Back to School: Planning to fund post-secondary ed
Last week, I encouraged parents to sit down and discuss budgeting with their kids. This conversation was meant to be part of a summer-long discussion about spending, saving, and planning.
Those who have children that are moving on to a post-secondary education were encouraged to try to get their son or daughter thinking about the consequences of student debt.
Although concrete information on the average amount of student debt is difficult to obtain, most data shows that half to two-thirds of students carry some kind of debt. With tuition fees increasing year-over-year, debt levels for those carrying debt will probably continue to climb.
As a parent, you can help your child to keep their debt levels down by maintaining an open dialogue with about how they going to finance their education.
First, discuss how much you are able to contribute to your child’s education. If you have set money aside, tell them how much and give them a sense of what it will cover – tuition only, books and tuition, etc. It is good to be honest and open about what you can afford. This information will help them plan for funding shortfalls.
Another thing to offer is free or discounted accommodations. Staying at home or living with a relative or friend who gives your child a break on rent may be an option. If a student is not paying market-rate living costs during their education, they will be much better off financially in the end.
Next, discuss non-loan funding options with them. Scholarships and bursaries are available for all types of students, and there is always the option of working part-time. Help them research their options and assist them with their scholarship and bursary applications if they want your help.
Finally, when talking about borrowing money, discuss the different options available. Understanding when debt makes sense, and how much to borrow based on expected earnings is a good way to plan.
Most students opt for government student loans. Other options are loans from family, a bank loan, or a credit card. Make sure that they know what their obligations are at the end of their studies, and the consequences of not paying back debt or taking out too much credit.
Furthermore, explain the impact of interest rates for different types of borrowing. This is critical, because credit card companies are often on campus trying sign up students at the beginning of the year. A quick Internet search for “student credit cards” shows rates at about 20% for unpaid balances. If they max out a credit card or two during school, it could haunt them for many years to come.
This is a lot of information for a young person to take in at once. It is not always easy for a parent to comprehend either, so I suggest working through it with your son or daughter. Volunteering to help them is a great way to learn about the challenges they will be facing, and it they will probably appreciate the fact that you are involved.
You may even learn a thing two that will help you manage your own finances.