Parents and Guardians need to keep Students Debt Free

College bound students can incur soaring debt given the high costs of tuition and student-living expenses. It is a fact that average student debt levels have more than doubled in the last decade, and nearly two-thirds of all four-year college graduates now have student loans (www.studentdebtalert.org). More so, student loans are not dischargeable, but are deferred to a period when the student has gainful employment, unless s/he has a surmountable reason for defaulting on payments.

Students not only obtain federal loans during their education, but they also apply for credit from tertiary institutions to cover the costs of living in campus. According to Janet Paskin, a writer for SmartMoney magazine, the cost of college has increased an average of 6% to 7% a year over the past five years, climbing twice as fast as personal income. The Student Loan Industry has become big business with more investors playing the stock of student lenders like Sallie Mae and Nelnet at the expense of the student.

Even though Congress is stepping up to slash loan rates, tie repayment to graduates’ income and sweeten grants for less affluent scholars (Hechinger: 2007) the fact remains that college education needs to be financed one way or another. “The median bachelor’s degree recipient is leaving school with $19,000 in debt and students can end up owing several times that sum after they complete their graduate education.” (Hechinger: 2007)

As parents, we have to tighten our budget to save for college so that our students graduate debt free. We may as well live frugal lives and in the end, when they graduate from college, we can enjoy our fruits to the fullest without the burden of loan payments.

Search for the best 529 plan available to your family as soon as little Joe’ is born. These 529 college savings plans vary from state to state and may even be provided through your employer. It is the best way to save for college, notwithstanding their unpredictable performance and high expenses (commission). They have a penalty for early and irrelevant (unrelated to educational needs) withdrawals and that ensures that the money will be there for little Joe’ when he is old enough to go to college.

If you are a more disciplined parent, visit your local bank and open a savings account. Today, the interest rates are above 4% given the Federal Reserves initiative to elevate interest rates. This is a lot cheaper than paying a Stafford or other education loan upwards of 6%. Keep in mind that this scenario (high interest rates) attracts more lenders to dish out money to students by the thousands. It traps the students in needless debt.

Paying tuition out-of-pocket has its tax benefits. www.collegeanswers.com gives detailed information about education tax credits and tax deductions available to you. In summary, you may reduce your federal income tax by as much as $1,650 per student for out-ofpocket tuition and fees through what they call the Hope Tax Credit. There is also a Lifetime Learning Tax Credit of 20% of the first $10,000 paid for qualified tuition and related expenses for yourself, your spouse, or a dependent you claim an exemption for. Taxpayers can reduce income subject to tax by up to $4,000 for tuition and related expenses.

We all need a lesson in money management. We need to reduce our expenses by purchasing what we really need and make do with necessities rather than going on a spending binge and succumbing to impulsivity. Once our college bound students follow our pattern of living, they will be encouraged to save more and spend less thus achieve the education that lets them reach for the stars. They will not be bogged down with paying for student loans for the rest of their lives.

Reference:

Hechinger, John. Student Debt: Congress Seeks To Ease Burden. March 20, 2007: Page D1. Retrieved on April 15, 2007 from http://online.wsj.com/article/SB117435714027042320.html

http://www.studentdebtalert.org/alert.asp?id2=20193

Paskin, Janet. College Lenders’ Future. April 15, 2007. Retrieved on April 15, 2007 from http://online.wsj.com/article_print/SB117659570869370290.html

Savings and Tax Plans. Retrieved on April 15, 2007 from www.collegeanswer.com/paying/content/pay_tax_benefits.jsp

Weston, Liz. The 5 best college-savings plans. Retrieved on April 15, 2007 from http://articles.moneycentral.msn.com/CollegeandFamily/SavingForCollege/The5BestCollege-SavingsPlans