High tuition and the rising cost of college education have raised significant questions about the affordability of higher education. A common question revolves around whether loans can cover all the expenses. Let's dive into the numbers and explore the feasibility of this scenario.
Breaking Down the Costs of College
Consider a state university where tuition and fees amount to approximately $25,000 per year. If we assume a four-year degree and ignore inflation, the total cost would be:
$25,000/year x 4 years $100,000
As a dependent student, the maximum amount you can borrow through Federal Direct Student Loans over four years is:
$27,000
Post-graduation, your monthly payment would be around $280. This leaves a gap, indicating that additional funding is necessary.
Alternative Funding Sources
Parent Plus Loans
.Parent funds can come from parents, who might qualify for a Parent Plus Loan. If the parent borrows a total of $76,000, the monthly payment would be approximately $640. However, this does not fully cover the cost of college, leaving a gap for other expenses.
Understanding Loan Repayment
State University Example
Now, let's consider a state university with an annual cost of $25,000. Over ten years, this sums to $250,000. Monthly payments, at an average rate of $1,085.26, would consume a large portion of a typical salary. Assuming a pre-tax salary of $50,000, post-tax savings would be approximately $3,750 per month. Living on just $2,000 per month while making payments on a $250,000 loan for ten years might be feasible but highly challenging.
Community College and Trade School Options
For a more affordable alternative, consider community college or a trade school, with a total cost of around $10,000. Payments might be around $108 per month, leaving more disposable income. If you work for a company that covers continuing education, and you earn $40,000 with post-tax savings of $2,400 per month, you can comfortably manage both costs and pursue a degree without incurring significant debt.
Loans and College Costs: More Than Just Cost
Loans as a Payment Tool
Loans don't actually pay for anything; they merely allow you to pay for something over time. It's about spreading the payment burden across a longer period. Loans can cover a substantial portion of the cost of a college education, but they are not a complete solution. The remaining funds must come from other sources, such as scholarships, grants, or personal savings.
The Reality of College Debt
About 65,000 to 300,000 is the range many students face in educational debt. This isn't just the cost of tuition; it includes room and board, books, and additional expenses. In the U.S., around 90% of college students will graduate with some form of student debt, though most will owe less than $25,000. Only a small percentage, less than 10%, exceed $50,000 in personal debt.
The Role of Personal and Parental Planning
Many students graduate with about 25% of the full cost of education in loans. About 33% of college students graduate debt-free, primarily due to parental planning, not wealth or wealth alone. Students and families often contribute to the cost of higher education while attending, and many work part-time jobs. The rising list prices and increased discount rates due to school-sponsored aid have also contributed to the affordability gap.
Understanding the full picture of college costs and the role of loans can help students and parents make informed decisions about higher education and financial planning.