The College Scandal: Why You Need to Have a Family Financial Meeting

The college scandal has been surprising and not surprising, at the same time. It raises fundamental issues about the goals and priorities that we set for ourselves and for our children. Communication regarding the financial impact of college among all family members especially including the college student are essential. 

Setting up ongoing family financial meetings while children are young helps establish a lifelong path of financial literacy. Financial literacy is something that most people struggle with.  Children usually know more than their parents think and in school, they may be discussing money at an early age. While young children may not able to participate in all areas, they can always learn and contribute when they are comfortable.  Involving your children in cash flow discussions will help them understand why there may not be a trip to Disney World every year and will ultimately help them manage their own cash flow when they are adults.  

 An important part of a family financial meeting is discussing goals and priorities.  If all members of the family are able to fully participate they can discuss what their goals are. Is it your goal for your child to go to Yale or is it your child’s?  Is the goal to go to the same college as all of their friends or to the family alma mater?  

An additional basic building block of a family financial meeting is setting up a budget or at least communicating the overall cash flow.  

There is much debate as to whether college makes sense for everyone.  This is an important consideration as while going to college may increase a person’s chance of success in life, it is not the only path taken by some of the most successful people.

College planning is an excellent topic for teenagers (and younger children) to be involved in.  Teenagers will oftentimes have their own goals.  And if your child will need student loans for which they will be responsible, they should have a say in that. Knowing what their potential debt load will be and how that will impact their future cash flow may help them decide on what college to attend.

College is expensive. The average public four year college has annual fees of $9,410 (in-state) to $23,890 (out of state) and private colleges are $32,410 a year (source: collegeboard.org). The Chronicle of Higher Education has put together a table showing tuition and fees (1998–1999 through 2017–2018) for more than 3,000 colleges and institutions at https://www.chronicle.com/interactives/tuition-and-fees.

 

Student loans are now commonly used to help pay for higher education expenses. Students and parents borrow funds that must be repaid with interest. Loans are available from a variety of sources, including the federal government, individual state governments, public and private agencies and organizations, and the institutions themselves. 

According to thecollegesolution.com, roughly two out of three students borrow money to pay for college, and the typical student borrower will owe approximately $37,000. Financially, it does make sense as the average annual salary for someone with a bachelor’s degree is $55,656 compared to the annual salary of $33,801 for people with a high school diploma, The average annual salary breaks down for people with an associate degree: $42,046, master’s degree: $67,337, doctoral degree $91,920 and professional degree: $100,000+ (source: U.S. Census Bureau using 2008 media earnings for full time workers at least 25 years old.  )

Based on the potential for substantially higher earnings, the issue becomes how to earn a degree with the lowest possible outlay.  Here’s a couple of points to consider:

Before borrowing money, consider whether you can qualify for grants, scholarships, the GI Bill, or some type of work study. Borrowing money for education should be your last option. There are grants and scholarships for all types of circumstances beyond income, such as ethnicity, health issues, and sports. A good resource sponsored by the US Department of Labor is https://www.careeronestop .org/toolkit/training/find-scholarships.aspx. It’s also important to consider if the cost of a big-name university as compared to an equivalent education at a state college is worth the added expense. 

Loans vary as to the terms of the loan and the interest rate. So be sure to compare options. There are two basic types of college loans: federal and non-federal private loans. Your first choice for borrowing for education should be federal student loans; max out these before considering private student loans. Federal student loans are usually cheaper than private loans, as federal loans may be subsidized and offer more flexible repayment terms. Fill out the Free Application for Financial Student Aid (FAFSA) to be eligible for any federal student loans, work study, or grants. You can learn more about FAFSA by visiting https://fafsa.ed.gov. 

And, if you are struggling with repaying student loans, consider the following ways to help you (be sure to consider all pros and cons): 

  • Consolidation: Many loan service providers allow you to consolidate similar types of loans into a single loan, which may allow you to get a lower interest rate. See Debt Consolidation Loans discussion on page 128.
  • Restructure your monthly payments: Regardless of whether your loan is federal or private, options most likely exist to change your payment structure to fit your financial situation. Fed- eral borrowers can apply for income-based repayment plans like Pay As You Earn (PAYE) or Income-Based Repayment (IBR). Private borrowers often have fewer options than federal bor- rowers, and the options available can vary significantly from lender to lender. You will have to contact your lending institution to learn whether you can adjust the terms of your loan.The Con- sumer Financial Protection Bureau (CFPB) has some good resources at https://www.consumer finance.gov/ask-cfpb/what-is-pay-as-you-earn-paye-how-do-i-know-if-i-qualify-en-1555/. 

Going to college is a valuable experience and while it is not necessary for success, it provides an opportunity for college students to mature and to learn about specific topics. Given that most people work outside of what they studied in college, there is a question as to the value we place on college in comparison to the return we receive from it. Having a family financial meeting is an important first step. 

Here’s how the college scam worked: This charity was touted as helping the underprivileged. Instead, it funneled college admissions scam money. Learn more about The Wide Implications Of The College Admissions Bribery Scandal

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