Happy March! Or, should I say “Holy March?” March might be just an ordinary month for a lot of people – well, it does not even feel like spring, yet – what do you expect? It is, however, a very crucial, life-changing if you will, month for high school seniors because it marks the release of much-anticipated college decisions as well as the much-dreaded financial aid packages. Good news can instantly turn into bad news if a student does not receive enough financial aid or institutional grants, which would result in a gap between the cost of attendance (COA) of a college and what the family can afford to pay. This would further cause the need to borrow loans – in the form of student loans or parent loans. Before you dive into the sudden urge to borrow that loan, let me give you a clear definition of a loan. When you receive your financial aid package, chances are that you will see the word “Direct Subsidized Stafford Loan”, “Direct Unsubsidized Stafford Loan”, and/or “Direct PLUS (Parent) Loan” as part of your award. Run; run; run as fast as you can! A loan is NOT an award! A loan is borrowed money that you must pay back with interest. As simple as that… It is up to you whether to accept or deny those loans, but know what you are getting into before it is too late.
Why am I writing about loans in this week’s blog post? I want to inform everyone because student loan debt has gone beyond being manageable for many students and parents. According to financial experts, it is only going to get worse, and the next generation of students are in danger of not ever being able to repay their loans. It is usually expected that families will take out loans to help pay for college costs, but what is a reasonable amount? How much student loan debt is too much? Usually, a total of $20,000 – $30,000 in student loan debt is manageable and even recommended for students. The rule of thumb here is for the student to borrow loans worth of 10% of his/her estimated future income. Anything beyond that will definitely be too much! I would recommend visiting the website of the Bureau of Labor Statistics to search for an intended job and see the anticipated salary in the Occupational Outlook Handbook at https://www.bls.gov/ooh/.
If you asked me about my views on student loan debt as an Educational Consultant, I would say that I am against all kinds of debt period, and that I would stay away from loans as much as possible. However, if you asked me the same question as the mother of two girls, I would hesitate to give the same response right away because my motherhood would clog my judgement, and I would be willing to take out loans if that meant my daughters’ going to their dream college. I think that is pretty much where the problem of student loan debt is stemming from: not knowing our financial boundaries when it comes to college. Both students and parents are drowned in debt just for the sake of getting a higher education in one particular dream school.
Should the responsibility fall on the student or the parents? The answer to this question really depends on each family’s financial situation, in my opinion. If the family has the sufficient funds to pay for their child’s college education without tapping into their retirement accounts or lifetime savings, then I do not see a problem with making the payments on behalf of the student and avoiding any loans. That would be the biggest gift an able family can give their child. However, when funds are scarce and the family cannot pay for a college education without exploiting their personal savings or retirement account, or leaning on loans, then I would think the responsibility should be shared between the student and the parents. Maybe applying for a loan might not even be the best advice for a certain low-income student because that is going to hunt him/her for the rest of the life span of the loan. As parents, we always want to give our kids the best of what we can, but in reality, that might not always be possible. Then, it is up to the student to look for alternative routes to college, such as finding outside scholarships or maybe going to community college first (with the help of state tuition programs), getting a job and saving money, and then after attending community college for two years, transferring to a 4-year college, which will drastically lower the total cost of a college degree. I can understand taking out direct federal loans (subsidized and unsubsidized); however, I cannot understand it when a student takes out a private loan to pay for a huge portion of their college bills. That, to me, sounds rather destructive to the student’s future financial stability. There is nothing wrong with desiring to get the best college education a person can, but at what cost? Having to pay back thousands of dollars in student debt will not give anyone a better and a happier life unless a high-paying job is guaranteed.
Times are constantly changing, the cost of living is rising and so is college tuition, so no one can guarantee that anyone will be able to get a steady job with a good salary after graduation. I think both students and parents have a responsibility in setting both academically and financially realistic goals when it comes to college education. Student loan debt crisis would not even exist if everyone borrowed responsibly. That is why I keep telling my students that although their heart might be set on one specific college, they should not dismiss other colleges until they receive and compare the financial aid packages from each school. They owe this to themselves and to their parents to at least consider an alternative plan that will help them graduate as much debt-free as possible.
This is where we come in! Here at EdMission Possible, we educate our students about all aspects of college affordability. We spend as much time on financial fitness training as much as we spend on college list building based on academic fitness. Do our students always take our advice? Probably not! However, at least, they walk into the process knowing what they should expect. All of this requires lots of work and time on our end, but we know that those kids will truly appreciate it one day…
Burcak Deniz Cakir, M.A., M.B.A.
Founder and President | EdMission Possible