Student Loans Student debt is the norm and quickly becoming accepted fact of life for American graduates. My favorite Teacher and coach Forrest Fonnesbeck in a small, small agricultural community in Idaho once had me pin a button on and walk past voting booths for a school bond. The pin said, “If you think School is expensive, try ignorance”! For me at 15 years old it was a humorous act for fun, yes I understood exactly what it said but had not lived in years to know the impact. Unfortunately many students understand the acceptance of a school loan but do not KNOW the impact, until they make their first payments on their deferred student loans. Making a few payments may wake a graduate up but when they begin their new life as a graduate, student debt can have impact on their lives in many other ways beyond a monthly payment. Millennials now have surpassed the baby boomers and are the largest segment of our society in population and represent the largest consumer group. It is no wonder marketers are focused on them. Managing Student Loans student debt should be high on list of priorities and parent involvement with college students (even when they do not want your help, yes it happens). Putting this into perspective according to RealtyTrac a recent college graduate that wants to purchase a home will have to earn roughly 33% more income annually ($8,969.00 more on the average) than a graduate from college without any debt,
It would be nice to say here I was the model parent and planned for my daughters education costs and but if it were not for my spouse, my parents and catching a break I fear our daughters would have fallen into the majority and graduated with a huge burden of debt. The good point here is I learned the lesson without having to go through hard knox this time. My oldest daughter is a Registered Nurse in the Dallas area. She began her college at Texas A&M Commerce for Sports Medicine, she was a sports trainer in high school with Coach Cary Tyson who served as her interim role model when I was gone with work so often. The cost of this may have been $25-30,000 a year. We as parents committed like most parents to do anything to improve our children’s future. My spouse encouraged a community college (Collin County Community) but my daughter would not hear of it. Funny how that works. We caught a break when she went 1 or 2 semesters and realized the job she was getting an education for would start at $18000 to $30,000 tops but she would incur well over $100,000 in debt to get there. Of course the fact she was not enjoying the experience certainly helped. She decided to going forward to pursue nursing and took all her required subjects to be accepted into a Nursing program at Collin College at less than 20% of the cost of Texas A&M. The best part is she once told me she enjoyed and learned more from most of the Professors there than she did at the 4 year major college. We agreed as her parents when she went to Collin County to pay for her first two years of college and after that she would have to manage it. I will have to give credit to her Mother for all of this. When she was accepted into Nursing school which is no easy task she did take some student loans after the first semester. She graduated nursing school with less than $20,000 in student loan and is in a career that has huge income potential. Here is where I am going with this, the difference in her graduating with minimal student debt IS the difference of her being a homeowner, no question about it. College is NOT free and it is not cheap. Most Medical Students will graduate with over $100,000 in debt and mortgage loans for these professionals can be structured to their need but if they do not have great income potential they will not become a homeowner outside of winning the lottery. Deferred student loans are no longer exempt from FHA standards when qualifying for a FHA Mortgage Loan.
College costs for parents is overwhelming, how do you pay for it? For a long time college costs have continued to climb. While my daughters were in school I went so far as open a college account and looked into a Uniform Gift to Minor Account. The college account was soon raided and the UGMA restrictions to avoid taxes didn’t work for us. The UGMA funds had to be used strictly for college and I could never get any clarity if those funds could be used for housing so I then looked at pre-paid college accounts. The economy in the early 2000’s was showing signs of a bust and sure enough in 2007 and 2008 it happened so pre-paid college that sometimes would restrict where they attended college scared me away. Like I mentioned, we caught a break with our first daughter and wiser for it for our 2nd daughter that also attended first two years at a junior college so their expenses were still costs but minimal comparatively to most students. What rings in my head and should every parent is the math. Many students graduate with thousands of dollars of debt that will exceed 1 or 2 years of pay of their new career. You must realize how many people start a career and it doesn’t work out or they just DONT LIKE IT. When a person does not have any passion in a good way for their career they will not stay. As a Manager for years that had oversight of 400 plus employees I could tell you from observation of employees, those that were doing the job for the check and those that loved what they were doing. Those that did not fit were always looking for another career and sooner or later they would find it or get ran out due to poor attitude. Those that loved it may even complain but their performance was an example of their passion to get it right and they would stay through the best times and the worse times. These employees are the ROCK foundation. My point is why should a student overload themselves with so much college debt it will hinder them from enjoying life after college days. Managing the costs of a college education is crucial. There are many financing options for students and it can be a combination of private and government loans but keep your focus on the big picture. Student loans HAVE to be paid, they do not go away and a college education can cost as much as $50,000 per year if the student plans on attending a private out of state college or university. Another finance option is parents will refinance and take cash out of the equity of their home for a child’s education. I never encourage debt but this can be a viable option. Any debt incurred on a home is tax deductible and if you are a parent financially positioned to pay for all your child’s college needs any money given to your child or paid out of solvent funds is gone and there is zero tax benefit. I am not a tax professional so I am only speaking from my experience. Tax laws change all the time so involving your accountant is a wise. The most expensive colleges are private colleges and universities whereas a two year community or county college offer huge discounts for those living in the county. The savings is substantial, thousands and as my personal physician told me when I discussed my daughters nursing education with her the comment she made stuck with me forever. Dr Tena Patterson quote to me, ” Never in my career when interviewing for a position was I ask where I received my education, they only wanted to know if I passed the Medical Examination to be legal to practice medicine”. Sometimes the best advice is free. Two year community colleges offer the best value for dollars spent. Accomplishing a 2 year associate degree sets a solid foundation and can be transferred to a four year college and if the student works with the counselors during the two years they can maximize results by fulfilling most all prerequisite credits towards the four year college they transfer to.
