Saving and paying for college involves some scary statistics. A 4-year college education could cost as much as $500,000 when today’s newborn children are ready to enroll. But, even if you think you’ve got the costs covered, you may make a mistake that ruins your child’s future.
Don’t freak out. Careful planning can help you avoid the fright from facing the unknown frontier of future college costs completely unprepared.
The College Cost Monster
Watch out for sticker shock, where some parents give up in dismay when they learn how much a college education might cost. As Dr. Frankenstein learned, such galvanism can resurrect defaulted student loans in addition to reanimating dead flesh. We shall never know what horrified Dr. Frankenstein more, the golem he created in his laboratory or the student loans he borrowed to fund his education.
But, nothing is more frightening than the college money talk, in which parents admit to their child that they can’t actually afford to send them to their dream college, despite the parents’ promises to pay for college no matter how much it costs.
Most parents have never learned to say “No” to their children. The first consequences occur around Halloween, when they must choose between facing their child’s wrath and going into unimaginable debt to pay for more college than they can really afford. This is a variation on the Judgment of Solomon, but where the parent is forced to pick either their baby or their retirement.
The Antidote to Student Loan Debt
Despite rumors of student loans causing the zombie apocalypse, rest assured that 529 plans are the antidote to student loan debt, if administered in a timely manner. College savings plans can also protect you from the undead and other creatures from Dr. Frankenstein’s laboratory.
Every dollar saved is a dollar less borrowed. Every dollar borrowed will cost about two dollars by the time the debt is repaid. If you don’t save for college, the $500,000 price tag will cost you $1 million as you repay the student loans. Thus, it is cheaper to save than to borrow.
The Horror of Student Loans
Even if you did save for your child’s college education, you might have a sense of dread that maybe you didn’t save enough and will have to borrow to cover remaining college costs. After you exhaust the federal student loan limits, your main choices are private and parent loans.
Contrary to what many parents believe, cosigning a private student loan involves more than just providing a reference for your child. When you cosign a loan, you are making a blood oath to repay the student loan debt.
You are the real borrower of that private student loan. The loan will show up on your credit history. It may prevent you from refinancing your mortgage or downsizing your home because your credit utilization is too high. You may even have difficulty getting an auto loan or a new credit card.
“But,” you exclaim, “It really isn’t my debt!” The lender laughs maniacally before injecting you with a dose of reality, reaffirming that the private student loan is legally your debt. Do you really believe that a lender would give five or six figures of education financing to a teenager who has no work history other than babysitting and yard work?
You are the collateral for the private student loan. The decision to cosign a student loan may come back to haunt you for decades. The lender might not demand a pound of flesh, but it certainly will require on-time payment in the coin of the realm. Some parents wish that they could sell their liver, kidneys and other organs to pay for their children’s college education.