Don’t break the bank on a dream school

Here are 5 reasons why you should think twice before taking on debt to send your kid to college

We are nearing the time of year when students announce their plans for college in the fall, and parents overextend themselves financially to make it happen, or feel very guilty for not doing so. Paying for college is one of the largest single expenditures that most individuals, or families, will make in a lifetime. Today, a typical bachelor’s degree costs $85,000.

There is hope for parents. Here are five reasons why despite tremendous pressure, having to mortgage your financial future to send your children to their dream college is not the right call:

● If you overextend yourself financially to make a college dream come true for your child, you are taking away your ability to be your child’s financial backstop.

While college is a good bet, it is risky. It could fall short of being a golden ticket to success and prosperity. Federal student loan programs now have features that prevent borrowers from having to make unaffordable payments, but even that sometimes isn’t enough to ensure that student debt isn’t burdensome.

Safeguarding your financial future means you’ll be able to help your child in an emergency. Keep your savings until you are able to afford to repay the loan. Maintaining your financial ability to lend a hand is a far greater gift to your child than a ticket to an expensive dream school.

Safer option on loans

● A second reason to keep your savings is that paying for college via a student loan taken out in your child’s name is a safer option. Federal student loans – and not private student loans – protect borrowers from having to repay their debt if they are unable to start a career or earn their keep despite their diploma.

The Department of Education offers guidelines for these loans through income-driven repayment programs. A federal student loan is an insurance policy.

By comparison, tuitions paid by parents or through other government loan programs such as the parent PLUS loan are gone forever, whether the degree was worth it or not.

● In addition, with politically driven changes afoot in Washington, there is a chance of more generous giveaways to college graduates in the form of mass loan forgiveness.

Supported by the progressive wing of the Democratic Party, these loan cancellations proposals, whether through existing safety nets or new policies, continue to be in the news. A college student with a federal loan might have a good chance of not having to repay his or her debt.

● Most of all, don’t even think about touching your retirement savings or taking equity out of your house to pay your child’s college bill. Both options are vastly more expensive than the highly subsidized interest rates of federal student loans. And that’s before taking into account the previously mentioned federal safety nets.

● The last but most important reason not to go broke while fulfilling your child’s college dream is that an unaffordable price tag might not be worth it. Colleges have become quite luxurious and full of expensive amenities that will not deliver career opportunities.

Paying a lot is worth it when you’re getting a lot, but don’t make the mistake made by so many in higher education who believe that a high price tag is indicative of value.

Shop for college with your child

Instead, use a data-driven approach to shop for college. Through the College Scorecard, young people today have access to data that show how much alumni (from all accredited colleges) earn after graduation. Use the data to do a costbenefit analysis with your child so you both can understand what costs are worth it, or not.

Hopefully, they will remember the session when they are deciding to sign up for basket weaving or accounting.

In many communities, parents are being pressured increasingly to send their child to an elite (read expensive) college. Over the past decade, borrowing by families using the parent PLUS loan federal program has increased by almost 50%. At the same time, a growing number of parents are struggling to repay these debts.

Please remember that you do your child a favor by saying no to a “dream college” you cannot afford.

There are many other higher education paths for your child to take without the burden of unsustainable debt. Other options include public colleges, living at home or even a virtual education.

While these might not be appealing today to your children, they’ll thank you later when they realize you have made the smartest choice for your family by providing them with the economic security your family deserves.

Beth Akers, a resident scholar at the American Enterprise Institute, is the author of “Making College Pay: An Economist Explains How to Make a Smart Bet on Higher Education.”