The More Expensive College Funding Choice July 10, 2013

Ian Welham’s tough love message about college funding

The Consumer Financial Protection Bureau and the Dept. of Education are reporting that the number of student loan borrowers totals more than 38,000,000 and the outstanding debt surpasses $1.1 trillion.

According to a recent study by Fidelity Investments, 70 percent of this year’s graduating class is getting a sheepskin with debts averaging $35,200 per student. Here are some other starting facts:

  • From 2007 to 2010, the average student loan balance grew by 15% while American households were dramatically shedding other types of consumer debt.
  • A TransUnion study found that over 50% of student loan accounts are in deferred status, which means repayment of principal and interest is “temporarily delayed.”
  • During January and February, “severe derogatory” student loan balances reached $3 billion, according to credit reporting agency Equifax. That’s a 36% year-over-year increase.
  • $20 billion: that’s the amount that outstanding student loan debt increased in just the first quarter of 2013, according to the Federal Reserve Bank of New York. Not the first year. The first quarter. The delinquency rate for student loans at least 90 days tardy sits at 11.2 percent.

Shocking numbers, indeed. But to me, the scariest number came out of the Fidelity survey. Half of the surveyed grads with student loans indicated they were “surprised” by their level of debt. Apparently, they hadn’t kept track of how much they had borrowed. Indeed 39% indicated that if they had been paying closer attention and better understood the final tally, they would have done things differently with regards to their college choices.

One would think that if you’re smart enough to go to college, you should be able to (a) read an agreement; and (b) do the basic arithmetic required to add up what you borrow. If you can’t, the number you’re signing for is probably too high.

Some parents are no better. Rather than face facts, they do their best ostrich imitation and hope the problem goes away.

It doesn’t. In fact, it gets worse, as interest payments compound and grow. If you have two kids attending college, you’re likely to pay as much or more for their education than you did for your home.

You need ideas. You need options. You need to start as early as possible. You need to find ways to pay as much below sticker price as possible. You need to access outside assistance first, before tapping into your own savings.

You need a plan. Hope is not a plan.

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This post was written by paul on July 10, 2013
Posted Under: College Funding,Uncategorized Tags: , , , , ,

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Ian R. Welham, Certified College Planning Advisor  -  Tel: 973.467.0101