Save for College, or Face Reality. There is No Magic Money Fairy.

This story really shocked and amazed me.  A couple in Massachusetts racked up more than $500,000 in student loans by putting three kids through college using Parent-PLUS loans.  You can read the original story here, and you should before proceeding.  I don’t want to say anything bad about people.  I know that some people have things happen in their lives that can get them into a lot of trouble financially and sometimes taking on a mountain of debt is the only way.  But still, looking at some of the choices they made according to the article is truly amazing.

Some of the bad choices were:

1.  They had three children to put through college at once, with a fourth coming behind, and yet they saved up no money for college.

2.  They allowed their children to attend private colleges (and agreed to take out loans to pay for it), despite the fact they had no money to send them.

3.  They took out enormous amounts in loans without even considering how much their children would earn after graduation.  For example, their daughter graduated with a music therapy degree and what look like $170,000 in debt.  She then chose to get a job at a nonprofit making $34,000 per year!

The article says that they “wanted to do whatever they could to give their children the same opportunities” they had by going to college and going to graduate school.  Doing whatever they could would have meant giving up things while the kids were young to put money away for college.  It would have meant driving old cars, going without cell phones, and eating in every night with beans and rice on the menu for many meals.  Instead, I suspect they lived the typical lifestyle with new cars every four or five years, vacations, electronics, and many meals out.  They could have also chosen to live somewhere other than Massachusetts with its high taxes and high cost of living.  Doing “whatever it takes” sometimes means moving to bring down your cost of living even if the area isn’t as exciting.

Maybe I’m wrong, however.  Maybe they lived an extremely frugal lifestyle and still, with raising so many children and some misfortunes along the way they found themselves looking at colleges without any money saved.  Maybe I’m right and they just thought they would get all sorts of free money to attend college.  Either way, they should have accepted the situation they were in and accept what they could afford.  This would mean public universities with community college for the first year or two to cut tuition and living expenses.  It would mean having the kids work summer jobs to pay tuition and part-time jobs during the school year.  It would mean finishing as fast as possible, in four years or less.

If a family had no money, you wouldn’t pity them for all of the debt they had if they went out and bought expensive sports cars on credit and racked up $500,000 in debt.  It is fine if people who have millions of dollars in the bank want to send their children to expensive private schools and then come back and get a job at their foundations.  It’s also fine if a family thinks having their children go to an exclusive private college is worth the cost and cut their lifestyle drastically to raise money for tuition.  As I show in detail in “Would You Rather Go to an Ivy League School, or Have $184,000?,” financially it would be far better to attend the state school and invest the money, but for some people, just the experience, prestige, bragging rights of going to certain schools is worth the ridiculous cost.  People who have no money, however, should not go out and go to these same schools when they will need to take on debt to attend them.

The one saving grace is that the article talks about the family paying the money back, perhaps because they didn’t qualify for any of the reduced payback schedules and debt forgiveness programs that are out there.  In that case, we the taxpayers would be left holding the bag for their children’s expensive educations.  Many of those taxpayers didn’t go to elite schools because they didn’t have the money to attend.  If the family does pay back all of the money, then while I think they were foolish for taking out the loans in the first place, they have the right to be foolish with their own money.  But I won’t feel a lot of sympathy.

It is also not enough to hope to pay for college or hope to pay for retirement. It requires planning and executing the plan. Winning the lottery or miraculously having the money to pay for large expenses like college without putting the money away isn’t going to happen.  These expenses are very predictable but many people see them as insurmountable or in the distant future so they don’t do what is needed to be ready when the time comes.  You can pay cash for college and have money for a comfortable retirement, but you need to start early and do what is needed.

If you don’t save and invest and find yourself facing college or retirement without the needed money, you need to scale your purchases to your financial situation.  Debt is also predictable.  You know how much debt you’re running up and it will be due at some point.  Denial won’t make things better.  There is no magic money fairy.

Comments appreciated! What are your thoughts? Questions?

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