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Please do not take enormous loan for undergraduate college eduaction (or even graduate degree)

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Replies to: Please do not take enormous loan for undergraduate college eduaction (or even graduate degree)

  • colorado_momcolorado_mom Registered User Posts: 8,138 Senior Member
    " If people want to borrow to invest in their kids - go for it." - Perhaps... if they have done the due diligence to know what they are getting into. Sadly, that is often not the case.. then it's like somebody buying a house beyond their means - possible, but not wise.
  • prof2dadprof2dad Registered User Posts: 535 Member
    Having a higher education and buying a house are too some degree similar. Both provide some happiness and both can be, but not always, a good investment. Buying a house is a physical investment. Having a higher education is a human capital investment.

    Many households, particularly young households, use 20% of own saving and 80% debt for the home purchase. 80% debt is not generally regarded as enormous. In contrast, subprime has a bad name, and would generally has an even higher % of debt, which is sometimes or often regarded as enormous amount of debt.

    I do not know what % of debt for higher education should be considered as enormous. But based on my observations, this % cutoff appears to be much lower relative to that used in home purchase.

    I also sense that different cultural background seems to have different tolerance levels to the use of debt for funding higher education. At least in my Asian American circle, this tolerance or willingness to take on debt for higher education is quite high.

    Overall, I agree with many posts earlier: whether to use debt to fund higher education is a very individual thing. It is not like people disagree with the notion that one should not take on "enormous" amount of debt; it is more about what constitutes as enormous. This cutoff has a very wide range.
  • roethlisburgerroethlisburger Registered User Posts: 725 Member
    ^The difference in the investment analogy is home's can have their value assessed, while how much you add to your human capital is anyone's guess. There's still not a lot of good data on outcomes showing what the salary range for graduates in a particular major at a particular college is 10 years after graduation.
  • blossomblossom Registered User Posts: 7,579 Senior Member
    Prof- your analogy doesn't work in the real world.

    First- a home mortgage is secured by.... the home. Which a bank can sell. It may go up in value, it may go down, but at the end of the day, there is real property with some economic value underlying the loan.

    Second- the 80/20 ratio works fine in some parts of the country and is terrible economic advice in others. Property taxes, heating oil, transportation to jobs, a grand list (my state has a personal property tax on vehicles for example-- the state I moved from does not), an assessment from a local home owner's association--- many young families get into real economic trouble by relying on a "formula" dictating how much home to buy and how much they can "afford" to borrow without considering actual cash flow on a month in/month out basis.

    I know lots of families with zero equity in their houses. A better job comes up three states away? It's a tough decision to figure out whether dumping the house- essentially watching their down payment go down the tubes, let alone the zero equity "growth" they never experienced, in the hopes that with a higher salary and a more forgiving housing market they can recoup.

    I wouldn't encourage people to look to the housing market as the way to think about education loans.
  • prof2dadprof2dad Registered User Posts: 535 Member
    "while how much you add to your human capital is anyone's guess. "

    This is one of the reasons that higher education (and thus the possibility of taking on debt) may not be a good idea for everyone.
  • prof2dadprof2dad Registered User Posts: 535 Member
    "a home mortgage is secured by.... the home. Which a bank can sell. It may go up in value, it may go down, but at the end of the day, there is real property with some economic value underlying the loan."

    I do not know how this is related to my thesis: "It is not like people disagree with the notion that one should not take on "enormous" amount of debt; it is more about what constitutes as enormous. This cutoff has a very wide range."

    "I wouldn't encourage people to look to the housing market as the way to think about education loans."

    I respect you point of view. We just see things from different perspectives.
  • sushirittosushiritto Registered User Posts: 164 Junior Member
    "You cannot imagine how exciting it is to see another thread with someone telling others how to spend their money and what to borrow/not borrow. If people want to borrow to invest in their kids - go for it. Kids, if your parents want to do this, let them. They are adults and can decide how they choose to spend their retirement. Let go of the guilt, go to college and work your tail off. Respect what they do for you. The most successful family I know sent several kids to private colleges and spent or borrowed (idk cause it's none of my business) a million+ bucks to do so. Everyone of those kids is highly successful and has a great life ahead, strong social circle and earning power, and their parents are happy knowing they did all they could for their kids. Those parents knew what they were doing and did what they wanted. Others don't spend nearly as much and could have same success or flop. Some families can't see beyond the station they are in, and their kids remain there with them - maybe they are happy there, maybe they are not given chance for anything else. Point is, it is up to each family to decide. Sometimes borrowing for an undergraduate education is the best thing you can do for that kid - setting their course and setting them up for the rest of their life."

    @scotlandcalling I LOVE IT! My feeling exactly.
  • 50N40W50N40W Registered User Posts: 736 Member
    If by irresponsible borrowing one contributes to a bust, the rest of us will have to pay for it either directly or indirectly.
    The rosy outcomes are easy to see. But there are 60 YO parents that borrow a quarter million from the 401k, then kiddo drops out and moves to Belize instead of Wall Street. That debt doesn't go away, and they work until death. This is a possible outcome too.

