If Homeownership was the American Dream for my parents generation, then student loan debt is the American Nightmare for mine. Nationwide student loan debt has swelled to $1.3 trillion surpassing both credit card and auto debt. In Missouri 61% of graduates had an average of $27,480 in student debt.
As a personal finance teacher, I try to help my students steer clear of the financial challenges that delayed financial freedom and homeownership for me in my twenties. In this post, I’ll unpack some tips to help families navigate college with minimum to no debt.
1. Start Saving Early
If you’re reading this article and your kids are still in diapers, start saving now! The earlier you start saving (investing), the more time you have to take advantage of the wonders of compound interest.
College savings plans like Missouri MOST are a great place to start, and they offer benefits you can take advantage of now including deferred income tax on earnings, tax-free withdrawals, and state income tax deductions. Educational Savings Accounts (ESA) provide similar benefits but also allow you to withdraw money tax free for k-12 education expenses. If you’re thinking of private high school, you may want to invest in an ESA account instead.
If you haven’t started saving and your child is in middle or high school, you might want to consider investing in growth stock mutual funds to catch up. A good financial advisor, like my buddy Joe Myer, will be able to provide guidance on the best type of investments for your situation.
2. If you must borrow, borrow wisely:
Not all loans are created equally! For the sake of brevity, I’ll divide loans into two classes: federal loans and private loans. Federal loans are offered by the U.S. government and usually include benefits such as fixed interest rates, income-based repayment plans, and even loan forgiveness options. Private loans are offered by banks, credit unions, and other private institutions. In most cases, private loans carry a higher interest rate and do not offer any debt forgiveness options. If loans are a necessary part of your college financing equation, make sure you pursue federal loans first.
3. Saving on Tuition:
Every semester I survey my classes, asking them where they would like to go to school. Roughly half the students in my classes responded that they wanted to go to school out of state. When I ask, “why?” I’ll get a response like: “well, I enjoy the mountains so I want to go to school in Colorado” or “I love the beach so I want to go California”. While location is an important factor in picking a school, it shouldn’t be the main criteria. For most majors (especially business, education, and psychology), programs of study are pretty ubiquitous from school to school. With all this being said, let's consider the following scenario:
Chuck wants to study business marketing and become a social media marketer. He would prefer to go to Mountain U, but his parents are urging him to stay in state.
If he stays in state, he can go to Home State U for $28,000. However, if he goes to Mountain U, he is going to pay $52,000 per year because of out of state tuition fees. Not only does it cost nearly twice as much to be an out of state student but the difference in cost over 4 years is roughly $100,000 (the price of a starter home)!
4. Move off Campus!
Regardless whether your child decides to go to school in state or out of state, you should encourage your child to move t off campus as soon as possible.
When you look at the cost of college, room & board accounts for roughly half of attendance cost. According to The College Board, the average cost of room and board ranges from $10,800 at public schools to about $12,210 at private colleges. At $1,000/month (for only 8 months), students would do better to rent a $1,200 3BR apartment and split the cost among all three roommates! With this scenario, students can save as much as $5,000 per year! While moving off-campus is a common practice, some families opt to pay the down payment on a house for their child rather than pay rent or room & board. Read this article to find out why you should buy off campus housing for your student.
5. Scholarships and Special Programs (A+):
During the 2016 presidential primaries, one candidate campaigned on free college tuition. While this dream was deflated for many hopefuls, Missouri actually delivers on this dream with the A+ Scholarship Program. This is a special program offered in designated Missouri High Schools which offers tuition reimbursement for program completers who enroll in participating community college or vocational/technical school programs. With nearly half of all job openings in middle skilled positions, earning a degree from a Missouri technical school with A+ funding can put students on track for a healthy financial future.
With college cost rising 6% annually, financing a 4-year education may cost as much as a mortgage by 2020! If your student is on a 4-year college track, consider these two things:
The first two years of college are mainly prereqs and general education courses for most students—if your child decides to do the A+ program, they virtually earn free tuition, an associates degree, and if they perform well enough can transfer to any 4-year college they wish for their last 2 years of education.
Many 4 year colleges award scholarships for students who complete the A+ program in high school. Southeast Missouri State University even offers a full tuition scholarship to A+ grads who pursue certain majors. For a list of other 4-year colleges offering scholarships for A+ grads, check out this resource from the counseling department at Parkway West High.
Planning for the expenses of college can seem very overwhelming, but with some research, planning and some good advice from those experienced in this field, you can help your child get a great education without the burden of extraordinary debt. Remember to talk as a family about financial topics like this. It helps your children be prepared for their financial future.
Emanuel Young is a Business Educator at Parkway West High School in Ballwin, MO. Krista and Emanuel did a recent interview segment on the American Dream covering this topic. To watch the interview, click HERE.