As many of you know, I am knee-deep in the college planning process for my oldest who is a junior in high school and student debt has been a hot topic. The student debt issue in this country is real and a $1.5 Trillion Dollar one at that. This exceeds the outstanding debt for consumer car loans and credit cards too. So how are we here? Why are the future leaders of our country and economy racking up debt to such a large extent?
The way I see it, there are three parties at fault for this crisis and it needs to be addressed before it becomes a larger issue for the economy at large. In looking at this issue I see three main contributors, the schools, parents and students, and the government. Let’s address each one in further detail.
1) Schools have become one of the largest contributors to the crisis. They are higher learning institutions that have become marketing machines. They inundate potential students with information, enticements and many times inaccurate information regarding their institution to get you to attend and fork over the huge tuitions. Universities have also uncovered a way to keep you longer, the five-year program. It used to be college students would be on the five-year program if they could not find their way while attending, now the schools simply have designed programs to keep you longer.
What is the ROI for a student that spends the fifth year instead of entering the workforce after four? Is it that much higher to make it worth the time and money? I would argue that, unless you are entering a specific specialty that requires the fifth year, the return on that investment is very low.
2) Parents and students certainly are contributing to this crisis too. We all want the best for our kids, but does it make sense for us to put our families in financial strain and/or our children in debt. I have seen numerous instances where kids have attended Universities, that have caused this type of financial strife, just because they had a sports team they wanted to root for or because they wanted to go to warmer weather. I thought going to college was to get ready and prepare you for the real world and a career. Based upon that, shouldn’t we be evaluating schools on their ability to provide your students with the greatest return on investment for their chosen area of interest?
We, as parents, must educate our children on what the cost-benefit of going to school is and put guardrails on what can be spent. Each family is different, based upon their income level and savings, but there should be some parameters put into place. Encouraging our children to take loans, without educating them on the long-term effects on their financial situation, is the equivalent of putting them in a boat without a life vest. Not many seventeen or eighteen-year-olds comprehend the true cost of taking on $100,000 in loans for their education. It is our job to help them understand what it means.
3) I blame the government for this problem too. They are too quick to provide loans to our young people without having them understand what they are committing too. Loans are an important part of the education process and they should be available to those that need them and understand the ramifications. There has to be a way that there could be a requirement that these students receive some type of education showing them what the effects will be. Offering a student a loan to get their education and deferring their payments until they graduate sounds fantastic, even better to a young person. Many do not realize that these loans, although no payments are being made, are accumulating interest from day one and will be much larger when they begin payments. We must show them what the loan is going to cost them in the long run and how long it could take for them to potentially pay it back.
The student loan crisis is a complicated one but needs to be addressed. It needs to be attacked from several angles and not just one. As you embark on the college planning process please keep these issues in mind and think twice before you take on a great deal of debt for your family and your child. I would be happy to discuss your situation with you or anyone that you know. Just contact us, Mitlin Financial, at (844) 4-MITLIN x12 to schedule a time if you would like to discuss the college planning process and the effect it could have on your family’s financial situation.
Be sure to share this article with friends, family and business acquaintances who might be interested too. We look forward to helping you, and them, get on the right path and stay there.
This article represents the opinion of Mitlin Financial Inc. It should not be construed as providing investment, legal and/or tax advice.