How to Avoid This College Mistake That Can Hurt the Entire Family


College, Family, Financial Independence


June 30, 2022

The recent rise in interest rates means paying for college is about to get more expensive for households that intend to take out federal student loans.

Student loan rates for the coming academic year are set every May and are based on the yield of the 10-year Treasury bond. At this year’s reset, the 10-year yield was a lot higher than a year ago, so that means, federal student loans taken out for the 2022-2023 academic year are going to be more expensive.

Here are the interest rates borrowers will pay for loans taken out for this academic year:

  • Student undergraduate loan: 4.99%, up from 3.73%.
  • Student graduate loan: 6.54%, up from 5.28%
  • PLUS loan (parent borrowing): 7.54%, up from 6.3%

The rising cost of college borrowing makes it even more important to borrow smart. Here’s how to minimize your family’s college debt:

  • Only borrow if you are committed to finishing a degree.

    The worst move is to borrow and not earn a degree. That saddles you with debt, and yet you don’t have the degree that will lead to a higher salary. While life can always throw us unanticipated curveballs that can cause a student to change their plans, I am concerned about students who aren’t really sold on college in the first place but figure they will just go anyway. No! No! No! That makes you far more likely to drop out. Take a gap year. Or two. Figure things out. A college degree is an incredibly valuable credential, but only if you complete it. Don’t start until you have a solid sense you are determined to finish.

  • Be clear a 4-year degree is needed/wanted.

    There are plenty of terrific careers that only need a 2-year associate degree, rather than a full-blown 4-year degree.

  • Focus on a school’s net price.

    Every school has its list price, which for private 4-year schools can be more than $50,000 a year. But that’s not what most students pay. A school’s net price is the average out-of-pocket cost attendees pay after accounting for need-based and merit-based aid. It is typically 40% or more below the list price. The key is to focus on schools that are likely to consider your student such a catch, so they will pony up plenty of aid. I would only consider a school where the family’s net price will not require parents to borrow one dime. Keep reading.

  • The only borrowing done for an undergraduate degree should be a student loan, not a PLUS loan the parent(s) take out.

    Scroll back up and you can see why: PLUS loans have a much higher interest rate. And I know that for most households if you take out a PLUS loan, it likely will make it hard to keep saving for retirement. That earns you an F in my grade book for not prioritizing your financial security. I know you think you are doing the right thing, but landing in retirement without the savings you need to live comfortably is going to create problems not just for you, but for your grown kids who might need to eventually step in and help with your living costs

    I also prefer using only federal student loans because they come with set annual limits that make it likely borrowers will be able to handle the payments. PLUS loans for parents have no borrowing limits, which is an invitation to overborrow because you think college debt is “good” debt. Your intentions are lovely, but you are making such a costly mistake. There is no debt that is good if it makes a mess of your retirement security..

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