It’s panic time! College-bound teenagers and their parents are excitedly touring colleges this summer, or they’re signing the dreaded Stafford loan documents to pay for college in the fall.
One thing is crystal clear in the emotional fog of this exhilarating rite of passage: parents and their teenagers both need to get serious about limiting their dependence on student loans. Squared Away asked several experts on financing a college education for their best tips on minimizing total borrowing for college.
Some of their debt-cutting strategies are difficult to swallow. But since 2005, student loans have shot up 55 percent, to $24,301 per student, for an undergraduate degree that has, as one financial adviser noted, become “ubiquitous.” Yet college places an unprecedented financial burden on parents also saving for retirement and on graduates when they get their first full-time jobs. Debt prevention also requires families to face head-on the emotional roadblocks to an affordable education.
Squared Away came up with 10 debt-prevention strategies. Here are the first five ideas, with five more scheduled for next Tuesday. Links to Web resources are also sprinkled throughout the article.
Aid Deadlines Are Crucial
Buy a calendar and red marker and closely track every single deadline for merit or need-based aid – they’re different for each college under consideration.
“If I could give you one piece of advice that would be it,” said Lyssa Thaden, a financial education manager for American Student Assistance, which educates and counsels student-loan borrowers.
Thaden listed four common mistakes that cost parents dearly, requiring them to borrow more: …Learn More
The media went crazy last month over research determining that debt – whether college loans or credit cards – is a major source of self-esteem for young adults.
Judging by the tone of these articles, the reporters were so flabbergasted that they didn’t think to ask the logical follow-up question: Why? Credit cards aren’t inherently bad, though they can get people who abuse them in trouble. But equating self-esteem with debt seems to turn the notion of financial judgment on its head.
So Squared Away consulted therapist Dave Jetson and financial planner Rick Kahler, both of Rapids City, South Dakota. They often work together with clients on their financial issues but offered different explanations for this puzzling phenomenon.
Because debt is increasingly required to get a college education, Kahler said it may benefit from the glow of what an education represents. Debt has become a mark of being “smart enough to get through college.”
Jetson sees a dramatic cultural shift that is influencing today’s young adults. This shift coincides with shrinking economic opportunity for many college graduates. … Learn More
Just over two-thirds of Americans were able to answer the questions below correctly. Given their “simplicity,” Annamaria Lusardi and Olivia Mitchell called the results “discouragingly low” in their 2011 research published by the National Bureau of Economic research.
Women did worse than men: 59 percent of women got it right, compared with 71 percent of men.
Take the test to see how you do.
1. Suppose you had $100 in a savings account and the interest rate was 2 percent per year. After five years, how much do you think you would have in the account if you left the money to grow?
a. More than $102
b. Exactly $102
c. Less than $102
d. Do not know
e. Refuse to answer
2. Imagine that the interest rate on your savings account was 1 percent per year and inflation was 2 percent per year. After one year, how much would you be able to buy with the money in this account?
a. More than today
b. Exactly the same
c. Less than today
d. Do not know
e. Refuse to answer
To see the answers, click “Learn more” below. And happy Fourth of July!Learn More
Talking to teenagers taking personal finance at Panther Valley High School in Pennsylvania made me wonder why these classes aren’t a top priority everywhere.
These kids are even teaching their parents a thing or two about money. Jordan Kulp saved her mother $30 by finding a scooter for a cousin’s baby that her mother had wanted to buy on a shopping channel. Now that Jake Gulla’s mother sits in on his personal finance class, she is “spending [money] a little more wisely.”
And William Digiglio’s father wanted to sell a shield for $100 that Chris Evans apparently carried in the “Captain America” movie. William put it up for sale on eBay and snared $20,000 for the shield, which his father had won in a contest. For class projects, “we had to research rather than taking them for face value,” he explained.
These Panther Valley students have helped make Pennsylvania, for a third year running, the state with the highest number of students scoring in the top 20 percent on the federal government’s 2012 test for the National Financial Capability Challenge (NFCC), according to Mary Rosenkrans, financial education director for the state’s Department of Banking.
Pennsylvania also had the highest number of students who took the test (7,404) and the highest number of participating schools (123). (Oregon had the highest average test score: 79.5 percent, compared with 69 percent nationwide.)Learn More
The Massachusetts Financial Education Collaborative (MFEC) had one big reason for targeting its video contest to middle school kids: advertising.
“Hey, you gotta have a cell phone. You gotta have these jeans. The contest seemed like a great way to bring awareness” to the issue of kids and our consumer culture, said Andrea Wrenn, mother of five, education consultant, and the MFEC volunteer who oversees the contest.
Two Massachusetts middle schools submitted videos exploring kid consumerism in the first year of MFEC’s contest: the Norwell Middle School and the Hill View Montessori Charter Public School in Haverhill.
Squared Away encourages readers to support the new effort by clicking here to vote for your favorite video! The voting deadline is April 27.
The contest is among the creative ways communities are encouraging children and teenagers to learn about the money issues they deal with – a play recently staged by Cambridge high school students was another.Learn More
New research adds a dash of spice to our understanding of how people handle their personal financial matters: families who dine together grow wealthy together.
Three professors at the University of Georgia have discovered that families who commit to gather regularly around the dinner table – or, presumably, dine out or cook together – are better prepared financially and will accumulate more wealth faster.
As with any statistical analysis, their research can’t prove cause and effect. Is it that dining together causes wealth to go up, or is that families who know how to handle their finances also tend to be the type of people who enjoy meals together?…Learn More
A top official in the federal Consumer Financial Protection Bureau (CFPB) said educational outreach to four vulnerable populations – college students, seniors, members of the military, and low-income earners – will be integral to the bureau’s research, regulatory, and legal enforcement efforts.
CFPB’s consumer division will “work with regulators to make sure people know what they are signing” and to help “clean up the marketplace” by ridding it of abusive products, Gail Hillebrand, who heads the consumer division, said at a Massachusetts Financial Education Collaborative conference held Friday at the Federal Reserve Bank of Boston.
Citing the subprime mortgage crisis, Hillebrand said it began “one mortgage at a time” – in large part due to poor disclosure by salesmen or on mortgage forms. Many borrowers who ultimately went into foreclosure failed to realize that their payments would rise sharply after the period of the initial, discounted interest rate ended. … Learn More