Is it Wise to Fund College with Unsecured Personal Loans?
Finding college funding any way possible
Some parents are trying to fund their children’s college tuition with unsecured personal loans. Mary Eggertt, mother of two college students in Ohio, said, “Personal loans are bridging the gap for us financially. …We don’t have a lot of savings, and when a bill comes up, we don’t have a lot of other options.” Eggertt is just one of millions of parents looking for ways to fund their child’s education. It’s estimated that the average private college costs about $30,000 a year and an in-state public university can cost $12,000 annually. With numbers like this, average people will have problems putting their child through college.
Despite the problems of funding college, is it a good idea for parents to stretch their budgets to make payments? Experts are weighing in on the issue and giving a lot of advice concerning why parents should not make funding college their primary reason for saving.
Retirement needs to come first
Sure children’s education is important, but when parents are continually putting off their own saving to fund it, there is a problem. Financial experts cite that there are no loans for retirement. If a parent reaches their retirement years without necessary funds, they could see their golden years quickly diminish. When it comes to college, kids will be able to get loans to fund it if necessary. There are also scholarships, grants and part-time jobs. Also, psychologists argue that having a child personally invested in their education makes them more appreciative and serious about studies.
College savings funds
There are a lot of options for saving for college, but not all of them are reliable. First of all, if parents use these education funds, there are few investment options. A lot of funds pay interest only, and some don’t allow owners to invest. Parents can’t use an education fund to invest in real estate, for example. That may bring a higher return than the education fund would. If putting money into other investments brings a higher rate of return, parents may only need a few small unsecured personal loans to cover the gap.
On top of being inflexible when it comes to investing, education funds are also difficult because of their reliance on tax code. Tax rules change from year to year and it’s difficult to gauge a parent’s income in five years. There have been many cases of parents having income that is too high for them to be eligible for tax advantages they were expecting to use. Gail Prittman, Financial Aid Director at Cornell said, “Too many parents want to do everything they can to start a college fund for a child right away. The problem is that predicting the future just isn’t possible.”
Other education options
While it’s nice to say your child went to an Ivy League school, is it really worth it? There are no guarantees in college funding that say if a child has a Harvard education they will find the perfect cushy job. Overall experts are telling parents to save for themselves first, and then move onto their children’s college funds. Worst case scenario there won’t be enough for children to go to the college of their choice, but there are options. They can get jobs, work at the college for a discount, use unsecured personal loans, get scholarships or start off at a less costly college.