Tak­ing on out­ra­geous col­lege debt not worth it

South Florida Sun-Sentinel (Sunday) - - Success - Jill Schlesinger Jill on Money

The col­lege ad­mis­sions bribery scan­dal has raised an im­por­tant ques­tion: Is col­lege even worth it?

Ac­cord­ing to the So­cial Se­cu­rity Ad­min­is­tra­tion, “Men with bach­e­lor’s de­grees earn ap­prox­i­mately $900,000 more in me­dian life­time earn­ings than high school grad­u­ates. Women with bach­e­lor’s de­grees earn $630,000 more.”

But that wage premium varies de­pend­ing on which col­lege you at­tend.

To some ex­tent, the al­leged scheme was smart to tar­get some of the na­tion’s elite schools, be­cause those schools tend to of­fer greater fi­nan­cial re­wards to stu­dents. But those re­wards dif­fer de­pend­ing on where you start.

A 2014 anal­y­sis found that if the stu­dent’s fam­ily is al­ready at the top of the in­come heap, the stu­dent is not likely to cat­a­pult any fur­ther with a fancy de­gree ver­sus a less pres­ti­gious one.

As I have stated be­fore, too many fam­i­lies go astray by over­es­ti­mat­ing the value of a high-priced pri­vate col­lege. Some schools do open enough doors to jus­tify the high price, but the boost is seen more dra­mat­i­cally for those stu­dents who come from mid­dle to lower in­come fam­i­lies. The rea­son is clear: The net­work­ing op­por­tu­ni­ties and ca­chet of a fancy school pro­vide ac­cess that those fam­i­lies wouldn’t other­wise get.

That’s why it might make sense to as­sume debt to tap into the magic of these schools’ alumni net­works and have a bet­ter shot at as­cend­ing to the top 1 per­cent.

The good news is that if your house­hold in­come falls be­low $250,000 or so, most of these elite in­sti­tu­tions have mas­sive en­dow­ments, which will pro­vide the funds nec­es­sary for you or your kids to at­tend. But other name-brand schools in the sec­ond or third tier may not de­liver nearly enough net­work­ing gold to make tak­ing on the debt a good deal, and nei­ther will they pro­vide com­pa­ra­ble fi­nan­cial pack­ages.

That’s an im­por­tant point to re­mem­ber as fam­i­lies be­gin re­ceiv­ing their col­lege ac­cep­tance let­ters and fi­nan­cial aid pack­ages in the com­ing weeks. Over half of stu­dents will turn to loans, which will con­trib­ute to the near $1.5 tril­lion in out­stand­ing ed­u­ca­tion debt.

Ad­di­tion­ally, “Borrowing has shifted from stu­dents to par­ents, es­pe­cially at higher-cost col­leges, be­cause more stu­dents are reach­ing fed­eral stu­dent loan lim­its,” says Mark Kantrowitz, pub­lisher and vice pres­i­dent of re­search for Sav­ing­for­col­lege.com. (The ag­gre­gate loan limit for Fed­eral Di­rect Stafford Loans is $31,000 for de­pen­dent stu­dents and $57,500 for in­de­pen­dent stu­dents.)

Un­for­tu­nately, all of this borrowing is ex­act­ing a ter­ri­ble toll. Nearly three out of four stu­dent loan bor­row­ers ages 23 to 38 de­layed at least one ma­jor fi­nan­cial mile­stone, like pay­ing down out­stand­ing credit card and other debt, es­tab­lish­ing an emer­gency re­serve fund or sav­ing for re­tire­ment, ac­cord­ing to a re­cent Bankrate.com re­port.

There are no easy an­swers for those who have al­ready made these de­ci­sions, but as each fam­ily con­sid­ers higher ed­u­ca­tion, there needs to be an open and hon­est dia­logue, start­ing as early as fresh­man year in high school, as to what the fam­ily can af­ford and how the stu­dent will fare at the in­tended school of choice.

In the end, it is not worth con­sign­ing your kids to the bur­dens of big loans to at­tend a school they can’t af­ford and it is not worth com­pro­mis­ing your own fu­ture by pump­ing money into these un­af­ford­able schools rather than into your re­tire­ment ac­counts.

Jill Schlesinger, CFP, is a CBS News busi­ness an­a­lyst.

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