Why let your kids take out loans when you could full pay at another school?

[Anonymous]

I’m a financial manager by occupation. I am just wondering what the thought process is for a family whose kid could attend a state school for 30k a year and full pay vs paying a private 80k per year with large loans and decides on the 80k year option. I have a rising freshman and I’m just wondering the thought process that goes through folks heads. The ROU doesn’t seem to be there.

If you make 500k per year and 80k tuition is no big deal- that’s a different story. I’m just wondering why people take out loans.

[Anonymous]

I suspect there are a bunch of reasons why this happens. Some parents aren't financially savvy, some will motivated by perceived prestige, some will believe there is a more favorable ROI with a degree from a SLAC...

I took out larger loans for grad school at a private university and I shouldn't have. I was impatient with the application process and not a discerning consumer based on the degree I planned to earn. I should have waited 8 months, applied to state schools and saved the money.

[Anonymous]

Anonymous wrote:I’m a financial manager by occupation. I am just wondering what the thought process is for a family whose kid could attend a state school for 30k a year and full pay vs paying a private 80k per year with large loans and decides on the 80k year option. I have a rising freshman and I’m just wondering the thought process that goes through folks heads. The ROU doesn’t seem to be there.

If you make 500k per year and 80k tuition is no big deal- that’s a different story. I’m just wondering why people take out loans.

Some private schools offer more financial aid, bringing the cost closer to the state school. Also, different students have different needs and state schools don't always do a good job of meeting those needs. It's really none of your business, OP.

[Anonymous]

First of all, the students don’t take out the BIG loans, their parents need to co-sign. When young Devon can’t/doesn’t pay his loans, the parents are on the hook. Federal funds to students with parent involvement have limits. The freshman limit is around $5500 for the year.

[Anonymous]

Ignorance. Unless parents know a windfall is coming to pay off the loans. It sets everyone up for decades of payments nightmare.

[Anonymous]

Do you often see this scenario, OP?

[Anonymous]

Anonymous wrote:Do you often see this scenario, OP?

Curious too!

[Anonymous]

I've told my kids I'll pay for an in-state college and am steering them in that direction. If they want to go out of state or private, they will need to have scholarships to bring the cost down to the range on in-state and/or have a really good reason. Not really sure what a really good reason would be at this point, but I'm not completely ruling out paying a little extra. If they got in somewhere truly prestigious (say MIT for example) and have worked really hard for that I would probably consider it also.

[Anonymous]

I know one woman whose dad sat down with her and walked her through the loan repayments and convinced her to go in state. But it’s very hard when other friends are going to these ridiculously fancy dorms with climbing walls and manicured lawns to not get caught up in that excess. It’s a shame and I wish the fed govt would cap the loan amounts.

[Anonymous]

By large loans, do you mean the federal loans available to undergrads that amount to just under $30K for 4 years? If so, I don't really think that is much money to repay. That amount hasn't gone up much over the years either. I think it was in the low 20s when I graduated back in 1997. I took out the maximum and repaid it with no problem.

We live in MD and there aren't many great in-state options IMO. I have a kid heading into 11th grade. He wouldn't get into UMD so what's left for him is St. Mary's and maybe UMBC. He will look at both schools and private ones too. With merit money, those private schools may not cost much more than the public ones. I'd rather him not take out loans but it is not as big of a deal as it is made out to be. If I didn't think he would be able to graduate and be saddled with these loans and a low paying job, I wouldn't allow it. But the MD public options are limited so we will look elsewhere too.

[Anonymous]

Anonymous wrote:I know one woman whose dad sat down with her and walked her through the loan repayments and convinced her to go in state. But it’s very hard when other friends are going to these ridiculously fancy dorms with climbing walls and manicured lawns to not get caught up in that excess. It’s a shame and I wish the fed govt would cap the loan amounts.

Federal loans are pretty low. The allowable amount hasn't changed much over time. Now if parents are taking out private loans, that's a bad idea.

[Anonymous]

Anonymous wrote:Some private schools offer more financial aid, bringing the cost closer to the state school. Also, different students have different needs and state schools don't always do a good job of meeting those needs. It's really none of your business, OP.

If it's none of OP's business, why did you answer their question? You can't have it both ways. OP has a professional stake in understanding people's mindsets on this topic. I think OP is probably more open-minded than you are, based on your snarky comment.

[Anonymous]

The value of a college experience can be measure in more than ROI.

[Anonymous]

Some kids won't thrive at a large state school. Some parents want their children to go where they went. Some believe (and sometimes rightly) that the other school's brand will open doors later on. There's 101 reasons.

[Anonymous]

My family of origin had six children and one (blue collar) salary.

I won a "full" scholarship to an unimpressive private school, but my family was very excited. It was solely based on my PSAT score, so I suspect I got have gone somewhere better...but we did not realize that at the time.

Anyway, my point is that scholarships rarely cover all costs of college, so I had to take out smallish loans to get through all 4 years. My story in grad school was very similar. I paid them all off, but that took about 20 years, for both.