by student loan defaults. Crystal balls don’t work, and anyone who claims to have one is selling something.
I’m also not a conspiracy theorist, but the facts, according to a new Wall Street Journal article, are indisputable:
- Overall student debt—with over 42 million loans outstanding—is north of $1.3 trillion.
- Roughly 40% of borrowers had credit scores below the subprime threshold of 620. Subprime mortgages peaked at nearly 20% of mortgage originations in 2006.
- The vast majority of the loans were originated by the federal government and cannot be eliminated, even in bankruptcy.
- As of September 2015, 11% of borrowers had gone at least a year without making a payment on a Parent Plus loan. That exceeds the default rate on U.S. mortgages at the peak of the housing crisis.
- A new generation of retirees is now having to reduce their tax refunds and Social Security benefits in order to pay delinquent loans.
Parent Plus loans, by the way, are those that parents take out to cover tuition and living expenses typically after kids have maxed out their student debt allowance, ensuring that both the apple and the tree are sufficiently indebted.
Interestingly enough, all the way back in 2011, the Obama administration placed tighter restrictions on Parent Plus loans due to concern that unqualified borrowers were loading up on unsecured debt. But schools put up a fight (successfully), suggesting that such limits impaired students’ ability to get an education.
And this is where we get a glimpse of the fundamental problem: Education has been deemed invaluable—at any price.
Yes, college can be very expensive. The cost of college education has risen well above inflation for decades, resulting in apparent absurdity. (Really, you’re telling me that the collective benefits of any college experience are worth $65,000—per year? Really?)
BUT, college doesn’t have to be outrageously expensive.
A student who commutes to a community college for two years and then transfers to State U for the final two years can get an undergraduate degree from a reputable university for the same cost as a single semester on campus at an elite private school.
With $1.3 trillion in school loan debt, a lot of water has already flowed under the collegiate bridge, but I’ll speak to those parents and students who’ve yet to burden themselves:
Sacrificing yourself financially for the sake of writing your children a blank check for education isn’t generous—it’s actually selfish. It would be much less expensive for a young adult to pay off a reasonable college loan than to bail out his or her parents who’ve run out of money in retirement and have health care bills piling up.
As they instruct on the airplane, you have to take care of yourself before you can take care of those who depend on you. Your long-term financial security (including your retirement) is a priority over your children’s education—for both of your sakes. And there are few opportunities more ripe for teaching our children financial and life wisdom than the discussions regarding college.
(If you’re looking for some guidance, here’s my “Non-Conformist’s 4-Step Education Savings Plan.”)
Please don’t take advantage of your parents. They love you, and they desperately want to see you succeed in life. But if you let them take on loans so you can party your way to a diploma, it could literally ruin them financially.
And if you’re like many who are navigating this decision on your own, please realize that the mystique of the college experience loses its luster very quickly if you’re buried in student loan debt. College truly is a value proposition, so try to restrict your total student loan debt to no more than you expect to make in your first year’s salary.
Then you’ll be able to enjoy employing your education without being stalked by its cost.
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I’m a speaker, author, Head of Wealth Management for Triad Financial Advisors. Connect with me on Twitter and LinkedIn.