Saturday, December 29, 2012

College Loans

Teaching our kids about debt is an important lesson we can provide them.  It is especially important that we coach our kids about college loans.  The laws were changed so that kids cannot shed college loans.  Heavy debt can follow a child throughout his life.  I remember reading one story of a lady who went through college and medical school on borrowed money and would not be free of college debt until she was in her 70's.  She said she would never be able to buy a house.  I did not save that article, but the theme is still around, as described in Student Loans: Debt for Life By Peter Coy, September 18, 2012 Businessweek.

Debt is dangerous and we need to inform and guide our children through the process of borrowing for college.  The truly wealthy can pay for college out of their regular cash flow, but even families with incomes in the top 5 percent cannot do that.  There is a huge difference between the top 5 percent and the top 1 percent.  Google for the Wall Street Journal article College Debt Hits Well-Off By RUTH SIMON and ROB BARRY, August 9, 2012 and you can read how the upper middle class is being squeezed out of the top tier schools by high tuition costs.  The financially astute can tell when the cost is excessive.

People in the middle income ranges sometimes cannot understand the consequences of the college loans made available to them and end up being crushed by the debt, as described in To Pay Off Loans, Grads Put Off Marriage, Children by SUE SHELLENBARGER, Wall Street Journal, April 17, 2012.  You need to Google for this article.

The poor often cannot understand the consequences of large college loans and are also crushed by heavy debt, as described in For Poor, Leap to College Often Ends in a Hard Fall by JASON DePARLE, New York Times, Sunday December 23, 2012, pages 1, 28, and 29.  (You can read it online by Googling for it.)  In this story, an expensive private college tells a poor student that she would be provided with enough grants and financial aid to put this private college within her reach.  But then the process of financial aid was too complicated for the poor girl and by bungling the financial aid process she ended up with large loans instead of large grants.  Three girls are profiled in this in-depth article.

We need to explain to our children how much debt they can afford to incur for college and to steer them towards good interest rates and safe loan programs.  There are a lot of bad loans looking for suckers.  It is heartbreaking to read about the plight of the poor and the uninformed.  And our children will be uninformed if we do not help them through the process.


PS: An explanation of why college tuition has sky-rocketed can be found in Deans List: Hiring Spree Fattens College Bureaucracy - And Tuition by By DOUGLAS BELKIN and SCOTT THURM, Wall Street Journal, December 29, 2012, pages A1 and A10. You can read this article by Googling for it.  The online date is usually a day earlier than the newspaper date.  The gist of this article is that colleges have hired hoards of highly paid managers.

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