Student Indebtedness

I've been involved in several discussions lately about the benefits and dangers associated with students borrowing money to pay for their college educations.

Comment #1: My niece is crazy. She's borrowed $90K to finance her doctorate in Physical Therapy.

Comment #2: What's the maximum an undergraduate can borrow in educational loans?

Comment #3: Where can a family go to find out the starting salaries of various occupations so that the student can see what % of his salary he'll have to pay each month to pay off his student loans?

These are all important and pressing issues for students and families. Paying for college is one of the puzzle pieces necessary for a successful college search. It has many components and can be confusing. A great primer for learning about student loans can be found on a website we regularly recommend.

A few complications related to the comments listed above sparked my interest.

First, what would the PT student be doing if she hadn't borrowed money to pursue her education and preferred career choice?

And, of course, most of us have read articles in newspapers or magazines periodically decrying students who have been duped into borrowing over $100K to finance their educations. To be a 23 year old with $100K in debt is an alarming situation. The government allows students to borrow about $23K in guaranteed student loans during their undergraduate years. Above that amount, the kids are getting their money somewhere else. Where? Banks? What bank do you know that will lend a student 10s of thousands of dollars with no collateral? OK, so maybe they need their parents to co-sign. These may be some of the same parents who borrowed money for a home with no down-payment, no ability to pay and no concept of indebtedness. We'd hope that the practice of lending money to people with no ability to pay has ended.

Where else can unemployed young adults pursuing college borrow money? It seems that some colleges may have funds they lend to students with few questions asked.

However, some of the $100K writers claim student's have borrowed is actually debt in the parents name. Parents can borrow up to the cost of attendance through the PLUS loan program. That debt is in the parents name, not the student's name. This term is very clearly stated in the borrowing documents. So it doesn't matter what arrangements, understandings, or agreements parents have with their children, if a PLUS loan doesn't get paid back, that debt is reflected on the parents credit rating.

This situation is exemplified in an article from the New York Times. Some readers think that NYU is terrible for allowing this to happen. Others blame the government for allowing a family to borrow this much money. Others think it's ridiculous for a student with this major to borrow any money considering her earning potential may be limited. Others think that it's reasonable to assume that the mother, a business owner, would understand credit, and hold her responsible for her and her daughter's plight. Still others blame the University for not holding their expenses down and allowing their costs to explode over the last 10 years.

Some conclude that paying for private education is ridiculous and all students should attend their state universities. The trouble with that idea is that there aren't enough spots at public universities for everyone who wants to go to college. One current trend worth watching is that as public university applications increase as families look for more affordable options, the selectivity of those schools increases, making attendance at public universities unreachable for average students.

College is expensive. There's no doubt. It's really up to each family to decide, based on their values, what's reasonable. This is definitely one instance where "ONE SIZE DOESN'T FIT ALL". It's generally accepted that families should not use their retirement funds to pay for college. It's also generally accepted that a person with a college degree has a much greater earning potential over a lifetime that someone without a degree.

The purpose of this post is to raise issues. There aren't easy answers. Selecting the right set of colleges considering the Student, Success Factors, College Characteristics and Affordability is likely the best approach for making reasoned decisions about college.