The government just released a report saying that 7 out of 10 high school graduates will go on to college. That’s up from 6 out of 10 in 2001. Unfortunately, while the number of entering college freshmen has increased, the cost of tuition for both state and private universities is steadily rising. What this means is that many more students and their parents are choosing to take out expensive student loans to finance their college education. Some parents are borrowing more than $71,000 to send one kid through college, just to get an undergraduate degree. And while it is honorable to work hard to finance your kid’s college education, parents need to think about some of the drawbacks of doing so:
- Even if your child does not finish their undergraduate program or if they are unable to repay the loan after graduation, you will still be responsible for repaying any parent student loans you take out.
- The student loan you take out on behalf of your child, will impact your future income. In other words, when you take out that $71,000 student loan you will repay it with $71,000 of your future income plus interest. Borrowing against future income is simply a formula for diminishing your future wealth. And even if you are diminishing that future wealth so that your kid can have a solid college education, you should still think carefully about the long-term financial ramifications of taking out that student loan.
- If you or your child faces a financial crisis in the future that prevents you from making payments on the student loan, it will be extremely difficult if not impossible for you to discharge the student loan in bankruptcy. Currently, bankruptcy law is written so that discharging student loans is only possible under extreme circumstances.