Skip to main content

In the Media

4 Ways Parents (and Their Students) Can Avoid the College Debt Trap

October 1, 2018
By Beth Kobliner

4 Ways Parents (and Their Students) Can Avoid the College Debt Trap

As I crisscrossed the country on a recent book tour, parents repeatedly expressed worry about catapulting college costs. No wonder: Average sticker prices are now $19,000 per year for public four-year schools (in-state) and $47,000 per year for private schools. All while student debt continues to soar. The average grad now owes $30,000 in student loans.

I expected this kind of concern about the financial burden of college. What I didn’t expect—and found again and again—was parents questioning the value of a college education. Unfortunately, naysaying higher ed seems to be having a moment.

Everyone from tech mogul Peter Thiel (who offers young people $100,000 in start-up capital if they drop out or skip college entirely) to Bryan Caplan, a George Mason University professor and author of “The Case against Education: Why the Education System Is a Waste of Time and Money,” have jumped on the anti-college bandwagon, questioning if higher ed is a waste of money.

Some parents are even falling for the “Zuckerberg Effect”—thinking their kid will follow in the footsteps of the Harvard dropout who went on to found Facebook. Zuckerberg’s path is, of course, an outlier. Most children will not create a multibillion-dollar company. Assuming your child isn’t the next Silicon Valley baron, let’s look at what the numbers say about how much a college degree is worth.

QUIZ: Do you know how to avoid mountains of student debt?

If you simply compare salaries of college grads with non-college grads, we’re seeing the biggest gap since the Bureau of Labor Statistics started tracking this data—with grads earning a median weekly salary of $1,137, while those with only a high school diploma take in $678 a week.

Not only will your kid earn more if she finishes college, she will be more likely to land a job in the first place.

The Bureau of Labor Statistics also shows that the unemployment rate for college diploma holders is nearly half of what it is for people who stopped after high school. And finance site MarketWatch’s analysis of a recent Labor Department jobs report found that 9 out of 10 newly created jobs went to people with college degrees.

Okay, you think, college grads may earn more—but what about all that student debt? Doesn’t that take a big bite out of these higher salaries? The answer is “Yes, but….”

Here are the facts:

College graduates earn, on average, $1 million more over a lifetime than their peers who never went, according to a study from Georgetown University’s Center on Education and the Workforce. And the Federal Reserve Bank of New York found that even when you factor in the cost of college and the loss of income while a student is enrolled (an economic phenomenon known as opportunity cost), graduates still come out an average of $300,000 ahead.

The Federal Reserve also points out that college grads have a median of four times the net worth—meaning assets after debts like student loans are subtracted—of someone who stopped at high school. Still doubt the value of college?

“It’s hard to understand why this question is so active,” said Sandy Baum, who studies college access and college pricing at the Urban Institute. “Yes, the price of college is rising. But not nearly enough to make up for the very large earnings premium.”

The anti-college crowd does get a couple things right. College tuitions are exorbitant, and debt loads can have crippling effects on borrowers (even though the aggregate stats show they don’t deplete the value of a degree). But that’s where being a smart consumer comes in.

Just as you would with a new car or a new home, you need to shop around. The only problem is that with college, doing so is much more difficult. That’s because you won’t have a clear idea of what you will pay until after you get accepted.

Watch Beth Kobliner explain how to start the college conversation with your child. 

The college process is more opaque than ever—while the penalty for not cracking the code is that much more severe. That’s why I created We Need to Talk: College, a mix of first-person storytelling and expert, no-nonsense advice to help families avoid costly errors and get the most out of college.

“Too many families don’t think about cost when they apply, and they choose a pricey college, thinking it’s better for their kid, when a public school would have saved them thousands,” said Wally DeGuglielmo, Chief External Affairs Officer of uAspire, a nonprofit that connects low-income students with viable college options. “Making important early decisions around affordability sets a student up for a more open career path.”

Rather than be limited to jobs that pay enough to cover high student loan payments, grads who make smart college choices can pursue careers that they’re actually interested in.

Here are four tips to help you and your kid sort through the 7,000 or so U.S. colleges and universities and get the biggest bang for your higher ed buck.

Money is a factor

Level with your kid about how much you can spend—and warn her against taking on too much debt. Make sure any loans are low-interest federal ones (not private). Federal student loans are at a low 5.05 percent interest rate and cap out at $31,000 for five years of college—plus, your kid can choose from a variety of repayment plans after she graduates. Avoid borrowing on your child’s behalf. The number of parents taking out pricier Parent PLUS loans for their children’s college costs is soaring. Some are even borrowing against their retirement plans. Don’t.

The sticker price is not the final price

The truth is, most students receive financial aid to offset the advertised cost of college. (And only about 10 percent of private college students pay full price.) Still, you need to try to get the best estimate of what your family will pay before you tell your kid he can go. To get a rough idea of what you’ll actually pay at a given school, start with the net price calculators from each institution you have in mind.

The answer might be closer than you think

Research what your local and state colleges have to offer. Several states, such as Tennessee, Oregon, and Minnesota, offer free community college programs—and New York guarantees certain in-staters free attendance at four-year state schools, too. Another plus: If your kid can commute to campus from home, you can save a bundle.

Make a post-graduation plan for paying down debt

One great rule of thumb from Mark Kantrowitz, publisher of Don’t borrow more than your expected first-year salary out of school. To make sure your kid is actually drawing a salary after graduation, she should take the advice of Amanda Sale, an admissions officer at the University of Georgia.

“Get connected with the career center early on,” Sale told me. “Don’t wait until you’re a senior, because the resources are fantastic.” Among them, guidance on how to write a resume and interview effectively, and connections to jobs or internships. Because the best way to pay for college is to turn that pricey degree into a healthy paycheck.

View original article