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The blessing and curse of student loans part two; the role of parental planning

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“I’m always going to resent my mother’s lack of financial preparation for my college education,” a close friend and a graduate of New York University lamented several years ago. “Because she didn’t plan, I’ve come out of college with $50,000 worth of student loan debt.”

He was facing the stark reality of having to meet all of his financial obligations and was upset about the student loan debt that he had to repay. His words sparked an interesting discussion amongst our group of friends about what parents are supposed to do (and what we would as parents) financially regarding their child’s education.

This article is the continuation of the series titled The blessing and curse of student loans, which was inspired by a tweet by Jim Cramer of MSNBC’s hit investing TV show Mad Money.

What are parents supposed to do in preparation for their child’s college education? What do parents owe their children in that regard? As described in Do I Look Like an ATM?, written by Sabrina Lamb, that answer can vary based upon the parent and how much interest and foresight they have regarding their children’s financial literacy and future.

As described in part one of this series, my parents didn’t really have a solid plan for the financial aspect of me and my brother’s college educations. It was expected that we would go to college, but there were no formal discussions about the funding of it until it was time to go. Even then, those discussions consisted of looking for potential scholarships, applying for grants, work study programs and then ultimately student loans.

In order to help pay for my out of state tuition at Johnson C. Smith University, my mother exposed herself financially and took out a Parent Plus loan, which we recently finished paying almost 15 years later. It didn’t occur to me until years later that my mother put herself at financial risk to fund my college education. Recently one of my aunts was unwilling to do the same thing for a cousin, showing that all parents are not willing to take the same risks for their children.

While my father didn’t make any direct contributions to my tuition, he provided financial support in other areas such as getting my first car (a necessity in North Carolina at the time), paying for the insurance and paying for the upkeep during those years as well as other miscellaneous needs.

“The gift you gave us will start our son’s college fund,” a coworker and close friend said thanking me for the $25 gift for her infant son. Their use of my small gift confirmed Sabrina Lamb’s thesis regarding the importance of parents’ foresight and their having the ability to shape their children’s financial future.

My first exposure to proactive college financial planning came during graduate school when a fellow student fervently described how he and his wife were starting college funds for their two infant daughters. It turned out that there were and are quite a few parents thinking ahead and setting up 529 plans for their children or paying their tuitions out of pocket, ensuring that those children would have little or no debt when they graduated.

“I made a deal with my sons. I told them that if they went to school in state, I would pay for their undergraduate education,” a mentor recently. “If they went out of state, I would pay up to a certain amount and they would be responsible for the rest.”

In closing, to answer the opening question of this article about what parents are supposed to do, it depends on what the parent knows to do. The children of parents who don’t plan are basically left to fend for themselves. In a perfect world however, the parent will:

• Encourage their child to excel academically to increase the likelihood of qualifying for scholarships and awards.
• Proactively save for their child’s college tuition.
• Impress upon the child the financial implications of the institution and major they choose.

This series will be continued in part three where the long term ramifications of large amounts of student loan debt will be discussed particularly on family planning and wealth building.

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