How much College can we afford?
Parents, how much college can your student realistically afford? The typical answer should be zero. In any other scenario, a student without a job or credit history CANNOT afford $25,000 a year which equates to $100,000 over 4 years. How in the world do we JUSTIFY borrowing that amount of money to pay for college? We justify borrowing that amount to be repaid on future earnings after college.
But let's look at the statistics for African American students who must "beat the odds" in order to repay the debt. A study by the Center for the New Middle Class, which researches consumer behavior and the causes behind financial struggles of under-served Americans, found even African-Americans with prime credit scores (700 or above) face similar problems to those with low credit scores. For example, compared to the general non-prime population, prime African Americans are 80% more likely to say they live paycheck to paycheck, 2.5x more likely to overdraft an account, and 28% less likely to have $1,200 for a financial emergency.
According to Edtrust , https://edtrust.org/resource/graduation-rates-dont-tell-the-full-story-racial-gaps-in-college-success-are-larger-than-we-think/, "Given the dire consequences of defaulting on federal loans, a failure to make payments is a good indicator of financial distress. As you can see in Figure 2, the default rates for the same students who completed a bachelor’s at a four-year public or private, nonprofit institution vary considerably by race and ethnicity.
The default rates are almost six times higher among Black graduates and 2.5 times higher among Latino graduates than they are among White graduates. The gap in default rates between Black and White students was nearly 23 percentage points. About 3 in 10 (one-third) Black graduates from four-year public or private, nonprofit institutions defaulted on their student loan, while nearly 14% of Latino graduates did so. The differences in default rates were more likely caused by racial differences in (1) employment opportunities tied to students’ majors, (2) institutional reputation (selectivity), and (3) the financial assistance students receive from family to pay back loans. Also, let’s not forget that racial discrimination in the labor market is another key factor that must be considered.
Statistically for African American students, they must "beat the odds" to graduate college, “beat the odds” to avoid employment discrimination and "beat the odds" to be able to pay back the enormous debt from student loans. The empirical evidence says a college degree is NOT the answer to financial success for African Americans.
With every financial scenario, we start with a budget. The families must know the right questions to select colleges WITHIN the means. What is the maximum loan amount your family is willing to make for the college gamble? We must accept that college is a financial decision that should be made within a plan. Student loan DEBT circumvents sound financial planning by allowing families to borrow outside of their means. One solution to college affordability is financial planning. I learned this lesson the hard way so I spend my time educating families on the DEBT traps of life.
For too many African American families, we are NOT “beating the odds” that are stacked against us. Therefore, we must FIND another way..... #problemsolving #financialplanning