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VOL. 125 | NO. 171 | Thursday, September 02, 2010

Dana and Ray Brandon

A Lesson About Avoiding Student Loans

RAY and DANA BRANDON

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Ray’s Take: The Federal Reserve reported in August that Americans owe more on student loans than on credit card debt. That might be good news if it meant more of us were gaining knowledge while at the same time paying off our credit balances.

It’s not good news. College tuition is skyrocketing, outpacing inflation. The default rate on student loans is now about 20 percent because of the recession.

It doesn’t take a financial planner to know debt acquired in your early 20s can be an albatross around the neck into your 30s and 40s. In fact, today’s graduates could be paying off student loans when their kids are college-bound.

For a college education with less debt, consider these options:

Advanced Placement (AP classes): High school students who take AP classes and score well on AP exams can possibly earn enough college credits to bypass a year of college.

Establishing in-state residency: State colleges can be a bargain if you’re a resident. When your child’s heart is set on a state school in another state, investigate establishing residency.

PELL grants: You have to meet financial guidelines and the paperwork is cumbersome, but they don’t have to be repaid.

Moving to a state with a strong scholarship program: A single mother on the West Coast with two young sons knew she couldn’t afford college. So, she moved her family to Georgia and used Georgia’s HOPE Scholarships to put her sons through Georgia Tech, receiving nearly $100,000 in tuition-paid education.

Employer-subsidized education: Although benefits are shrinking, some employers will help pay for college or reimburse tuition. A few offer scholarships for employees’ children.

Live at home: Cut student loan debt by not paying for room and board.

Community colleges: Consider getting basic courses at a community college and transferring to the more expensive school for degree work.

The most important consideration is your child’s developmental readiness. Why let school get in the way of your child’s education? Make sure something more than inertia drives college aspirations.

Dana’s Take: With college tuition going through the roof and parents’ retirement funds shrinking, parents should pause to think before shelling out on college.

Ask yourselves why you are investing in college. Has your child earned it? Or, are you simply repeating a pattern established in your family or among your peers?

For me, it took working and seeing the world before college was meaningful. Until then, I was enjoying great parties on my parents’ dime. I still feel guilty about squandering their money on my freshman year.

Instead of crossing your fingers and hoping your child matures at college, why not wait until he or she has demonstrated maturity and a genuine interest in studying something? Urge your child to work or volunteer after high school.

You both may be glad you did.

Ray Brandon, CFP, CFA, is CEO of Brandon Financial Planning (www.brandonplanning.com). His wife, Dana, has a bachelor’s degree in finance and is a Licensed Clinical Social Worker (LCSW).

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