Saying No To Student Debt

Would you give your 17- or 18-year-old child $200,000 and say, “Go spend this anywhere you want?”

Most people wouldn’t. In fact, most people couldn’t, unless they or their child borrowed a good part of the $200,000.

But that is pretty much what we do when we tell our teenagers that we will pay any price within reach to send them to any college that is willing to take them. Especially when we define “within reach” as “possible if we, or they, take on large amounts of debt to do so.”

Michelle Singletary dispenses financial advice for a living, as a television personality and nationally syndicated Washington Post columnist. She is also a Maryland resident and a parent to three kids, one of whom is completing her freshman year at the University of Maryland.

Singletary wrote last month about how she and her husband set a firm rule last year when her daughter Olivia was applying to colleges: No debt. Not for the parents, and not for Olivia. The family’s resources could accommodate an in-state public education without borrowing. If Olivia was to go to elsewhere, it would be because another school was willing to come at least reasonably close to that price level through grants or other means that did not require repayment.

Olivia had her heart set on the University of North Carolina at Chapel Hill since childhood. Singletary wrote about how difficult it would have been to say no to her youngster’s dream. I know the feeling, as do many parents. As it turned out, Olivia was not accepted to UNC, which is a notoriously competitive school for out-of-state applicants.

Often, financial advisers dispense suggestions not based on our superior knowledge or training, but simply based on our experiences as fellow human beings who have confronted situations similar to those our clients face. I have been in that position countless times, and that is the vantage point from which Singletary wrote Sunday’s column. Advisers with enough experience to afford some humility don’t necessarily consider their choices wiser or better than other people’s; they simply want to give others a chance to observe their examples and draw from them whatever lessons they care to take.

In Singletary’s case, the example was that of parents who concluded that their high school senior was in no position to make an informed choice between the short-term gratification of going to a school whose team colors match her aesthetic preferences and the long-term burden of carrying decades of debt for that privilege. Especially at the undergraduate level, one flagship state university is often little different from another. Maryland’s College Park campus, like many schools across the country, offers an honors college program with more-selective admission and other academic benefits. Olivia and her family saved a sizable sum by having her enroll there.

And of course Olivia now loves her college. Most kids do, even those who do not get accepted at the school of their dreams.

Advice like Singletary’s is not revolutionary, but as tuition prices continue to outpace inflation and the nation’s collective student loan debt tops $1 trillion, more parents are beginning to listen to advisers who urge them to say no to their children when they choose schools that would require taking on large amounts of debt. The shift away from need-based and toward merit-based grant aid has also contributed to rise in student debt. Students who go on to law school, medical school or other graduate studies after accumulating debt as an undergraduate often finish their education with six figures’ worth of loans to pay back.

Singletary’s column drew a mixed reaction from readers. Many applauded. Others were surprisingly harsh in their criticism. I know nothing about the critics, and I am disinclined to put too much stock in the rants of people who are easily angered by things they read. Five years of writing my own opinion column have demonstrated that such vitriol often comes from one of two sources, often undisclosed: Either the commenter has a financial interest in the subject (in this case, maybe a job at a campus that is struggling to attract enough tuition dollars to pay the bills) or the commenter has different preferences and feels uncomfortable having those positions challenged.

Singletary did not tell families that they should not spend money on private or out-of-state public schools if they have that money to spend. She did not tell people to avoid education debt in all circumstances and at all costs. She did not even tell people that they ought to make the choices she and her husband made. She simply described what the members of her household did, why they did it, and how it worked out. Readers can draw from that whatever they want.

Increasingly, however, people are drawing the perfectly reasonable conclusion that teenage students are ill-equipped to make six-figure financial decisions, and that parents who really want to do right by their kids in the long run are well advised to draw a line and say “no more.”

The hazards of doing otherwise are increasingly obvious. Not only are indebted graduates less able to take risks, likely to have to delay homeownership, marriage or children, and unlikely to start early on saving for retirement, but the potential for default can be an enormous financial setback. Even graduates who are lucky enough to get a job and responsible enough to keep up with their payments can end up with a ruined credit history if, for example, their co-signer dies before the loan is paid off. And barring exceptional circumstances, most private student loans are not discharged in bankruptcy.

No one solution will fit every family. I have written before about ways to hold down costs, such as planning a strategic transfer or letting your student live at home if school is close by. Depending on your child, it may make sense to discuss your options and find compromises that will keep your student (and you) debt-free.

About Larry M. Elkin 551 Articles

Affiliation: Palisades Hudson Financial Group

Larry M. Elkin, CPA, CFP®, has provided personal financial and tax counseling to a sophisticated client base since 1986. After six years with Arthur Andersen, where he was a senior manager for personal financial planning and family wealth planning, he founded his own firm in Hastings on Hudson, New York in 1992. That firm grew steadily and became the Palisades Hudson organization, which moved to Scarsdale, New York in 2002. The firm expanded to Fort Lauderdale, Florida, in 2005, and to Atlanta, Georgia, in 2008.

Larry received his B.A. in journalism from the University of Montana in 1978, and his M.B.A. in accounting from New York University in 1986. Larry was a reporter and editor for The Associated Press from 1978 to 1986. He covered government, business and legal affairs for the wire service, with assignments in Helena, Montana; Albany, New York; Washington, D.C.; and New York City’s federal courts in Brooklyn and Manhattan.

Larry established the organization’s investment advisory business, which now manages more than $800 million, in 1997. As president of Palisades Hudson, Larry maintains individual professional relationships with many of the firm’s clients, who reside in more than 25 states from Maine to California as well as in several foreign countries. He is the author of Financial Self-Defense for Unmarried Couples (Currency Doubleday, 1995), which was the first comprehensive financial planning guide for unmarried couples. He also is the editor and publisher of Sentinel, a quarterly newsletter on personal financial planning.

Larry has written many Sentinel articles, including several that anticipated future events. In “The Economic Case Against Tobacco Stocks” (February 1995), he forecast that litigation losses would eventually undermine cigarette manufacturers’ financial position. He concluded in “Is This the Beginning Of The End?” (May 1998) that there was a better-than-even chance that estate taxes would be repealed by 2010, three years before Congress enacted legislation to repeal the tax in 2010. In “IRS Takes A Shot At Split-Dollar Life” (June 1996), Larry predicted that the IRS would be able to treat split dollar arrangements as below-market loans, which came to pass with new rules issued by the Service in 2001 and 2002.

More recently, Larry has addressed the causes and consequences of the “Panic of 2008″ in his Sentinel articles. In “Have We Learned Our Lending Lesson At Last” (October 2007) and “Mortgage Lending Lessons Remain Unlearned” (October 2008), Larry questioned whether or not America has learned any lessons from the savings and loan crisis of the 1980s. In addition, he offered some practical changes that should have been made to amend the situation. In “Take Advantage Of The Panic Of 2008” (January 2009), Larry offered ways to capitalize on the wealth of opportunity that the panic presented.

Larry served as president of the Estate Planning Council of New York City, Inc., in 2005-2006. In 2009 the Council presented Larry with its first-ever Lifetime Achievement Award, citing his service to the organization and “his tireless efforts in promoting our industry by word and by personal example as a consummate estate planning professional.” He is regularly interviewed by national and regional publications, and has made nearly 100 radio and television appearances.

Visit: Palisades Hudson

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