Massive student loan debt has become a huge challenge for graduates and there is no sign of the cost of college slowing down.
Many millennials, who either incurred a lot of student loan debt or know someone who did, are now having children. Not surprisingly these parents are concerned about their children potentially incurring a mountain of student loan debt down the road.
One of the (few) positives of the student debt crisis is that it’s on the top of parents’ minds. When it comes to college, parents being involved and (positively) influencing their children is a good thing because:
College choices are being made by teenagers, and they simply can’t be expected to run an ROI analysis on college when their top concern is who their prom date is going to be.
Without parents, guidance counselors, and others stepping in to help them make a decision that considers the financial implications of their college choice and career path, college choice will ultimately be an emotional choice for a student.
The good news is you are reading this post, which means you are interested in helping your current (or if you’re like me, future) children minimize student loan debt.
Before we dive into the specifics, I want to talk first about solutions for those who already are in student loan debt, as well as why a career path shouldn’t always be 100% about the money.
Already have student loan debt? There are a ton of resources for you.
I wrote an entire book for those who already have student loan debt, Student Loan Solution: 5 Steps to Take Control of your Student Loans and Financial Life. The biggest takeaway is that while student loans are a pain, there are a lot of strategies you can take to minimize their impact, especially if we are talking about federal student loans.
Besides my book here are some useful student loan articles you can check out:
- A great place to start: The Ultimate Student Loan Spreadsheet to Track Your Student Loans
- When You Should and Shouldn’t Refinance Student Loans (Highly recommend reading this one if you have private student loans)
Is It All About the Money?
One suggestion some experts have is to make sure that the amount of loans you take out does not exceed the amount of money you will make in the first year of your career. For example, if you are projected to make $50,000 you wouldn’t take out more than $50,000.
If this guidance was followed, we’d have a severe and dangerous shortage in doctors, therapists, dentists, veterinarians, and more careers that are vital to our economy.
As I highlight in the above articles, there is currently student loan forgiveness in place, either income-driven loan forgiveness or Public Service Loan Forgiveness. While these programs may eventually be changed, they will be changed going forward; meaning if you’ve already taken out student loan debt you will have access to the program as is.
This article is focused on those who haven’t started college yet (and perhaps aren’t even born yet!) so I don’t want to overly focus on the programs today, but I highly doubt we will reach the spot where there is no student loan forgiveness options. For example, the Trump administration proposed in 2020 (and in previous years) switching to one income-driven repayment plan with (taxed) loan forgiveness after 15 years for those with only undergraduate debt and 30 years for those with any graduate school debt. This proposal was dead on arrival, which just shows the appetite for changing student loan forgiveness, especially if the change is less favorable than the current program.
My point is this: if your children show an interest in jobs that potentially require a lot of student loan debt such as a dentist or therapist, don’t push them away. Don’t sugarcoat student loan debt, but make sure you don’t leave out things like student loan forgiveness in discussions around pursuing a career with a high amount of debt.
1) Community College
I started my career at a large company and know a number of other employees who graduated and started full-time around the same time. One of my colleagues graduated from the University of Minnesota, and I graduated from a private university. Both the U of M and my college were widely viewed as the top two business schools in the State. Besides the clear difference that I went to a private school and he went to a public one, the other difference was that he went to community college his first couple of years. What that meant was drastically cheaper tuition.
At the end of the day we both interned and got job offers at the same large company, and had comparable educations (on paper). We started at the same salary. But he had far less student loans than I did.
Community college isn’t the end-all be-all for saving money on college. It also may be a worse experience from an education, social, and lifestyle perspective. But one thing that can’t be denied is that community college is far more affordable than going to a four-year college.
Since we are on the topic of community college, another way to save money on student loan debt is by taking PSEO courses while in high school. I took a couple of these, and while it does save money your children have to weigh the pros and cons of being away from the high school during the day. Some student really enjoy high school and love being around the building and the people, but for others it may not be that enjoyable. For those students PSEO could be an outlet for them to pour their energy into getting ahead on college credits. There are also more and more high schools offering these college courses on-site. The high school I graduated from now offers 40+ college credits within their four walls.