My daughters both attended a local community college within commuting distance from our home. My youngest daughter was within 10 minutes of her college, my oldest daughter was within 30 minutes of her college. There will be challenges that come with living with your young adult child, that is part of the deal you made when you bring them in this world but the cost avoidance of no housing costs out weighed the stressful burden of a continued expense. Room and board covers a dorm room with basic furnishings and do NOT forget a meal plan, college students have to eat, then there is cost for linens, bedding, snacks, quarters for the laundry, gas if there is a vehicle and the one that causes the most disagreement,,,,, spending money!! Room and board costs thousands of dollars every year, more than $10,000 per year. My daughters student loans allowed her to take out the money but there was little accountability on how it was spent, this is a scary thought, we know students that purchased non-related items with the intent to pay it back then found themselves in a pickle when the amount was needed for actual school expense. Student Loans Student debt can quickly exceed a full year or two of annual income. Keep this in mind, plan ahead and work with a budget. Your child may not agree with you now but when they graduate and are working they will surely THANK YOU!
Referencing my daughters education, you will be shocked at the cost of school books. It’s ridiculous high, new books are often well over $100 each. Many students will try to buy them used but they go FAST, one of the resources my Nurse daughter used is Chegg.com they have a book rent program if it is available. The student finds the book, pays for it and when they finish they return it within a set time frame and part of the money is credited back to the student. This will save you hundreds of dollars, easily $50.00 on the first textbook. Student loans Student debt quickly total additional hundreds and more often over $1,000. Then there are cell phones and internet services. When you total study aids in with textbooks easily costs annual can exceed $2,000. Many students will pay for these items with student loans and get sticker shock and are stressed to the maximum the when the monthly payment on their student loans student debt come due. The impact of becoming a homeowner is realized in debt to net ratios when qualifying for a home mortgage.
No doubt the college experience will be remembered for a lifetime but it would be nice if the debt accrued will not accompany the student for a lifetime. Students will gather together and do all nighter studying for mid-terms, my daughter in nursing school had her own apartment, was working and going to school but when mid-terms came her life came to a stop with anyone but her class mates. However, this was a cost to her, food, gas and loss of being able to work this was hundreds of dollars and define broke college student. If your child is attending an university away from home these costs will skyrocket. Parents, accept it now and plan ahead. Failure to plan on your part will not constitute an emergency on someone else’s part later.
The cost of an education can be enormous and to arrive at an exact number for budget and planning depends on many factors. The type of college, private, state or community. The type of education, as a general rule specialized education is more costly but also has more income potential. The number of years of education required. I mentioned earlier it is not always a bad decision for parents to refinance their home and take cash out for an education. Process from a cash out refinance mortgage is tax free, and the interest paid on a mortgage is a tax write off. The maximum amount allowed for a FHA Loan refinance is 85% Loan to value. The maximum amount of LTV for a conventional loan is 80%. The winner in this is undoubtedly VA Loan which allows up to 100% LTV but this type of loan is restricted to veterans of the military with an honorable discharge and a Certificate of eligibility.
A Lot of information to digest here today. Read again and be prepared, look at other resources and research colleges and benefits. My promise to students with student loans student debt is you will realize the impact when you begin the Mortgage application process as a first time homebuyer. The Larry Stepp Team at Gustan Cho Associates is available 7 days a week, holidays and weekends for your assistance.
Larry Stepp 407-922-4755 LarryS.HomesNetwork@gmail.com