One of the biggest financial decisions you face in raising your children is how to pay for their college education.?As parents, we all want to see our children grow and prosper in life. We want them to be healthy in all aspects of their life? including their finances.
That?s why the decisions you make about how to pay for your child?s college education are so very, very important. Their education plays a huge role in their ability to develop a career they can enjoy and one that can help them make good money over their lifetime.
But attending a college or university has become incredibly expensive over the last 20 years.?The combination of the importance of education, and the fact that it is very expensive, makes it essential that you make wise decisions now.
Do it right and you set your child up for success in life.
Do it wrong and you could cripple your children, or yourself, financially for life.
There is a lot riding on the decisions you make about paying for their college.
Student Loans Are More Enemy Than Friend
In my opinion, your job has become much more difficult with the meteoric rise in the use of student loans to finance college.?Student debt has been marketed to us as ?the ticket? to a college education? as ?financial aid?? as a way to ?make college affordable?.
The truth is student loans don?t make college affordable. They make an already expensive proposition even more expensive.?And they represent one of the more dangerous forms of debt you can take on.
Unfortunately, very few parents really know what student loans are all about and how they work.
Even fewer know how nasty and oppressive student loans are compared to debt like credit cards, auto loans, or mortgages.?I have four areas, or steps, where your time and attention will pay huge dividends as you plan for your kid?s education and their transition to adulthood.
- Find out how student loans really work
- Teach your children about money and debt early
- Have your children become experts on college costs and scholarships while they are in high school
- Save money and choose schools wisely
It?s my recipe for your freedom from student loans.
In this article, I?ll discuss steps 1. and 2.
In the follow up to this article (part 2), I?ll go into detail on steps 3. and 4.
1. Find out how student loans really work
If you listen to those in the huge, and rapidly growing, student loan industry (government, colleges and universities, private lenders, collection agencies, loan servicers, and others) you would think that student loans are a happy, harmless gift from heaven that will transform your child into an educated, income producing adult.
WOW. If it was only that easy, effortless or risk-free.
For many parents, student loans feel like the only way to get around the challenge of paying, or helping to pay, for their children?s college education. But just like other very important decisions in life, it is wise to invest the time and energy to make sure you understand how these student loans really work.
Here are just a few things you need to know:
- Student loans buy access to college classes? they don?t buy degrees or good paying jobs.
- They promote the ?give me money now? I?ll figure out how to pay for it later? approach to managing money and life. What an uneducated way to send a child off to get an education!
- Life happens. Assuming your child will finish school, then get a good job and start making good money, may or may not be a good assumption? even if they are very smart and very dedicated. What if they get sick? What if they meet the love of their life and decide to be a stay at home parent? What if they decide college is not right for them? What if they choose a field of study that does not pay well in the marketplace? It?s just a fact ? sometimes life throws curve balls. Having an anchor (student debt) wrapped around their neck makes it hard for them to react when life happens along their path to adulthood.
- Student loans are one of the nastiest forms of debt ever created if the borrower has trouble making the payments. They can add interest to the principal balance of the loan. They can garnish wages without a court order. They can confiscate a tax refund you have coming. They can deduct payments out of your social security as you age. They are treated in bankruptcy the same way money embezzled by a criminal? they are basically non-dischargeable in a bankruptcy.
- If a student loan goes to collections, the cycle is almost unbreakable. The collectors get huge fees (20% or more) from the government and much of your payments from that point on go first to pay those huge collection fees. It sets up a death spiral that can suck the hope out of your life (or the life of your child). Student debt collectors have powers that make a loan shark look like a guardian angel.
The smarter path to a better life for your children is to avoid student loans.
Teach your children about money and debt early
You have to start early teaching your children a smart approach to managing money and keeping debt to an absolute minimum. Teach them that debt is a tool for buying a home when they are ready. It?s not a tool to fund their lifestyle or fund purchases other than a home.
The place to start is to teach this very basic principle ? buy things with money you have.
Teach them early on not to buy things they can?t afford.
This principle says if you don?t have the money to buy something? don?t buy it. (I know, I know. Now you really think I?m weird!!).?One of my favorite videos of all time makes this point in a way that will put a big smile on your face.?It?s super funny and very short (just under 3 minutes). It?s titled don?t buy stuff you can?t afford.
Help your children learn early on that life doesn?t shower money on those who spend it, or borrow it, foolishly.?Dave Ramsey has some great tips on this principle too. His advice is to teach your children to earn money? and learn to spend some, save some, and give some.
Just think how much of a head start on life your children will have when they begin their young life without a car loan. When they?ve learned the principle of saving money to buy the things they want in life. You?ve helped them break the cycle of debt before it even has a chance to get started.
Dave tells the story of the deal he made with each of his three kids about how their first car would be handled. He told them they need to save money to buy their first car. Then he and his wife would match what they saved when the time came to buy the car (for cash).
Mary Ann Hebel, EVP/CFO at the Business Bank of Texas (a fellow contributor here at the Business Resource Center) began teaching her children early on how their college costs were going to be handled.?She let her sons know when they were in junior high that there would be no student loans when they went to college.?She said she would pay the first year of tuition, books, dorm, and a small allowance for gas and related items.?From year two through graduation, she would pay for tuition and books but they would need a job to pay rent, food, gas, etc.?She also let them know their grades had to be good or all bets were off.
There?s no substitute for wise planning like this because your children?s entire future could ride on how well they navigate this very important part of their life.
And there?s more?
Here is a summary of what we will cover in my next post in this series (part 2).
Step 3 is to have your children become experts on college costs and scholarships while they are in high school.
You?re going to love how this process can work for you and your child.
- They learn a valuable workplace skill ? the ability to research a subject, gather information, learn the ins and outs about the subject, and make decisions that put their new found knowledge to work.
- They learn that different colleges have different costs (both tuition and living expenses).
- They learn that that there are thousands of scholarships out there to help reduce the cost of tuition.
- And here?s the best part. You are going to have them teach you what they learned about college costs and scholarships. What better way for them to learn how college works financially than to have them teach it to you. (Remember, college is about education ? hint, hint)!!!!!!
Step 4 is to save money and choose schools wisely.
College costs become real when you have to start saving money every month to fund your child?s education.?Nothing like having to write a check to get your attention real quick.
One of the many downsides of student loans is they have made it too easy for parents and students to buy something that otherwise makes no sense financially. Rather than focus on affordability, student loans make it possible to choose very expensive alternatives.
They play to the very emotional aspects of choosing a school. And they make it easy for parents and students to throw common sense out the window.
Now?s a good time to change the discussion and thought process from ?My child is going to the best school that will take them? to ?my child?s choice of schools will be based on affordability and common sense?.
We?ll talk more about each of those strategies in my next post.
What Are Your Plans?
How are you planning for your child?s education?
Drop a comment below about your experience with student loans or about how you are dealing with the high cost of college these days.
Philip Campbell?s Blog is dedicated to helping you get the accounting and financial side of your business under control. Philip also writes a blog at Freedom From Student Loans to encourage parents and students to avoid student loans.
Source: http://www.businessbankoftexas.com/planning-your-childs-education-without-student-loans-part-1.htm?utm_source=rss&utm_medium=rss&utm_campaign=planning-your-childs-education-without-student-loans-part-1
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Posted by Ambrosia on Aug 30 2012. Filed under News. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry 
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