Finding Money for College: More Parents Say Kids Are on Their Own
Leaving home and attending college is a great feeling. One thing that’s not so great, however, are the hefty tuition bills that accompany this rite of passage. As a result of rising tuition costs, more parents are encouraging their kids to take on more debt. This is likely due to parents realizing their retirement nest egg must take center stage if they want to enjoy their golden years. According to a recent survey by Discover, nearly 48% of parents think their children should pay some or all of their college tuition. This is up from 39% in 2012. The Cheat Sheet chatted with Stephen Dash, CEO of multi-lender student loan marketplace Credible, to learn more about this latest development among parents.
The Cheat Sheet: Why are parents asking their kids to borrow more?
Stephen Dash: College tuition and fees have been rising faster than incomes, and many families aren’t going to be able to pick up those increases for their children. The survey found only about one in five families are able to foot more than half of the bill for their children’s education. At the same time, annual and aggregate limits on how much students can borrow from the government have increased, making it more likely that students will close the funding gap by taking out additional loans. The good news is that states have begun restoring funding to public universities and school-based, state and federal aid can reduce the net cost of attending college far below the published “sticker price.” The survey’s finding that only 44% of parents could say for certain that they’d completed the Free Application for Federal Student Aid (FAFSA) highlights a well-known problem that the Obama administration has at least been trying to address.
The Cheat Sheet: How is this affecting new college grads financially?
SD: It’s a little surprising, but the borrowers who have the most trouble repaying their loans tend to be students with relatively low loan balances who attended for-profit colleges or non-selective schools. Often they did not complete their degree, or learn skills that increased their job prospects and earning power. Graduates who have marketable job skills are much more likely to be paying down their debt, and are often good candidates to refinance their loans with private lenders at lower interest rates. Borrowers who refinanced their student loan debt with lenders on the Credible platform with the goal of reducing their interest rate, loan term, and total amount repaid can save about $14,000 over the life of their loan.
CS: Anything to add?
SD: After their children have lined up all of the grants, scholarships, and state and federal financial aid and loans they may qualify for, private lenders can help cover any funding gaps. If parents agree to cosign a private student loan for their children, they can help them obtain a lower rate, which makes it easier to repay those loans. Many private lenders now offer education loans to parents that are competitive with federal parent PLUS loans, which carry a 4.272% upfront disbursement fee that’s not charged by private lenders. Parents with high-interest government loans can often refinance them with private lenders at lower rates.