It’s Time to Have the Student Loan Money Talk
- Many college graduates experience debt regret – when the student loans they owe impact their everyday finances, goals, and mental health.
- Having an honest talk with your child, before they look at colleges, can help ensure they don’t end up having debt regret.
- “The Talk” should cover your child’s goals for college, the cost of school, how your family will pay for it, and the impact borrowing too much could have on their future.
“We need to talk.”
In your parenting career, you may have said that to your child a time or two, which probably wasn’t perceived as a “good” thing.
But there is one talk you can have with your child that can be a very good thing for you and them – the money talk about college.
Yes, that talk.
Having an honest and open discussion about money – even before your child starts looking at colleges – can actually help set expectations and give them a brighter financial future. That’s the whole point of going to college, right?
And, it can help them avoid something they could experience later in life – debt regret.
According to research from ELVTR Magazine, student loan debt has had a profound effect on the health and financial well-being of American graduates.
Consider these eye-opening stats:
63% of graduated students are struggling to afford federal loan payments
84% have delayed a major life event, such as buying a home or starting a family
54% have experienced mental health issues as a result of student loan debt.
The reality is, students, don’t always realize the repercussions of the debt they take on and often have sticker shock when the bills become due. Many even ask, “Why did my parents let me do this?”
That’s why having that money talk about college early on with your child can help them make better decisions, build their financial literacy, and even take the heat off you — always a good thing for parents!
About that talk
Talking about money is never easy, but if you do it early in the college process, be honest, and stay focused, you’ll increase the chance of success. Here are some guidelines on what to discuss to help them with navigating paying for college:
What is your child expecting to get from their education? Do they have a future profession or major in mind or are they unsure? If it’s the latter, you can discuss their interests and their strengths to explore fields of study and the earning and career prospects in those areas. Make sure they understand that college is one of the biggest investments they will make in their lifetime and it’s important that they get a return on it.
How much will college cost? Your child may know college is expensive, but do they know how expensive it is? Show them the costs involved with college, tuition, room and board, meals, etc. Make sure they consider the cost over all four years, not just one. Also, if they want to go to an out-of-state school, factor in the cost of traveling home for holidays and breaks.
What is Financial Aid? Your child should also know about the types of Financial Aid, such as loans, grants, scholarships, and work-study, as well as other tuition funding sources, like private scholarships. They should also understand that while Financial Aid may help cover some of the costs, there very well may be a significant gap where it leaves off.
How will you pay for it? Once you have an idea about the costs of college, talk about how your family will manage them. Your student could be thinking about how to pay for college without their parents. Or they may be expecting you to pay the full cost. Or if you’re like most families, maybe you’ll both pitch in with them taking out student loans, working during school, or contributing some of their own savings.
If you are contributing, let them know how much and how. For example, will you take money out of savings? Take out parent loans? Use money from a 529 plan? They need to understand the sacrifices you’ll be making.
It’s even more important that you consider your -own financial well-being and not contribute more than you can afford. Remember, students can borrow for school, but you can’t borrow for retirement.
Once you know the family financial situation, you can set a realistic budget and look at schools that are in line with it. That way you and your child won’t end up choosing a school you can’t afford.
Also, if the cost of college is too high for your family, you can explore other options to make it more affordable, such as commuting or attending a community college for the first few years and then transferring to a four-year school.
Are they thinking about their financial future? Students often live in the moment (YOLO!), and don’t think about the long-term implications of their financial decisions. They may, for example, want to go to a school they can’t afford and borrow too much. It’s critical that they know the cost of that decision later on in life.
Talk to them about debt regret and how it could impact their future and stop them from doing the things they want to do – such as buying a home, starting a family, or even traveling.
The most important thing that they need to learn is that the most expensive college or the college that’s out of their budget is not the best college.
Let’s talk about how we can help
For more than 40 years, Brazos Higher Education has been helping make education possible. As a Texas non-profit, we can offer you BIG savings on a wide range of student and parent loans. Contact us today!