As lawmakers squabble over student debt cancellation this summer, millions of parents are trying to figure out how much to borrow to send their kids to college in the fall.
Once an easy calculation families made at kitchen tables, paying for college is now a confusing and opaque puzzle. Almost all schools accept more than two-thirds of their applicants. But few charge families what they can afford without a loan. This means that almost everyone borrows to pay for their diplomas.
Google “Is a University Degree Worth It?” And 44.5 million contradictory answers come back. Almost no one explains precisely why debt makes this issue so delicate.
After destroying cheap public degrees over the past 40 years, free market lawmakers have turned the university into a profit center. As tuition fees skyrocketed, Congress made it easy for lenders to earn rapacious returns by lending money to students and parents.
Although studies show that a degree is the most reliable path to reach and stay in the middle class, student debt prevents millions of people from living the American dream. Higher indebtedness means that young households have lower incomes and fewer assets than previous generations. For parents, this means working longer and delaying retirement.
If families borrow more than they can comfortably repay, they risk losing the life insurance premium that comes with degrees. Here are five reasons to avoid student debt:
# 1. A myriad of lenders are competing to lend money to parents, the new target of the student loan industry.
Thanks to historically high university costs and relentless cuts in government grants for students, parents now account for nearly 25% of new degree borrowing. More than 70% of borrowers over the age of 60 repay student loans they have taken out to help their children or grandchildren pay for their university studies.
Colleges offer so many loan products with terms so confusing that the system feels deliberately designed to frustrate. Unlike subsidized loans, the government rarely forgives parent PLUS loans. To force repayment, officials seize wages, confiscate tax refunds and withhold social security checks for decades, dooming some families to generations of debt.
# 2. Most student loans are not “good debt”.
Good debt is money borrowed to build wealth or increase income. Government subsidized loans fall under the “good debt” category, but most private and parent PLUS loans do not. Families who borrow beyond federal government limits for subsidized loans risk losing a dangerous game.
Nearly 60% of students with debt never graduate, leaving many families in bondage for student loan services. “Those in need of loans give up much more often than their non-borrowing peers,” the academic journal University Business reported in 2020. In other words, colleges take the money families borrow, spend it, and then refuse. to reimburse a penny if students are forced to leave campus without a diploma.
# 3. Parents are borrowing too much to send their children to public schools, hoping the investment will pay off.
For most students, the pay rise that comes with graduation from super-selective schools is “generally indistinguishable from zero,” concludes a study published by economists Stacy Dale and Alan Krueger. Subsequent studies have shown that highly selective college degrees help two groups the most: women and low-income students.
Women’s higher wages, however, have less to do with elite college degrees than with delaying marriage, children, and staying in the workforce longer than similar female graduates. less selective schools, data shows.
Low-income students with an elite university degree reap the most benefits. But few of them have the chance to register. Children whose parents are in the top 1% of earners are 77 times more likely to attend Ivy League college than those whose parents are at the bottom of the ladder.
# 4. Saving for college is easier than you think.
Contrary to popular belief, saving for college rarely hurts most families’ chances of receiving financial assistance. While saving for college may seem like a moving target, it’s important to start, set goals, and stick to them.
Investing a little in a college savings plan each week – the cost of a McDonald’s family meal – comes to almost $ 33,000 in 18 years at today’s rates of return. If the stock market continues to explode and interest rates rise, this investment will increase even more.
# 5. As F. Scott Fitzgerald said, “Let me tell you about the rich. They are different from you and me.
Wealthy experts arguing that degrees are not worth the investment rarely encourage their own children to skip college. They can afford to pay inflated fees and often enjoy admission benefits that go to families with no financial need.
College graduates will earn 66% more than those with only high school diplomas over the next decade. At least 65% of new job openings will require degrees beyond high school, according to a Georgetown University study.
Graduating from college – with little debt – is crucial for anyone who wants to build wealth and grow financially.