Heading to College
Note: August 4 – 8 (2015) we are giving away FREE Kindle downloads of our book, How to Keep Your Kid from Moving Back Home after College. Click here to go to Amazon.com and download your free copy!
So our book, How to Keep Your Kid from Moving Back Home after College is sort of a tongue-in-cheek title, but it gives parents the advice they need to help their kid be successful in college and beyond. Aside from their home, college is the single biggest expense most people will ever make. Too many people simply rush in emotionally when it comes to college. When you make emotional decisions, you tend to make poor financial decisions. Students get hooked on their dream college regardless of the costs. Well my dream car is a Mercedes – and the dealer will let me in – but I can’t afford it. Yet all too often we allow students to rush off to their dream college, even though they can’t afford it. Almost everyone can afford college, we just can’t all afford our dream college. You have to temper what you want with financial reality.
As many of you are aware, there seems to be a HUGE unemployment problem among young adults. You can blame the economy, but really our economic issues have only highlighted the problems more than created them because there are tons of unfilled jobs across the country. Tens of thousands of college kids are graduating with a job waiting. What are they doing different? They are going to college with a plan. They are maximizing their college experience. They are earning a degree in something that makes them marketable to an employer. They take advantage of leadership opportunities while in college. They create a story for themselves to tell when they go into their interview. Students shouldn’t have to start their first job after college with the phrase, “Welcome to Starbucks” or end with the phrase “will that be paper or plastic?”
The biggest single piece of advice I would give these young students heading off to college is to graduate and graduate with as little debt as possible. Roughly one third of all incoming freshmen will drop out. They not only don’t have a degree, but they gave up some years of earning potential while in school. And if they borrowed money to do it, they have an even bigger problem. They don’t have the credentials to command a higher salary but they have the monthly payments. Now they have to supersize extra shifts at their fast food jobs to cover their loans.
In fact, I would say to be successful in college and beyond all you really have to do is remember your ABCs
A – Align your career goals with your degree (and major)
B – Borrow as little as possible
C – Compare your expected starting salary with your expected student loan payments.
These points alone would have prevented most of the sad student loan articles you read about in the NY Times.
Aside from unemployment, there is also the issue of financial difficulties which either force graduates to move back home reluctantly or at least delays their ability to ‘participate in the housing market’. I think some of that has to do with the financial misconception that students graduate in four years. The reality is that just one third of incoming freshmen will graduate in four years. Another third will take between four and six years and another third will never graduate at all. Along that same line, is that students who take longer than four years graduate think the cost is just the extra tuition and books. But what about living expenses as well, especially if you are borrowing money to attend college. But even if you are not borrowing money to attend college there is a hidden cost to attending that extra semester or two or three. That is an extra four or six or twelve months or more that you are not earning an income. That is the true hidden cost of college.
So how can parents and students avoid some of the financial mishaps when it comes to paying for college? The key is to avoid paying for college the wrong way. I’m not sure there is one absolute worst way to pay for college but there are several very poor ways to pay for college. Parents tapping retirement accounts or home equity is right near the top. As are private student loans because the terms are generally much more unfavorable for the borrower. Anytime you have to borrow money you are moving towards the more unfavorable areas. You always want to try to graduate with as little debt as possible but if it comes down to not going to college or borrowing the money, by all means, borrow the money.
Is college worth the cost? Absolutely, but only if you do it the right way. Borrowing $100,000 to pay for a degree in a career field that pays $30,000 per year is not the right way to do it. That doesn’t mean you can’t borrow money to go to an expensive school. It means some students have to choose between the school they want – and the career they want. It’s a tough choice to make sometimes. The first of many they will face as adults.