2) 529 Plans
529 plans can be a great way to save money for your children’s college expenses – for some people. For others it simply doesn’t make sense.
But first you may be wondering what a 529 plan is. Many states offer 529 plans that can be used to save for future education expenses. Withdrawals are tax free and used for qualified education expenses such as tuition and textbooks. Unlike a 401k retirement account or standard IRA, though, money goes into a 529 after taxes, not pre-tax. There is still a benefit to 529 plans, and if you contribute when your children are young there are many years where investments can gain value, and those gains are not taxed when you withdraw for qualified education expense.
One thing I do worry about, though, is that people who are contributing to 529 plans are not saving enough for retirement or health care costs. I wrote an entire post about this, and I recommend reading if you are currently contributing to a 529 plan or are considering putting money in one.
Before contributing to a 529 plan I think it’s really important to be contributing a sizable percentage of your income to retirement accounts, as well as to Health Savings Accounts (HSA) if you have a High Deductible Health Plan (HDHP). The reason why is simple: people are living longer and retirement can be more expensive than we expect. The best senior living facilities can be as much as $3,000 to $5,000 a month, and health care costs can be steep later in life (as if they aren’t already high enough before then!). These things probably aren’t on the top of your mind when you have children, especially young children, but they are important to consider.
Every parent would love to contribute towards their children’s college education, but you are doing them and yourself a big disservice if saving for their college expenses is to the detriment of your retirement. Your children will be able to take out loans for their education; the same can’t be said about retirement. When your children reach college age if your financial situation allows you to contribute, that’s great. If not, you can help them make the best financial and life decisions around their college choice.
3) Scholarships
I went to a private school for undergrad, where it’s common practice to get some sort of academic scholarship that brings down the high price of tuition. Beyond that, though, I didn’t receive any scholarships. This was nearly 15 years ago so things have changed, but the few scholarships I found and applied to via a Google search felt like a waste of time.
Fast forward to today and the amount of content on the internet has changed things. There are now a number of bloggers who focus solely on helping students find, apply for, and win scholarships. This scholarship book is consistently ranked higher than my book under “Best Sellers in College & University Financial Aid” on Amazon, and it’s no surprise: scholarships can make a big difference in the amount of student loans that students need to take out.
My primary focus is on people who already have incurred student loan debt, so I haven’t spent a ton of time digging into scholarship strategy. With that being said, what I’ve heard some experts say is that you should encourage your children to treat the applications like a part-time job. Scholarships take time. As a parent you can help by identifying the best scholarships for your children to apply to, but ultimately they need to set aside the hours to actually do the work of applying.
This can be a challenge because we all know that high school students are pressed for time. There are so many demands for time and attention of teenagers today that it can be difficult to identify a handful of hours each week for them to fill out applications. At the same time, the time spent on applications does seem to pay off much better than if they spend the time working a part-time job. Do you pay your children for time spent filling out scholarships? Only you can answer that.
4) Trade Careers
Let’s talk trade careers, which offer a different path than the traditional four-year college program. I constantly hear experts and politicians talk about the benefits of trade careers. There are clearly benefits including less student loan debt, less school, and seemingly endless demand. There’s projected shortages in virtually every trade from electricians to elevator mechanics, which creates opportunities for even higher pay.
This all begs the question: why wouldn’t a teenager decide to pursue this route?
Let’s unpack that a bit. Baby boomers see millennials as extremely tech savvy. For example when I started my career in 2010/2011 my manager was in his early 60s. I was an accountant and spent a majority of my day dealing with data in an Excel spreadsheet. If I didn’t know how to do something, I could usually figure it out relatively quickly through Google and trial and error. The ability to access and find this information is something Baby Boomers lack; it simply wasn’t a part of their working lives in their 20s, 30s, and even into their 40s. This is just one example, but there are countless others where Boomers and Gen Y are impressed at what millennials can do with technology.
Now let’s switch to generation Z, who were born between 1995 and 2015 and are between the ages of 4 and 24. Forget about millennials being tech-savvy, Gen Z is growing up with unprecedented access to technology. They are natural content creators and adapt to changing technology quickly. They are most comfortable working on a screen.