    A good balance is hard to find; it doesn't just affect the borrower.
  • singlemomncsinglemomnc Registered User Posts: 6 New Member
    I am currently struggling with this. My son who will be a music major has been accepted to state and private schools. Two of the private schools are ranked in top 20 in country. One is his dream school. I am a single parent and appealed the financial aid. The university won't budge. Loans would be at least $60000 if not more. It's heartbreaking.
  • HImomHImom Registered User Posts: 27,499 Senior Member
    Yes, IMHO it's very sad, but HEARTBREAKING is when folks have a huge debt burden that they are saddled with for a decade or longer and can't get out from under that limits their options, makes retirement impossible, keeps them from other opportunities.
  • singlemomncsinglemomnc Registered User Posts: 6 New Member
    Oh no, I meant it's heartbreaking not being able to attend the dream school. And yes I agree with what you said about the burden.
  • compmomcompmom Registered User Posts: 7,283 Senior Member
    There are many families in this country who work hard but live paycheck to paycheck, and financial planning isn't really feasible. Some may end up on substantial financial aid, which is fair. I do know of families with incomes that are high enough but they have not done the financial planning that IS possible for them, and those kids suffer because financial aid isn't available to them, only loans. And of course some families do responsible financial planning but do not get financial aid, and cannot afford high loans. And some have the money, period. I think it is hard to discuss the issue of loans without context.

    Another topic we cannot discuss generically is retirement, and there are many references to retirement in these kinds of threads. What exactly does that mean? Many of my friends, whose kids did graduate, live in low income senior housing, live on meager social security, and their idea of entertainment is a $5 art class at the local senior center. They get rid of their cars because they are too expensive, and think about which grocery store has fruit for 30 cents less.

    Some people really prefer to spend a lot of money on their kids' education even if it means selling the house and living in a studio. Or if it means their old age is going to be spent in low income housing. Then again, some people want a "retirement" with travel, two homes, nice car, and lots of enrichment and hobbies. Some just want to stay in their house and be able to eat out a few times a week without stressing about money.

    It is really hard to talk about how much debt parents should take on without context, but clearly debt on the part of the student is severely limiting in terms of options for work. So I think the real discussion should be, not only how much debt, but how much the student's debt is versus parents'. If debt is taken on, I think parents should handle most of it even if it curtails the ideal retirement.

    There are cases where debt is entirely worthwhile. I know a kid who works for Disney mainly because of where he went to school, and he has paid off an enormous debt in two years, not even living at home. Aside from career outcome, the experience at some schools is most certainly worth some debt, if the family can afford it. As long as it is reasonable, which is hard to define in an absolute way.

    Finally, some families avoid debt entirely. They pay cash for cars, pay off the house as quickly as possible, and are frugal. Avoiding interest at all costs. Taking on college loans means interest. So another position to take is for kids to only attend schools that you can afford to pay for in cash, now. Whether you make a million and can easily do this, or you make under $60k, this is still a good strategy for many. Even if it threatens our golden years.

  • jmnva06jmnva06 Registered User Posts: 499 Member
    While I agree that "enormous" debt is bad, but how do you define what that number is. I have no problem at all with students borrowing the maximum amount of Stafford loans as an undergrad. The debt burden for that is not much more than the cost of a car.

  • PBDPBD Registered User Posts: 36 Junior Member
    What really irritates me about this whole issue is how rankings, the Common App and the schools all conspire to yank our chains. Quite frankly, most kids are going to do well or not based on their own abilities, and not based on anything about the school. A decent state school, as long as it has the major your child wants, is usually going to be just fine.

    I was at Pomona with my daughter and they said, "Over 90% of our students who apply to medical school get in." That really made me laugh. The students there are all at the tippy top academically, that's how they got into Pomona in the first place- OF COURSE they're going to get in med school! They'd get in if they went to Cal Poly Pomona.

    There have even been studies proving this, and articles about said studies written in the NYT and other places. But we still all get sucked into the prestige thing. Why, for example, would I pay and shed blood sweat and tears for a spot in the Ivies when my kid wants to be an engineer. MIT or Caltech I could see (only if my child wanted to be an academician, but they don't). Now, if my kid wanted to be a Supreme Court Justice some day, it might be worth it. If he needed to meet the right people and become a Fortune 500 CEO, I could see it. The prestige factor really can help you out there.

    The real problem isn't the Ivies or Stanford, though. The real problem is that the vast majority of expensive private schools don't have the name recognition of an Ivy, and the vast majority of kids don't want to be Supreme Court Justices or Fortune 500 CEOs. But parents are still running up the same amount of debt as if those things applied. Schools are not magic. We need to have more faith in our children- they make the school, not the other way around.
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