I am sharing an email that I received Tuesday from a Wisconsin mom, who is stressed about the admission decision that her teenage son must make by May 1.
What follows is a cautionary tale for any families which have not been through the college admission process yet. Read on to discover how to avoid the kind of mistakes that this family made.
A Mother’s Email
Our son has been a great student (4.0/non-weighted/Full I.B.). Very active in multiple extra-curriculars and a 34 on the ACT. He’s interested in chemical engineering and has been accepted at Stanford, Northwestern, Johns Hopkins, Duke, Washington University in St. Louis and the University of Wisconsin (we live in Wisconsin). Wait listed at Penn.
Never in a million years did we anticipate this. We encouraged him to apply because of his record and after hearing from so many people “the selective schools give you enough to come close to state tuition.” Not really, but, here we are.
So, we have two weeks to make this decision. We can not afford any of the selective schools and all have come in with roughly $30,000 in grants/scholarships–leaving our portion around $30,000. UW has offered him $10,000/year for four years. Husband and I can contribute $10,000/year but that’s all we’re comfortable with given that we need to focus on retirement and our other son who will be in college in two years.
Our son is conflicted. Doesn’t want to regret passing on Stanford or Northwestern (#1 and #2). The prestige and program at Stanford appeal greatly. But, there will be debt. We are uncomfortable with that much debt. In the long run, is it worth it? Hmmmm….there’s the million dollar question.
What loans do you even look for so that the debt will belong to the student not the parent? We want to give him sound advice, but said in the long run the decision will be his, but so will the debt. My pragmatic, midwest values say take the money and run to UW where he’ll come out debt free. Your advice/thoughts?
What Should This Teenager Do?
If you’ve been reading my college blog for any length of time you probably already know what I’m going to recommend. The financially responsible move would be to attend the University of Wisconsin! The figures I pulled from the College Board shows that UW’s tuition and room and board cost is going to be about $17,500 a year and the child can graduate without debt. It’s a no brainer.
In contrast, the teenager would have to take out at least $80,000 worth of loans ($20,00 a year) to attend a school like Stanford or Northwestern and that assumes that prices remain stable. The teenager could borrow a total of $27,000 in federal Stafford Loans, which are designed for students. That’s a manageable figure because of built-in protections.
Even with federal students loans, the child would still have to borrow another $53,000. And he would have to seek out private college loans to cover these costs. The interest rates on these loans are variable and some students are borrowing at 9% or higher.
Teenagers and families can be emotional when choosing schools and weighing costs so I think it is important that they crunch the numbers before they commit their child to a future of crushing debt. That’s why I’d suggest that this family use a student loan calculator to see what kind of payments the son would face graduating with $80,000 in loans.
Using a Student Loan Calculator
I used the student loan calculator at FinAid and determined that he’d owe about $311 a month for his federal loans over a 10-year repayment period. The Stafford interest rate is 6.8% for all students.
I used an interest rate of 7% for his private student loans and I did not include loan fees for either loan, which would increase the costs:
Add these federal and private loan obligations up and this poor kid would be paying $926 a month. And, I should add, private lenders will show no mercy if the kid can’t come up with the cash each month. See how this puts things in perspective?
In my next post, I’m going to have more to say about what this family could possibly do to lower their costs. I’ll also cover what parents need to know about having two children in college at once.
Lynn O’Shaughnessy is the author of the second edition of The College Solution: A Guide for Everyone Looking for the Right School at the Right Price, which will be released on May 6.