Cost of a college education: How much is too much?


MY son elected to attend a military academy, so I have never received one of those frightening tuition bills for him.

But because he needs money for uniforms and combat boots and, well, a new road-racing bicycle, I turned his college fund over to him.

He laughed out loud.

"What kind of college education did you think I was gonna get with this?" he asked.

I stopped saving for my children's college education when it became clear to me that I would never save enough.

College tuitions are spiraling toward the unbelievable, and compared with those numbers their "college funds" looked more like the proceeds from a lemonade stand.

My daughter, who would never attend any school where everyone wears the same thing every day, is attending a public university, and like millions of Americans, we are borrowing the money to pay for it.

She is borrowing money, too, because summer jobs don't seem to cover the costs of computers and books, not to mention clothes, spring break and the occasional speeding ticket.

In all the paperwork we signed to obtain those loans, nowhere did it say how much borrowing was too much borrowing.

I just assumed we would keep borrowing until she had her college degree and pay it back for as long as it took.

Not until I talked to financial adviser and author Liz Pulliam Weston did I realize that families should only buy the college degree they can afford and there is a way to figure out how much that is.

"A lot of parents feel like they need to do whatever it takes," said Weston, the author of Your Credit Score:

How to Fix, Protect and Improve the 3-Digit Number that Shapes Your Financial Future (Prentice Hall, 2004, $17.95).

"But you have to make it part of your overall financial plan.

"After all, parents are planning for retirement at the same time they are educating their children, and no one will lend you money for retirement."

Debt payments, Weston says, should be no more than 30 to 35 percent of gross income, and college loan payments made by parents should fit inside that parameter, along with car payments, credit card payments and mortgages.

"If you are borrowing so much that you are at more than 40 percent, it is a mark of financial danger," she said.

For the student assuming the burden of loans, the math is slightly different.

"A rule of thumb is, students should never borrow more than they expect to earn in their first year out of college," she said.

Right now, that would be about $30,000 -- the average starting salary for someone with a bachelor's degree.

"Your student loan payment should be no more than 8 to 10 percent of your gross pay when you graduate," said Weston.

Her advice puts the brakes on the college-at-any-cost mind-set of most of us. Tuition costs have grown beyond our imagining, and our debt burden has grown right along with it.

"I don't see any cooling off in the amount of borrowing," said Weston. "Student loans are very low interest. People think it is cheap debt."

When you calculate the earning potential of a high school degree and the lost income during four years of college, most college graduates "break even" in their early 30s, Weston says.

But if they graduate with $50,000 in college loans to repay, the cost-benefit analysis of that college degree changes drastically.

"Some of these students will never earn enough to offset that debt," Weston says.

Not only that, but $500 a month in loan payments for 10 years means these young people will be unable to save for a rainy day, let alone their first home or their retirement.

And public outrage at the doctors and lawyers who walked away from their student loans means bankruptcy is no longer an option to escape this kind of debt.

For the parents who take on this burden, their own retirement becomes that much further off or that much more precarious.

"There has to be some limit," said Weston. "Sit down as a family. Run the numbers, see what you can realistically afford.

"Maybe you go to a state school. Maybe you can go to a community college for two years. Maybe you take some time off to earn the money you need for tuition," she said.

"Sometimes you have to realize that the education you want might be too expensive."

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