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The leading voice for excellence in public finance

Thought Leadership Thursday

Preparing for the Cost of Education

Allison Ball

Thought Leadership Thursday Article

Preparing for the Cost of Education
September 30, 2021
Commonwealth of Kentucky
Dear Colleagues,
As we end College Savings Month, I encourage you to use today as an opportunity to educate our youth and their parents about planning, saving, and investing for college while highlighting the true costs associated with student debt.
College prices are steadily rising, and with that, so is student debt.
In fact, Americans owe nearly $1.2 trillion in student loans according to the National Journal. With so much debt, America’s students will be senior citizens still paying off student loans. We all know the value of higher education and a college degree, but it is time, as financial stewards, to educate our constituents on how to save on the front end and borrow responsibly for education when necessary.
If there is still time, a 529 tax-deferred savings account allows you to invest and grow money for the years before college. As I have previously written, there is no better way to jumpstart a 529 than by utilizing the Federal Child Tax Credit.
When a 529 savings account is not an option and loans must be taken, borrowers need to understand the true costs associated with such loans.  The reality is that the amount borrowed will be significantly lower than the amount required for repayment once fees and interest accrue. Further, repayment schedules following graduation also factor into the total amount owed over the course of the loan lifecycle.   Student loans are infamously easy to obtain, and while the money can be tempting, one has to seriously review the loan’s interest and monthly fee. Paying the bare minimum will never pay off the loan in due time and interest will compound.
Another question for students (particularly incoming freshmen) and parents to think realistically about is whether that major or intended field of study will provide a salary which justifies high student loans for an out-of-state or high-cost college. Could an in-state institution or a different field of study result in a better option for the student’s long-term financial health?  That is a complex question but one that students and parents should consider in their decision-making process.
Nearly $43 billion in student loans are held by people over the age of 60. What does that look like? The amount of debt held by seniors has risen 850 percent over the last decade. It is hard to imagine ending a career when the debt underpinning that career remains unpaid. But we owe it to our youth to help them make smarter financial decisions on the front end of their careers.
As leaders in our states, we need to encourage students and parents to ask good questions: What types of loans best suit your needs? What interest rates are attached to those loans? How will the rise and fall of rates impact you? When does the interest start to accrue? What will the repayment schedule look like? Have you spoken to admissions offices about financial aid? Could you manage a part-time job? What scholarships are available?
There are no limits on how many scholarships and grants one can apply for. Look for merit-based, student-specific scholarships. Consider scholarships from nonprofit groups or scholarships attached to hobbies and interests. Perhaps federal or state student aid is a possibility, like the Kentucky Higher Education Assistance Authority (KHEAA).
Another good tip to consider, do not let the total debt amount exceed the lower range of the estimated first year’s salary. So, if a fashion buyer could make $25,000 -$40,000 out of college, don’t have loans that exceed $25,000.
Many of us administer or serve on the boards of our state’s college savings programs or loan programs.  We are in a unique position to advocate for smart decision-making in this area.
Treasurer Allison Ball
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