Financing a future

April 19th, 2011 at 3:55 pm

What’s easy to get into but hard to get out of?
Student loan debt. If you earned a bachelor’s degree and are in your mid-twenties, this is your number one answer. College is a life-changing experience, but most students are not financially prepared when they decide to enroll in classes.

As the famous saying goes “If you fail to plan, then you plan to fail.” The best time for students to start planning on which college to attend is in their early high school years. A problem most students have is they wait until their senior year to make decisions about colleges and college majors, and they miss out on opportunities to take classes that align with their future academic goals.

From a financial standpoint, students can save a lot of money by taking advanced courses in high school that allow them to graduate with college credit that can be transferred to the college of their choice. Preparation can result in a significant saving of time and money both of which is crucial for students.

Why bother doing this much work?
In 2008, two-thirds of students graduating with a four-year bachelor’s degree did so with debt. The average student loan debt was $23,186 for graduating seniors. (Figures were pulled from the 2007-2008 National Student Aid Study (NPSAS)).

Every student needs to consider the type of work they can do immediately following graduation. Doing so will help gauge the amount of loans a student should take out – if any – and will provide a better picture of how long it will take to pay off their loans. The best way to pay down debt is to work. There is no other way around it. Income is the best tool students can use to paying off loans.

Students who graduate college and receive their first full-time job often make the worst financial mistakes in their first year of working. The transition from broke college student to income-generating college graduate does not go as smooth as some would think.

New college graduates spend their first couple of paychecks as if they don’t have school debt to pay. Recent graduates are notorious for adding extra monthly expenses to what they already own. A dorm room on campus with a meal plan starts to look appealing when a student is forced to move off campus. Adding monthly rent, grocery bills and gas expenses is enough to make any graduate forget about having to pay down school loans.

So then students get used to paying the minimum balance on loans and then the vicious cycle of owing Sallie Mae for the next 10-20 years begins with yet another college graduate.

As a parent, how can college be a positive experience for my child?
Parents should start preparing to send their children to college as early as when they are born. Investing a few dollars a month in a 529 savings plan over a period of 18 years can add up to be a substantial amount. Plus people take care of their investments so a parent who saves money will be more likely to talk to children about college. Parents who do not invest in their child’s education are less likely to motivate their children to pursue higher education. At times, parents are the ones that need to be educated about education. It’s not that parents don’t want their children to succeed, it’s often a matter of not knowing the proper channels that they need to go through.

There also are tax benefits to sending your child to college and claiming them while they are in school. Depending on the state that you live in, parents/students may qualify to get a certain amount of their tuition reimbursed by the government.

What should families start doing?
Families need to create an environment that is college friendly. It can be as easy as touring the campus that is close to their home and speaking with a financial advisor. Many of the unknowns about college keep students and some parents in debt. The annual tuition fees should be considered when selecting a college. Just like grade school, some families can afford to send their children to private schools, but if they can’t, public school is a viable option.

College is not any different than grade school; families need to be open with their children about their finances so that they have a realistic picture of which school they can attend, based on their financial position.

Going to school now and paying for it later is a one way street to keeping graduates from living the life they went to school for in the first place.

Written by Fabian Ramirez. Fabian is a Web Content Specialist for Texas Baptists. In his spare time Fabian blogs about his passion, personal finance and education. He gets to speak on these topics to thousands of students every year in middle and high schools across the country.

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