11 Apr college degree with no debt? (part i)
In the next couple of months, roughly 4 million young adults will graduate from college; nearly 70% of who will have student loans. The average college graduate carries approximately $35,000 in student loan debt.
Loans hinder young adults in staggering ways. 44% say their loans prevent them from buying a home. Some have to forgo dream jobs away from home and move back in with their parents. Others have loans that consume their income, with nothing left to save.
Many people believe that student loans are simply a part of the college experience, but that does not have to be the case. When I graduated from college, I owed nearly $14,000, which is about $32,000 today, adjusted for inflation. For ten years, much of my earnings went towards paying off those loans.
When our children were young, my husband and I decided to do what we could to ensure they would not be saddled with loans, but we also knew that a large part of graduating debt-free would be up to them.
I’m happy to say that my oldest child obtained his undergraduate and graduate degree free of debt, my middle child will graduate soon with no debt, and the youngest is on track to do the same. I’m not saying this was easy – it took hard work and much sacrifice from all of us.
Here are some ways you can avoid years of student loans. I advise students and parents to discuss them together and come up with a plan. Starting this discussion when children are in middle school is not too early.
Because this article is long, I have broken it up into what parents can do (this week) and what students can do (next week), but both students and parents should be aware of everything that should be done.
- Parents, if you are planning to put money away towards your child’s college education, it’s important to start when they are young if you can – but even more important is making sure you are out of debt and have a fully funded three-to-six month emergency fund and that you are putting money towards your own retirement. If you put your money towards your children’s education but are not working on your retirement, you are actually doing them a disservice, as they could be spending their key earning years taking care of you since you have not saved enough. So, although it may sound selfish, put your retirement savings (15% of your income is the recommended amount) ahead of your children’s education. For more details, see this article.
- The three main options for college savings are ESA’s (educational savings accounts), 529 plans, and UTMA/UGMA (Uniform Transfer/Gifts to Minors Act). A ESA allows you to contribute $2,000 per year per child. If you start when your child is born, you can have $36,000 plus interest, when your child is 18, and remove the money tax-free. There is an income limit on an ESA. A 529 plan allows you to contribute much more money, and most will allow you to transfer it to another child if one of your children opts not to attend college. A UTMA/UGMA account is an account controlled by a custodian until the child is either 18 or 21. At that time, ownership is transferred over to the child and they can use it for anything they want, even if it has nothing to do with education (say, a brand new sports car). Before choosing one of these options, research each closely and consult with your accountant or financial advisor to determine which works best for you. We ended up going with 529 plans for each child and had the money automatically deducted from our checking account.
- Check to see if your place of work offers scholarships for your children. This may be the case if you work for a higher-education institution, but other companies may also offer this benefit.
- Make it clear to your child/ren when they are young that you will not be co-signing college loans for them. This may prompt them to get serious about saving money and taking some of the other actions we’ll discuss next week.
Many students are proactive when it comes to considering how they are going to pay for college, others are not. In next week’s post, I’ll share many of the ways students can save money and not incur college debt, but many parents will play a large role in these (“Junior, did you apply for any scholarships today?”), so I recommend students and parents review them together.
In the meantime, for more details, I recommend the book “Debt Free Degree” by Anthony ONeal. Or, visit yourwalletwellness.com to set up a free consultation.