Family Matters: Working Together to Prevent a Student Debt Crisis
Balancing a career and family life is a tough task. Year after year, more and more demands are placed upon women in the workplace. Today, what started as a satisfying goal is more like an anchor on your family’s future. A college education should mean achievement and success. Now, it means debt. This debt is a personal and national ever-worsening crisis. But, there’s good news. With some forethought and planning, this national problem does not need to become your problem. By taking the right steps, you can ensure a better future for your children.
Forty years ago, the cost of an education at a four-year college was manageable. Take a little bit of saving, add some financial aid, sprinkle in a summer job and you’ve got a bachelor’s degree. Fast forward to 2019. Now, the average student debt is thirty thousand dollars per student. Every year, more students are graduating with six figure debt than ever before. To prevent this from happening to your children, it’s helpful to know how we got here.
Around 1980, the cost of college began a trend that, at its highest, would see an increase of nearly 3 or 4 times the rate of inflation. Private schools that once cost ten thousand dollars a year now cost anywhere from thirty to seventy thousand dollars a year! State schools, which traditionally cost much less than private universities, now cost anywhere from fifteen to thirty thousand dollars a year. To make matters worse, the traditional savings route never adapted. Most families approached college saving with the old approach: we will save a little, get some financial aid and take out some loans. Except now, these loans are three to five times the size of prior generation’s loans. And, the interest rates ranged from 4-12%. Repeat this scenario for millions of families over 40 years and you’ve got the 2019 student debt crisis.
Fortunately, there’s no need to despair. A little planning goes a long way. The first step is to avoid common pitfalls. When most families (especially young ones) start to think about paying for college, they suffer from paralysis by analysis. Of course, this would happen—there are so many pundits and advisors each with their own opinion. All this contradicting information leaves young and new families feeling helpless. Helplessness creates inaction. When it comes to college planning, doing something is always better than doing nothing.
First, you need to avoid “Sticker Shock Syndrome.” College is expensive. Don’t be surprised by this and don’t be overwhelmed. Force yourself to adopt a new mindset; “Doing Something, Never Nothing”! The core of this approach is breaking down your savings plan into small attainable goals. Rack up some wins by hitting your micro-goals. For example, instead of trying to figure out a plan to save over a hundred thousand dollars, you come up with a monthly plan to save $200. At first glance if this seems silly, trust me, it’s not.
If a family saved $200 a month and literally just put it in a drawer (without interest) and began saving when the first child was three years old, the results are striking. When that child grew to be a high school senior, the family would have saved close to $40,000. This is a year’s worth of tuition without carrying 4-12% interest.
Now, we all know that we’re not saving for college with sock drawers. So, how should a young family save? Contrary to popular believe, there are several ways to invest for college. One size does not fit all. The best savings vehicle for your family is determined by your family’s circumstances and as always you should Never put all your eggs in one basket.