Student Loan Crisis Echos the Mortgage Meltdown: An Independent Educational Consultant’s View of the Complications in College Financing
A recent issue of the Chronicle of Higher Education features an important article that sheds light on one of the key reasons for the current crisis with student loans in the U.S.—a crisis that to me increasingly resembles the backdrop of the mortgage meltdown that launched the nation into the major recession that we still haven’t emerged from.
The article begins by describing one family’s dilemma: a female student and her single mom, who wanted to help her daughter pay for what is described as her dream college, in this case, NYU. As soon as I read that phrase, “dream college,” I got half of the picture. By not placing limits on what is affordable and reasonable, and by doing whatever it takes to satisfy the whims of a child who can’t possibly understand the implications of or perhaps even the reasons for the choices she is making, disasters can be made. With my clients, and in my blogs, and in the college-planning book that I am writing, my mantra has been for some time: first, determine what is affordable, and then set limits. Unfortunately, few families approach college planning this way.
Why is it that today’s parents are so inclined to shoulder any burden, make any unwise choice in order to finance the costly dreams of their offspring? I am reminded that this generation (my generation), is ironically the offspring of the ultra frugal “greatest generation,” and are many of the same folks who pursued real estate beyond their means and loan terms and credit card offers that defied logic. You would think we would have learned a lesson…
The other half of the picture portrayed in the article are loans, especially Parent PLUS loans, often the last resort of families who want to please a child in love with a college, especially when said college has offered little aid. Here is how the authors describe the process of the awarding of PLUS Loans:
“When a parent applies for a PLUS loan, the government checks credit history, but it doesn’t assess whether the borrower has the ability to repay the loan. It doesn’t check income. It doesn’t check employment status. It doesn’t check how much other debt—like a mortgage or other student loans—the borrower is already on the hook for.”
Sound familiar? Many of us are aware that student loans cannot be discharged in bankruptcy proceedings, but many students, parents, and even some grandparents are surprised when it proves to be difficult to keep up with loan payments during a recession, and there is little relief for them. I have even heard terrible stories about grandparent co-signers’ social security checks being garnished to keep the repayment stream flowing when the graduate and his or her family can’t keep current on monthly installments. So who is to blame for this mess? As with the mortgage crisis, plenty of people and institutions carry part of the burden.
Among them are colleges for their refusal to contain costs, banks and government agencies for their greed, and families, for their naiveté. One category that absolutely should NOT be implicated is that of professionals such as independent educational consultants (and high school guidance counselors, and financial planning professionals and others), who advise families on aspects of planning for college. However, I agree with my friend, financial journalist Lynn O’Shaughnessy, that some of us are insufficiently informed in this area. I acknowledge that when I started out as an IEC in 2007, I was initially ignorant about the importance of knowing the money side of college planning; however, I have been making up for this in the last few years with intensive research.
Right now one of my biggest (and most unexpected) dilemmas is getting families to listen to my advice about not paying more than is necessary for higher education, and not getting trapped by loan offers that are bad choices. I am amused that one criticism of independent educational consultants is that we are expensive and not worth what we charge. Ironically, it may be the case that those of us who include an emphasis in our practice on fiscal soundness may be one of the few bargains to be had in the realm of college planning!