The prospect of paying for college is daunting no matter who is footing the bill. Tuition and the total cost for college defy low inflation as they seem to rise on a yearly basis. (There are exceptions with the pandemic).
Student Loan Data for 2021
-The average monthly student loan payment for the Class of 2021 will be $433.
-The average student loan debt per borrower at graduation will be $36,900.
-Student loan debt at graduation has increased 76% since the Class of 2000, a growth rate that outpaces the rate of inflation by 41%.
-After adjusting for inflation, the average student loan debt at graduation has increased 326% since 1970.
-Since 2003, the national total student loan debt balance has grown by 602.5%.
As we look at this debt even with factoring low-to-stable inflation, many major costs have increased between 50% - 200% over the last 20 years; namely, hospital services, child care / nursery services and housing.
Having Jobs to Pay for the Student Loan Debt
Now here’s the other thing: when students get out of school, their wages on the whole were on the decline for many years and they have been slowly progressing over the years to reach levels back to what they were years ago.
According to Statista, the average hourly wage was $23.34 in February of 1973 and in March 2019 it hit the same level. That’s 36 years. These are for production and non-supervisory roles which we surmise, and represent the majority of the population.
So this leads us to the proverbial question: who should pay for college?
Viewpoints vary as to whether students or their parents should be responsible.
Parents Should not Pay for College?
The parents (presumably) have spent 18 years taking care of their kids with an estimated cost of $230,000 through age 17. So does it mean they are responsible for footing the full bill for their education?
The thinking is that the child will take on student loans; however, this typically covers only a portion of the cost which shifts the burden that additional funding is necessary such as Parent Plus loans where there is a cosigner. The result is that the parents are on the hook if the child is not making the future payments.
The Parental Debt Burden
We stated earlier that the average student loan debt is $36,900. Now assuming the child pays for the acquired loans, the parent(s) are free from this obligation; however, the issue exists that the child cannot meet the debt obligation. When you account for the entire cost to go to school that cost can be into the thousands. According to education.org that average total cost at a four-year public institution is $21,422 so the math says $85,688.
So this means if we hypothetically take the average student loan debt out of the equation of $36,800, the parents as co-singer’s debt would be $48,888.
As a whole debt number with refinancing at 4.5% for 20 years the monthly payment would be $542 per month; however the total payout to the lender would be $130,000. So that’s $44,000 in interest.
With this potential burden, there is a mindset that having the children taking the full responsibility for the schooling is a fundamental way to learn about personal finance.
So as they go through school, they think about where they attend such as starting with community college as well as their purchasing decisions throughout such as finding cheaper textbooks and items such as food and clothes and general leisure.
So this means the child will have to work while in and out of school which is paramount; however, in reality that will only cover a fraction of the future debt. As we stated earlier, the average wage is $23 per hour and a new employee in his/her field is typically making less than that.
This brings us back to a debt burden of $542 per month before one leaves the house and this is often too much to handle. So this leads children to move back home.
Taking a stat from the PEW research center; a majority of young adults in the U.S. live with their parents for the first time since the Great Depression. 52% of 18-29-year-olds live with their parents which increased due to the Coronavirus cases.
So if you are a parent that wants to be an empty-nester, you have a decision to make: If you don’t pay, “they stay.” Now If you do pay, they “still may stay.”
The one prevailing thought that parents need to decide is that paying for college may hamper their ability to live their typical lifestyle and have the money to retire at a desired age.
This can lead to the children taking on guilt because their parents are suffering. There are many financial experts that say, pay, no way! This hinders the parents ability to save and retire on time.
No one wants to potentially be caring for their parents when they are older and knowing they may have missed out on life experiences when they were healthy.
Looking at the Future
Our opinion is that if you want to help your children, then start early with putting away money for them and yourselves to education savings plans and retirement tax deferred plans for yourself. So if you don’t have a budget in place, then get that going as soon as possible.
We also feel that paying for college is a personal choice. In my case (David) I was given very little for school and I paid for two degrees. I don’t feel that it was an obligation for anyone to pay my way. That is a personal choice by the parents similar to one decided who receives inheritance.
In our case, we gave each child and ample amount of money and if the number was eclipsed, then it was up to the child to make up the difference; two of them came under that number and one that went over for the most part after extending the college experience to five years versus four.