Breaking The Student Loan Debt Curse
It is great that the government provides student loans to pay the tuition for students whose parents are unable to pay for their education. This gives students the opportunity to attend college or university to pursue post-secondary studies. Unfortunately, this opportunity could result in a blessing or a curse!
Because student loan debt hangs around students’ necks the moment they enter college/university, and it keeps increasing each year until they complete their program of study. Reports in Canada and the United States identified student loan debt as the second highest consumer debt, mortgage debt being the highest. Collectively, Canadian students owe more than $28 billion in student loans to all levels of government, while US students owe $1.5 trillion.
In his book, Fake, Robert Kiyosaki identified student loan debt as the number one asset for the American government. Why the United States government’s best asset is predicated on capitalizing on its residents’ inability to pay cash for education is very mind-boggling for me. And while there’s no evidence that student loan debt is the Canadian government’s number one asset, I suspect the situation in Canada is much the same since Canada seems to copy the US on many things.
Student loan is the only debt that will not be pardoned. Even if you file for bankruptcy, you will still be liable to the government for your student loan. Kristen Kuchar, a US writer and editor, states in her 2017 article, that 19% of borrowers in the US owe more than $50,000 in student loan debt upon graduation. And there are a few people who owe more than $1 million in student loans.
Can you imagine having a student loan for more than a million dollars?😱😱
If your gross income is $100,000 per year, it would take you 10 years to earn $1 million. But the average income in Canada and the US is less than $60K so it will take the average person more than 17 years to earn $1 million. And do keep in mind that your net income would likely be less than three-quarters of your gross income. This is why some parents are still repaying student loans after their own children complete university. In fact, with the current economic conditions globally, you could see some parents repaying student loans even after their grandchildren leave college/university.😁😁
How can we break the student loan debt curse?
You build a culture of saving children’s education — and your children will follow suit.
Unfortunately saving for children’s education is not a common practice among the masses. A CIBC poll in 2017 reported that two in five Canadian students have no education savings and as many as 67% don’t have a Registered Education Savings Plan (RESP) to help pay their tuition.
I’ve had students over the years who sacrificed their academic performance for a job because they want to buy the next pair of Jordan shoes or the newest iPhone. On occasions when their assignments were not completed, the common reason I got was that their job afforded them little or no time to complete. When I asked if they were working to pay for tuition, the popular response I got was: “Tuition? Oh no Ms., I will take a student loan for that.” And they usually go on to share that they work so they can pay their cell phone bills and buy this, that and whatnot.
Why would students prefer to use their earnings to buy shoes, clothes and gadgets than save it to invest in their education is not surprising because like the saying goes: Monkey see Monkey Do. If their grandparents didn’t save for their parents’ education, and their parents didn’t save for theirs, why would they think to save for their education. They buy into taking student loans, not even knowing the ramifications, and how much it would cost them in the long run.
Here are a few strategies you can use to reduce or completely avoid student loans:
- Open a Registered Education Saving Plan for your children (Preferably a family one just in case one child decides not to go to college another child can use the funds).
Open the plan early — shortly after birth — and make regular contributions because the government will match each contribution by 20% up to $500 each year. The government will make a maximum contribution of $7200 up to the year before the child turns 18.
- Determine how much tuition, boarding, meals, school supplies etc. will cost on average for a program, and devise a strategy to have that amount, at the least, saved up by the child is 18.
- Identify ways to reduce tuition costs like bursaries, scholarships, grants and so on, and have your children apply for them.
- Ask me or other expert financial advisors how you can use Universal and Whole Life Insurance to help fund your children’s education.
- Ask me or other expert real estate investors, how can you use an investment property to fund your children’s education.
- Discuss the importance of saving for education (and why student loan is a great burden) with your children and show them how you’re saving for their education. Then encourage them to save for their education too once they get a job.
- Do an exercise with your children to research the career that they want to pursue so they know how much they will be paid, the income trend, the future demand for that career, etc., so they know going in how they will be remunerated and whether there is a growing demand for that field.
Doing this will likely prevent your children from jumping from program to program, because they realize at a later date that their career choice is not in great demand. And they won’t dig themselves deeper and deeper into student loan debt and sometimes still not satisfied upon completion.
In fact, this sometimes sees graduates pursuing other fields of study because they had difficulty finding gainful employment in the one they pursued prior.
Of course, these are not the only strategies that you can utilize to reduce or avoid student loans for your children, and there’s no one size fits all. The strategies you choose to use will depend on your family’s situation. This is why it is important to sit down with an expert financial advisor like myself who can help you to create a plan to achieve your education savings goal.
If you haven’t started saving for your children’s education yet, it’s not too late to begin. All you need is some knowledge and some extra money to invest. I just gave you some knowledge to start, so the next step is to figure out how you can get your hands on some extra money — this may be the $100 or $200 you spend each month on things that you don’t need so start looking within!