Note: This is a sponsored article, and it’s a part of a paid campaign, The Other Talk with Citizens Bank.
Here are a few others that might make your chin drop:
- Millennials spend nearly one-fifth of their annual salaries on debt repayments, according to a recent Citizens Bank survey.
- Nearly six in 10 borrowers regret taking out as much in loans as they did, according to the same study.
- And, nearly half of college students believe they will be helped by federal loan forgiveness, according to research from LendEDU. (To put it in perspective, fewer than 100 of more than 30,000 loan forgiveness applicants received it.)
What could have made for a happier financial picture for these students and so many others? Talking about the amount of borrowing – and the impact it would have on their future lives – in advance. That’s not something enough families do these days. Having a conversation like this may not be the most comfortable one – it’s hard for parents to acknowledge that they wish they could contribute more – but it’s a necessary one. Here’s how to go about it.
Start Young – With A Pep Talk
Your first conversation about college shouldn’t happen as the PSATs roll around. If that happens, you’ve missed years of opportunity. And, don’t start with debt. Start with what they might want to do with their lives.
“When kids are younger, career exploration is really what the early talks should be about,” says Reyna Gobel, student loan expert and author of the CliffsNote’s “Parents Guide to Paying for College and Repaying Student Loans.” A career is something students can get excited about, she notes. “If you’re not excited about something, you’re not really going to care about the debt conversation.”
Acknowledge The Cost – And That There Will Be A Plan For Paying For It
Woven into conversations about college should be a discussion about financing, says Joel Best, professor of sociology and criminal justice at the University of Delaware and author of “The Student Loan Mess: How Good Intentions Created a Trillion Dollar Problem.” “When you start talking to kids about going to college, you also need to start talking to them about how it’s going to be paid for.”
When they’re young, this can be a general discussion incorporating the fact that you’re saving what you can and that it’s their job to do well in school so that they will qualify for scholarships and grants from schools that want them. As they get older, you can expand to a discussion of how choosing a college these days is a value proposition. It’s not just about going to the best school that accepts you; it’s about going to a school that makes it attractive for you to attend financially. That means you have to cast a wide net as you conduct your search.
Get Specific About What It Means To Borrow
One thing Best notes – and I’ve witnessed from college grads after the fact – is that while many understand that they’re borrowing, they don’t understand how it works, that interest continues to accrue, and what a sum borrowed translates to in repayment.
“If you have a house loan or a car loan, people will understand that, but they tend to treat student loans kind of like they’re magical,” he says. “I think a lot of people are not aware of what they’re getting into.” As part of the continuing conversations you have with your children, run some numbers. Or simply look them up. Many schools have charts like this one from Penn State that show how much an amount borrowed translates to in monthly payments and what sort of salary you’d need to earn to make that payment manageable (manageable usually equates to between 5% and 15% of your income). You’ll see, for example, that $25,000 in loans at a rate of 6% equals a $277 monthly payment and that you’ll need a salary of $41,000 or more to afford that comfortably. Borrow $60,000 and without a salary of $100,000 or more you’ll feel squeezed. Yes, numbers like this can be daunting. But not as daunting as finding out you can’t afford your own apartment because you overborrowed.
Be Realistic About A Career Path’s Potential
It’s one thing to borrow six figures knowing you’re going to work in finance or as an engineer where salaries are competitive and generally hefty. It’s another to borrow six figures thinking that you might want to work in publishing or for a not-for-profit. If you don’t borrow smartly, you’re setting yourself up for years of financial frustration.
“There’s a myth that student loans are always bad,” says Gobel. They’re not. But you do need to be realistic about what’s coming down the pike. And if you’re not comfortable having this conversation with your child alone, know that help is available. “Go to a financial aid officer at a local college and have them sit and explain it with you,” she suggests. “You can’t really tell your kids what or how much to borrow unless you understand the options yourself. They’re going to have these loans for potentially 30 years, you want them to understand them beforehand. An hour researching loans can save you years of heartache.”
With Amelia McBain