While pursuing higher education could lead to more fulfilling and profitable career opportunities for your child, the price tag certainly shouldn’t be overlooked. According to the College Board, the average student debt load in 2017 for those graduating with a bachelor’s degree was $29,000.
That’s quite steep, especially for someone young and still trying to get their bearings in the world. And depending on your child’s professional trajectory, they could potentially be saddled with student debt for decades.
Want to make sure you get a handle on financing your child’s college education? If your kid is college-bound, here are some financial common mistakes parents and their kids should avoid, and what to do instead:
The first thing that every parent and student need to think about is the return on investment of attending college, explains Robert Farrington, founder of The College Investor. Sure, it can be difficult because it’s not just about money, but about your kid’s dreams, aspirations, and goals, says Farrington. However, paying too much-and borrowing too much-for college can lead to a lifetime of financial hardship.
A good rule of thumb? Never borrow more for college than the student is expected to earn in the first year after graduation, recommends Farrington. For example, if your child wants to become a teacher, you shouldn’t borrow more than $35,000 to pay for school. If they want to be an engineer, there is more leeway to spend upwards of $60,000.
If your total loan amount is more than how much your child anticipates earning their first year out of college, it could limit choices on where they’ll be attending school. But by being smart on education spending, you can prevent overspending and financial hardship. If your child isn’t sure what they want to major in – or you would like to save on the overall costs of college – consider attending a community college first, then transferring, says Farrington. Or enroll in less-expensive schools that are in-state and living at home.
Besides a college being a strong fit academically, socially, and environmentally, you and your child should compare their total resources, explains instant payday loans Immokalee, FL David Levy, interim director of financial aid, scholarships, and veterans services at Rio Hondo College; and co-author of Filing the FAFSA. So look at college savings, contributions from income, scholarships, grants, and taking on a reasonable amount of debt against the full net price of the college.
If the total resources are equal to or exceed the four-year net price, the college is affordable, says Levy. But, if total resources fall short, you and your child might need to borrow excessively to cover the college costs. In turn, this might force the student to drop out of college or transfer to a less-expensive school when the financial realities set in.
Bottom line: In addition to whether the college is a good match for the student’s academic and social needs and career pursuits, it’s best to also consider whether the college is affordable.
Beware of over-borrowing, warns Levy. If the total student loan debt at graduation is less than the annual starting salary, the student can afford to repay his or her student loans in 10 years or less, says Levy.
Let’s say the total debt is more than their annual income. In that case, the student will probably struggle to make the student loan payments. In turn, to keep up with monthly payments your child might need to look into an alternate student debt repayment plan. For instance, the income-driven repayment plan, in which payments are based on your child’s income after they graduate; or an extended repayment plan. Both of these repayment plans lower the monthly payment by stretching out the term of the loan.
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