For parents who can't afford the out of pocket costs of college, one option is to take out PLUS loans – federal student loans owed by the parents, not the student. These come at higher interest rates than standard student loans and can haunt parents for generations to come. Today we'll talk about the rising costs of schooling and exactly how far parents may (or may not) want to push their finances to pay for their child's college.
How much does college in NC cost?
Colleges in our state vary widely by cost from a couple of thousand dollars per year up to tens of thousands of dollars. And that's just tuition. Room and board are very pricey and can cost from 50% up to 200% of what tuition runs. For most North Carolina parents, writing a check for these expenses is not doable. Some parents may have college accounts set up to pay for school, but more often than not, taking on debt may seem like the only solution.
Cost versus benefit of paying for your child's college
Of course you want your child to get off to a good start in the world and get a good job and a college education is often the best foundation. But that doesn't mean you need to go broke financing it. After all, college ultimately benefits your offspring, so it makes sense that they should foot the lion's share of paying for it. A college degree will increase their income, not yours. The key is to balance who pays for what so you're not left holding the bag and your kid a free degree.
Keep yourself out of debt by controlling costs strictly
First and foremost, cost should determine where your student goes to college. They may dream of a pricey out of state school, but this is often impractical. Instead, be realistic with them about your budget. If you can reasonably afford a state school as long as they live at home and work part time to help pay for it, then that's the reality of it. Think of it this way – you wouldn't go buy a Mercedes if you only have the budget for a Hyundai, knowing the debt will kill you.
Consider all routes to college
If your child has no clue what they want to major in, the most affordable way to get them into college and give them time to figure it out is by opting for a community college. This way, they can knock out core courses for a fraction of the cost while figuring out what they want to do. Once they know what they want to major in, you and your student can make a more-informed choice about which state school offers the best and most affordable degree for their area of interest.
When debt is unavoidable
In some cases, student loans may be the only way to get your child into college. If this is the case, stay within federal guidelines of what your student can borrow. Federal loan limits are currently $5,500 a year for an undergraduate and increase to $7,500 once you hit year three with an overall cap of $57,500 for an undergraduate degree. This is enough to pay tuition and books while your student lives at home or with another relative or in a communal apartment. Current interest rates are less than 4%. Minimizing loans by having your student work part time to pay as they go is advisable.
Why parents shouldn't borrow for college
Your student can borrow at a lower interest rate than you can from the Federal government and has many more options to deal with the debt after they graduate. They can get into a program like Income Based Repayment (IBR) which ties loan payments to income at a reasonable 10%-15% of taxable income. They can also qualify for Public Service Loan Forgiveness if they teach, work in law enforcement or other public service field. Finally, they can qualify for forgiveness of loan balances after 20-25 years of repayment under IBR. With a PLUS loan, you have none of these protections and this debt can wreck your finances.
Benefits of making your student pay their own way
We usually appreciate more the things we have to work hard to earn or accomplish. Things that are given to use are not usually as valued and this is true will college. Students who are handed their college experience on a silver platter financed by mom and dad are less likely to study seriously, more prone to party and more likely to suffer a poor GPA or drop out. Conversely, students that have to work at least part time to get through school party less and have better grades. Do your student a favor and make them work for it. Plus, if you're not paying for their college, you can be there as a backup if they run low on Ramen or need a new tire for their car.