Cozy Wittman Q and A: The College Search Junior Year: Strategies Related to Debt

Do you have a high school junior in the house? Now is the time to nail down a concrete strategy related to college debt and the college search. CIT’s Cozy Wittman lays out the steps to an effective debt strategy and suggests a strong benchmark for debt.

Why is junior year especially vital for families in the college search?

From a financial perspective, it gives people the opportunity to build their budget for college: to review what is saved, and importantly to articulate plans for paying for college.  What are the costs of the schools we are looking at; what’s our gap?

The process of budgeting can seem so overwhelming to families; what’s the starting point?

What do you have saved?  Figure that out in concrete terms.  Now is the time to talk to your financial advisor, if you haven’t already.  If you are taking money out of broad investment accounts, you may not know what those accounts are worth.  Pick up the phone and ask.

Often, there is a third party saving for college: an auntie, a grandparent, a benefactor of some sort who has made broad promises without naming a figure.  Now is the time to have a very specific conversation around money for college.

After figuring out what is saved, what is the next step in the process?

Figure out who the contributors are to the college fund:  who is contributing, and at what level?  Contributors might include parents (are you planning on contributing more than you have saved? More?);  family members; and lastly, the student.  Do you want the student to contribute, and what does that look like? Is it physically paying for some portion of college?  Is it maintaining the grades and other elements of the student’s profile, in order to substantially facilitate merit scholarships?  Should the student get a job and begin saving money? Will a student loan be part of what the student contributes to college?

How do the practices of figuring out the college budget and figuring out the college list relate?

A good place to start is the local flagship cost of attendance.  How does what you have saved, compare to what that cost is?  If you already have a gap, then you know that any college that runs higher or is more expensive than your state flagship is going to leave you with a bigger gap.  

What is a reasonable gap? What are the guidelines for debt?

I’d propose a two-fold plan. The first is an estimation of payback on the debt. For every 10k in debt, the rough payback on that is 100 dollars a month. So if you take out 40k in debt across the four years, the rough payback on that is 400 dollars a month for ten years.  So it is a pretty easy comparison when you think about the average monthly salary for a college graduate, which right now sits at about 40k.

Talk about that 40k, broken down into monthly debt: after taxes, rent, groceries, car:  what will that student have left every month? It’s a great conversation to have: earning potential versus debt.

I worry about kids taking on debt and choosing the much more expensive college when those decisions are based on an extrapolated income related to a projected career.  High schoolers who are absolutely clear on their future plans for an engineering career drop the major in droves first year, for example, and not always for lucrative majors.

What’s your best advice when it comes to estimating debt and the role a future career plays into that?

I’m a big fan of trying to keep the student within the confines of the Federal Student loan. Over four years that is 27k.  Pretty much any career will allow them still to pay that back without undue stress. It also means that parents are not co-signing on anything and therefore risking their retirement, because the Federal Loan is the one loan that can be owned by the student.

In my family, I wanted the student loan to be not more than 10k over four years, an amount I believe they will be able to very easily pay back.

Did that decision affect their college lists?

Yes, and it was difficult. We had to keep pricing at or below state school pricing. But that still left us with thousands of great colleges to choose from, and they all went to colleges they love. One went to a state flagship, one went to a private college, and one went to an out-of-state public institution. They all got great jobs they secured right out of college, and two of the three paid their debt within three years of graduating. 

There were colleges that just could not come on the list, and that was very hard at the time.  Now they are grateful; they see their friends struggling with the loan payments. Help your kids – and yourselves – to love the list that your family can afford.