Thursday, July 19, 2012

College Planning: The Big Picture Part 1

Would you give your 10 year old your car keys and let him drive?  Would you let him drive on the turnpike?  Of course not – any parent would be deathly afraid for his safety and the safety of others.

Just as you wouldn’t let your unprepared 10 year old behind the wheel of the car, you do not want to let your high school graduate go to college without the proper preparation. In many ways, this is what we're doing with our kids and grandkids in college planning. We’re asking teenagers to make decisions about their future and their careers, when they are not prepared. Teenagers don't have the fiscal maturity to understand financing their college education, which is quite possibly putting them and others at risk.

How lack of preparation puts your child at risk
Many youth will graduate college with anywhere from $10,000 to $50,000 in debt1. Starting out saddled with a large and daunting debt puts them at a distinct disadvantage considering the challenging job market and high unemployment rate of college graduates. In the current job market, half of recent college graduates are unemployed or underemployed, which means it will take those graduates even longer to pay off their student debts2. Further down the road, it can even limit their ability to purchase a home and save for retirement.

Because of this great risk, it is critical that we are encouraging today’s youth to consider college wisely. Just as when a person who is planning to buy a small business needs to analyze the business, calculate the costs, hire a savvy accountant and make sure it is a worthwhile investment, a high school graduate should make sure college is the practical next step for them. Because of the high debts many college graduates are faced with, we need to help them be sure it’s a worthwhile endeavor. College-bound students should understand that just as a corporation can have a negative cash flow for up to ten years, so can a student with high debts. They need to have a clear understanding of when their break-even point is, and be able to justify the costs. 

How your child’s lack of preparation puts others at risk
This leads us to the question of who is paying all this debt.  Next to the housing crisis, student loan debt is going to be one of the major issues that will affect American society in the next couple of decades. Student debt has grown 511% since 1999, due to the default laws this will affect many Americans3.  As interest rates eventually rise from all-time lows, student loan payments could rise in some cases with unsecured or unstructured loans, increasing the pressure. In fact, student loan interest rates are expected to double in a matter of weeks4.

Of course, we can’t let the rising debts and interest rates deter our children from going to college. College is important and it's a privilege that most Americans can now enjoy.  As the first male in the Kemp family to graduate from college, I certainly understand how important college is and have been a recipient of the many benefits.  However, the cost has now become prohibitive in so many cases, that we need to start planning college attendance more strategically.  The attitude towards college needs to change and be treated not just as an experience but also as a strategic decision.  We need to help our kids and grandkids get through college, not only to get the degree, but so they can develop the critical thinking and have the marketable skills necessary in today’s marketplace.

Coming up in part 2 of this post, we’ll discuss more detailed information and tips to deal with college planning.

At Kemp & Associates we’re dedicated to helping your family navigate important financial decisions like how you can plan to pay for a college education and your retirement. Call us today to set up a complimentary consultation.

"Student Debt at Colleges and Universities Across the Nation." The New York Times, May 12, 2012;

2 “In Weak Job Market, One in Two College Graduates Are Jobless or Underemployed.” The Huffington Post, April 22, 2012;

3 ”Chart of the Day: Student Loans Have Grown 511% Since 1999.” The Atlantic, August 18, 2011;

4 ”Student-Loan Interest Rates Set to Double.” United Press International, Inc., May 25, 2012;

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