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Should you fund your children's college with debt?

The other day I was talking with my group of women Certified Financial Planning professionals with Equita and an analogy of "buying a Lamborghini" was used to compare parents taking out debt to finance their children’s college expenses.

The argument was that many parents use their children’s college as a status symbol and not necessarily based upon the education that their children would receive. 

For some this may be true, but I don’t think it's an accurate depiction of the average American family.

One planner pointed out that when you use a loan to buy a car, or home, you go through a qualification process with the lender.  However, this is not the case for student loans – either for the parent or for the student.

Another advisor shared a story about a client who took out a Parent Plus loan for $40,000 for their child’s 1st year of college, only to then go through a divorce (she kept the debt) and the child dropped out. This is probably one of the worst-case scenarios, but it just goes to show how important it is to plan for these major expenses. 

Personally, I wouldn't equate a depreciating asset, especially a Lamborghini, with an education that could position the student for increased earning for a lifetime.  And I most certainly can agree that taking out student loans is not ideal and could come at a compromise to funding other, possibly important, goals such as the parent’s retirement. 

Now, I wouldn’t mind getting behind the wheel of a Lamborghini, but I wouldn’t want to pay a mechanic to service it or pay the insurance premiums.  I do, however, look forward to the day seeing my kids’ graduate college that helps them in the next phase of their lives. 

It all comes down to prioritizing our goals and funding them accordingly.  Have you prioritized yours?

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