Who Pays?

Who Pays?
Gray Easterling

According to an article, “Borrowing Trouble”, in the August, 2010 edition of Financial Planning, the average cost to send a student to live on campus at a four year private college is over $30,000. The total cost for a four-year degree can be projected to exceed $150,000. In Louisiana, we are fortunate to have the TOPS program, but with all the budget cuts, I don’t think anyone would be surprised to see changes in that program in the near future. This article suggests that a child entering kindergarten this year can expect to pay 75% more than current college costs by the time they enroll in college. Who pays? A report issued by the College Board found that 72% of all graduates earning a bachelor’s degree at a private not-for-profit school had some student loan debt, as did 62% of public university graduates.  Twenty-five percent of the graduates of the 2008 class had over $30,000 in total debt, excluding credit card balances, home equity loans and parents’ education related debts. I think these numbers justify additional discussion of college finances.

One topic jumps out immediately. Is the name brand private school really worth the extra money? Does work experience in the real world provide more value than a high priced diploma? Can you tell me where your CPA or lawyer graduated from? Is paying student loans for 20 or 30 years a better alternative to working your way through a public university and beginning your career with little or no debt? A pay-as-you-go college education may take longer, but the rewards will be more quickly enjoyed. According to “Borrowing Trouble”, many people recognize the dangers of education debt, but believe that they will have to borrow to get the degree. The respondents to a poll agreed—52%—that those who graduate without debt have a big advantage while 51% say that it is very likely that they or their kids will have to borrow for college.

Again the question of who pays rears up. Most parents in an ideal world would prefer that their child leave college with little or no debt. However, if funds are not available and debt is required, should the parents borrow the money? Before you make this decision, look closely at your retirement plans and related funding. If you borrow for your child’s college, are you willing to delay retirement because you took from your retirement plan? Is that going to affect your relationship with your child? How is the child going to feel, especially if he/she is living with you because the job market caved in?

The obvious solution for the young couple is to sit down with your financial advisors and begin developing a plan for funding future educational expenses. Part of that plan is to decide how much of the costs you are willing to incur. Personally, I find no harm in requiring that your child contribute to the cost of his education by work or earning/finding scholarships. There are many approaches to preparing for educational requirements, but most begin with early and consistent monetary contributions to a tax favored savings plan—the earlier, the better. Also, if you have more than one child, establish safeguards that preclude over-funding the oldest child to the detriment of younger children. I might suggest that you have frequent and serious conversations with your children about a college experience. You may find that higher education is not the solution for your child, at least not out of high school. Some of us need longer to mature so that our time and money are not wasted as we stumble toward our life’s calling. The difference in my grades pre-Army and post-Army were astonishing.

I don’t know how this fits into this article, but I read excerpts from a letter written by the Russian author Tolstoy that gave me cause for contemplation, so I will share pieces of it with you. “Attack me, I do this myself, but attack me rather than the path I follow and which I point out to anyone who asks me where I think it lies. If I know the way home and am walking along it drunkenly, is it any less the right way because I am staggering? If it is not the right way, then show me another way; but if I stagger and lose the way, you must help me, you must keep me on the true path, just as I am ready to support you.” Psalm 18 lends some support: “As for God, his way is perfect; the word of the Lord is tried, He is a buckler to all who trust in Him.”

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