If you have a soon to be graduating high school senior, she has hopefully been accepted to several schools and is in the processes of deciding which to accept.
Your high school students should be blissfully debt free right now, but as soon as she decides what school to attend, that may all change.
Far too many students decide what college to attend because they like the campus or the atmosphere or because they want to move far from home.
Ideally, before she even begins to apply to colleges, you, as the parent, should sit down with her and discuss finances. This conversation should occur no later than before your child makes a decision as to what college to attend.
Most parents would like to pay for their child’s entire college education, but that is often not possible due to the current economy and rising tuition costs.
Chances are, if your child attends an expensive university or private college, she will have to take out student loans, sometimes tens of thousands of dollars worth of student loans. The cold reality is that she may be paying these loans for the next 10 to 20 years, and she may have to delay important life events such as getting married, having a child and buying a home all because of her student loan debt level.
Ignorance Is Not Bliss
High school and college students are notoriously optimistic.
They will find a good paying job in their field and be able to pay off the student loans, they say. Yet, they have been living in your house for 18 years, and you have probably paid the majority of their expenses.
A good activity is to sit down with them and write down what a working budget will look like after they graduate from college. Calculate how much their rent, car payments, insurance, and other monthly expenses will be.
Then, add in how much their monthly student loan payments will be.
The truth is that most students don’t know how much they will have to pay back monthly. Help them understand. Show them how difficult it will be to save for retirement, a house, a new car, and emergencies if they are mired in student loan debt.
If your high school student can’t see far enough into the future to imagine saving for retirement and a house down payment, consider addressing more current desires. When she graduates and obtains a good paying job, she will want to have free money to go out to eat with friends sometimes, to get a nice apartment, to buy a car.
If she is saddled with student loan debt, paying for these small luxuries may be very difficult, if not impossible.
Let you child know that student loans are not dischargeable in bankruptcy.
The student loan lender will get the money one way or another. According to Kiplinger’s, if you default on your student loan (meaning you have not made payment in 270 days),
“the feds can demand payment in full, assign your case to a collection agency, garnish your wages, pocket any state or federal refunds, and even come after your benefits in your old age. ‘We see people who defaulted on loans in the 1970s and 1980s whose Social Security benefits are being garnished,’ says Paul Combe, of American Student Assistance, an agency that guarantees federal loans. Worse yet, old, neglected loans carry decades’ worth of fees, interest and collection costs. ‘A $2,000 loan that defaulted 20 years ago is now $30,000,’ says Combe.”
These people may have defaulted decades ago because they did not have the money to pay due to job loss or disability or any other number of causes. Chances are their financial situation may still be compromised once they are retired, and now their Social Security is being garnished, and their student loan debt has grown tenfold or more.
Not paying your loans has serious repercussions that your children must understand.
If you couldn’t afford to pay the full price of college years ago, student loans used to be one part of the financial aid package. Now, student loans are often the majority of the financial aid available, and students take out as many loans as they are offered without much thought to how they will pay them in the future.
The best way to help your child secure her financial future is to teach her about the perils of student loan debt before she has any.