If millennials as a generation largely rejected trade careers so they could work on a computer, what makes you think an even more tech-savvy generation will want to spend their working days on a job site? Call me cynical, but Gen Z would much prefer to make their income from a laptop, ideally in a remote work setup where they can live wherever they want.
Supply and demand will naturally draw in some in Gen Z, because trade careers will continue to pay more and more. It could be many decades before we automate something like electrical wiring. Trade careers are certainly a good path to go, I just think everyone who keeps talking about what a great career path it is and how you’d be dumb not to pursue it today should reflect a bit, because oftentimes these same people have never worked in a trade career.
Jobs in the medical industry have some overlap with trade careers, and this is an industry that also is projected to see shortages in certain areas over the next couple of decades. Nurse Practitioners, for example, have a 1% unemployment rate and there is fierce competition for companies to hire them. It has similarities to traditional “trade careers” and can be a good option for future college students.
What I’m getting at with all of this is this: it’s absolutely worth talking about the benefits of a trade career with your children, but go into it with empathy and understanding. There is a good chance they won’t want to pursue a trade career, and that’s okay. And if they are interested, great.
5) Help them Look at Career and College Cost Data
This brings us to my fifth way you can help your children minimize student loan debt: help them understand what they can expect from a given career choice, as well as what sort of debt they will leave a specific college with. This is something college financial aid offices should be doing, but have largely failed at. They have become more of a sales office than one that guides students through what to expect from a job placement, salary, and debt standpoint.
This is where savvy parents step in. They are up-front about what they can and can’t contribute towards their students education. They help them decipher cryptic offer letters from colleges and universities. And they help them understand all the costs involved in college from tuition to textbooks to living expenses. They also help them understand the projected financial picture of what a career choice looks like.
That’s already a big task, but I like to take it a step further. I, for one, don’t want to push my children away from lower-paying careers if they are passionate about said career. For example if my child tells me one day that they want to be a therapist or social worker, two professions that are extremely important to our society but also grossly underpaid, I don’t want to push them away from it. Instead I want to guide them through what the financial picture looks like, including the very real likelihood of finishing school with a high amount of student loan debt. I will walk them through their options of how to navigate federal student loan repayment, and how they can use student loan forgiveness to their advantage (if needed). We need to start showing our children they don’t need to abandon lower-paying careers if they are able to take advantage of income-driven repayment and student loan forgiveness.
If you’ve made it this far it’s okay to feel a bit exhausted and overwhelmed. College and career choices are difficult, not to mention the overly complex student loan system we have to deal with. We’d all love to think that every student operates on a level playing field, but the reality is that the parents who are helping their teenagers navigate all of this have a huge benefit that a majority of teenagers simply don’t have.
Bonus: Teach them about Personal Finance Topics
A big topic in the personal finance space the past few years has been the complete lack of financial literacy being taught in schools today. I am naturally sympathetic to this cause, but I also think that high school students have so many demands on them that a course on personal finance may result in very little being retained a year or two later. Like picking a college, this puts a big burden on parents to help their children understand and navigate personal finances.
I became interested in personal finance not because of my parents sitting me down and teaching me about it, but to be honest because despite being raised in a middle-class family it always felt like finances were a stressor and there was “never enough” money. Not only was I interested in personal finance, but also how to make money and build wealth. It’s not a stretch to say this is what led me to pursuing a business degree in college, specifically in finance.
I truly believe parents who talk about personal finance with their children can have a huge impact on how their children manage their money. The earlier you can peak their interest, and the more thoughtful conversations you can have, the better chance of success.
A few topics you could discuss with your children are:
- Credit Cards & Credit Card Debt
- Credit Score
- Interest Rate
- Compound Interest
- Student Loan Repayment Options
- Tracking Income and Expenses
As a parent there is no one else who can have as big an impact on your children’s future than you. While there’s a lot you can do, please try not to put too much pressure on yourself. If you even take away one thing from this post and implement it you are way ahead of most parents.
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