Managing your financial life is not just about money.

An Unusual Holiday Gift for You

The first part of this article will be little scary (and not filled with holiday cheer). Your special gift comes at the end.

According to the website StudentLoanHero there are 44.2 million Americans that carry college debt (it must be true if it’s on the internet). Some 11.1% of these loans (well over four million people) are in default.

In its 2015 study on Investor Education, Financial Regulatory Authority interviewed 27,000 people on various investment issues.  This study is conducted every three years, but 2015 was the first year there were questions about college and graduate school student debt.  Some 66% of public college graduates carried college loans averaging $32,300. 75% of private college graduates carried college loans averaging $39,950.

More than half of the respondents regret taking out college loans.  37% are late paying their loans.  54% said that they did not fully understand the ramifications of taking out loans.  53% said that they would have done things differently.  And 17% of respondents did not know how to answer the questions in the survey.  The level of financial ignorance concerning borrowing money for college is frightening.  The repayment of these loans may well have life altering negative consequences for many borrowers.  Even in this holiday season, I have trouble finding sympathy for folks who do not do their homework when it comes to borrowing money, and for others expecting the government (we taxpayers) to forgive these loans.

Okay, enough of the Grinch that stole Christmas! Here is the best Christmas present some of you parents with children not yet in college may ever get.

Sit down with your child and do the math.  I repeat, sit down with your child and do the math as to what monthly loan payments will be for each school they are considering.  The website www.bankrate.com has a simple loan calculator that will help.  Click on the Bank Rates section, then go down to the line that says “What will your monthly payment be? (a simple loan calculator).  Total four years of loans to be incurred; plug in the average interest rate; and use 10 years as the term of the loan.  Presto!  There you have it, the monthly payment.  Then ask your child what his or her income will be the year after college graduation.  Take away at 33% of that income number for federal, state, social security and Medicare taxes.  Divide what is left (after tax real money) by 12 months and compare that to the monthly loan payment.  Then ask you child where he/she plans to live after graduation.

While you are at it, do the same math on the loans YOU plan to assume for EACH of your children. The numbers for parents are even more daunting.  Do the same math with your income. Then ask yourself how long you will have to work, or what does your retirement look like.  If you don’t know the answers, here is another Christmas present for you.   Please, please go visit a Certified Financial Planner and have him/her crunch some numbers for you….. before you borrow the money.

Merry Christmas!

 

MichaMike McNamara - McNamara FInancialel J. McNamara, Ph.D. CFP™

Certified Financial Planner

 

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