Why Are So Many Middle-Class Families Taking Out Student Loans? - Nancy McKenna ––

Why Are So Many Middle-Class Families Taking Out Student Loans?

Seventy percent of parents in the United States intend to pay their children’s tuition in full, but they are not on track to do it. On average, they can only cover 29 percent of the cost of tuition by the time their kids enter their freshman year of college. How does this happen?

This is a terrible problem for middle-class families. Students from middle-class families typically aren’t eligible for financial aid, so they have to pay out of pocket or take out loans when their parents can’t cover the bill.

While the problem might be serious, it’s fixable. Families can make some changes to boost their college savings and eliminate the need for student loans.

Ask yourself some questions, and then get ready to save for college.

What Are Your Priorities?

If your child isn’t ready for college quite yet, it’s easy to push thoughts of saving money into the background. There are so many things you want, so you decide you’ll start saving next month or next year.

If you’re serious about getting your child through college without debt, you have to make saving a priority starting today. That means you need to skip the yearly vacation and wait to get that new house. There will be plenty of time to spend money on yourself. Right now, you need to focus on saving for college. Your mantra needs to be, “College first. Everything else comes second.”

Cars or College?

A whopping 107 million Americans have car loans right now. To put that in perspective, that’s more than 40 percent of the entire adult population in the country.

These loans aren’t cheap, either. The average cost of a new car loan is $31,099, while people pay an average of $19,589 for used vehicles.

Add in the fact that many middle-income families have multiple auto loans, and it’s easy to see why people have such a hard time saving for college. People are putting hundreds or thousands of dollars into their vehicles every month and then sweating bullets when it comes time for Junior to go to college.

Add in the fact that many middle-income families have two auto loans, and it’s easy to see why people have such a hard time saving for college. People are putting hundreds or thousands of dollars into their vehicles every month and then sweating bullets when it comes time for Junior to go to college.

Fortunately, there is an easy solution. Families should not have more than one auto loan, and if possible, they should own all their vehicles outright. Simply putting off getting a new vehicle can help you send your child to a four-year university without acquiring any debt. That will make things much less stressful for your entire family. Plus, you’ll have a new car to look forward to when your child gets out of college. It’ll be like a graduation present for yourself.

Do You Know How Much You’ll Owe?

Knowing your priorities and limiting your debt will help you prepare for college, but you still have to know how much you’ll owe. Many parents simply do not understand what to expect when their kids go to college, so they are woefully underprepared. They think they have enough money saved, when in reality, they aren’t even close.

A survey conducted by Fidelity Investments found that 45 percent of parents don’t know how much they should put away for college each month. They are confused about the future cost of college, the impact of saving on financial aid, and the basic fundamentals of college savings plans.

If you aren’t 100 percent sure how much you should save for college, you need to enroll in a workshop. Virtual workshops are an easy way to evaluate where you are and where you need to be. Once you know how much money you’ll need, you can develop a blueprint to reach your goals. Then, you will be ready when your child enters the dorm freshman year.

Is Your Child’s College of Choice the Right Choice?

Kids don’t really understand money. Because of that, they are prone to falling in love with schools, regardless of the cost. Unfortunately, many parents allow their kids to attend whatever school they want, even if it doesn’t make financial sense.

While your child should certainly have a say in the matter, don’t let your kid go to a university just because he or she falls in love with it. You need to be practical, so you can avoid falling into debt.

That means you need to consider the school’s location. Your child might want to go out an out-of-state school, but that can cost you thousands of dollars more in tuition each year. That’s an easy way to get into debt.

There are a couple of exceptions to this rule. First, some schools have a neighboring states’ reciprocity agreement. Such an agreement means your child can attend the out-of-state school for in-state costs. These agreements are rare, though, so research them in your area before allowing your child to even tour out-of-state schools. There is no reason for your child to get his or her hopes up if attending that school isn’t going to be possible.

Second, sometimes, going to an out-of-state school located in the South or the Midwest is cheaper than going to an in-state school in your area. For instance, schools on the coasts are extremely expensive, so you might save money by going out of state.

Does the School Match the Degree?

Don’t allow your child to attend a school that doesn’t match the degree. For instance, your child doesn’t need to go to NYU to become a teacher. He or she would assume unnecessary debt for the teaching degree. It would be hard to pay off that debt since teachers don’t make a ton of money.

To put it simply, don’t overpay for a degree. If your child is going to be a social worker or a teacher, a degree from Harvard isn’t necessary. He or she can go to a state school and get the necessary degree.

About the Author Nancy McKenna

I'm a personal finance geek. A real estate investor. An accountant, a single mother. And I'm going to get my kids through college without student debt! Will you?

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