College Debt: A Potential Pitfall For Parents

College loan debt crossed the $1 Trillion mark last year. Many of the news stories about this topic center around the students. However, a growing trend is parents who are having to postpone their retirement and dig into their savings because they co-signed for student loans for their kids.

I hear all the time from parents: “We’ll do what we have to.” when asked about how they’ll manage today’s out-of-control college costs. We say it without truly understanding how it will impact our lives and our bank account. After all, Cyndee Marcoux, mother of a college graduate who was highlighted in the Wall Street journal article about this very topic (Weekend edition, 10/27-28 2012) likely said the exact same thing and now understands the true impact of that statement.

“You don’t ever think your kid isn’t going to pay.”

Cyndee Marcoux co-signed for about $55,000 of her daughter’s student loans. Fast forward to today – she has sold her house and has a second job in order to manage the unexpected additional expense of $550 per month she had to start paying when her daughter stopped making payments.

Cyndee Marcoux is no different than thousands of parents out there. When the fabulous acceptance letters arrive, you get all caught up in the excitement. Then the bill arrives and it’s a lot bigger than you have saved or planned for. But, no worries, “we’ll do what we have to”. You borrow the money.

Problem is, you have to pay it back. What if you’re still making payments when you want to retire? What if your student can’t find a job and it’s the type of loan you co-signed for (and you become responsible for making the payments)? What if your student starts college but like 58% of the students who start, doesn’t actually finish? We never think it can happen to us until it does.

Better planning reduces the odds of all of this. Can it help eliminate the need to borrow altogether? Sometimes. College loans are often necessary to give families some “breathing room” in their budget or to stretch their savings.

But, if they are necessary, keeping them to the absolute bare minimum is essential.

So, how do you do that?

1. Be Proactive. Too many families realize the mistake after they’ve made it (yes, hindsight is always 20/20). You need to recognize that when you “don’t know what you don’t know”, it will get you.

2. Don’t Assume ANYTHING. Don’t assume you know how all of this works because you’ve been through this before (either for yourself or with an older child). Arm yourself with the information you need to make informed decisions.

3. Take Action. Gathering the information you need is useful but if you don’t do anything with it, it’s useless. It’s easy to get overwhelmed with information. And, it’s human nature — when we’re overwhelmed, we often don’t do anything. And that’s when college becomes more expensive!

Your Smart Plan For College Assignment:

It’s time to get out the map. To get the results you want and get from point A to point B, you have to know exactly where point A is. You can’t know the most effective next actions to take if you don’t know what direction to head first. You may invest in the wrong things and waste your all too valuable time and money looking at colleges that don’t have what you need academically, socially or financially. You will also stress out for no reason, flip-out or even quit. If you don’t know where you are on the road to college, I suggest you get really serious about it — like yesterday! Your child’s success and your bank account are at stake. This really is THAT important.