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Qualitative question about student loans

I posted this on Bogleheads.  Also wanted to get AF’s opinion on it.  

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In the very recent past, I have met with multiple clients who all say some variation of the same thing. The details differ somewhat, but the basic message is the same. 

“I bought my daughter a car and financed it. Later my daughter bought a house and she financed it. But when she went to college, I paid 100% of the costs out of my own pocket. I even stopped contributing to 401k and started a side gig so that she could get out of college debt-free. I wanted her to graduate college without the burden of student loan debt.” 

I fundamentally do not understand this, and I wish that I could change my clients’ attitude toward it. 

First, why do you feel that your child (who has 25-30 more years than you have to accumulate assets) deserves your money more than you do? 

Second, if you feel like they are more entitled to your assets than you are, then why do you feel they are entitled to it now? From a strictly economic point of view, wouldn’t you be better off earning 7-8% on your money for the next ten years (until she is old enough to be out of the party stage), and then pay the student loans that are accumulating at 3.4%? Instead of giving several small “gifts” from age 18-22, why not just give her one big “gift” on her 30th birthday?

Third, why is student loan debt somehow more evil or oppressive than automobile debt or mortgage debt? Yes, the state can garnish wages. But cars and houses can also be repossessed. And when you die, student loan debt dies with you. Car debt and mortgage debt lives on. 

Fourth, since when is teaching your kids financial discipline a bad thing? Why do you think that forcing your daughter to choose between beer & cigarettes and paying your student loan payment is a bad thing? I was young and stupid once. I had to make that decision. Sometimes I chose poorly. But I learned from it, and now that I’m almost 40, I can definitely see how that hardship helped shape character. 

* * * 

So my question to the BH community is this: Am I 100% wrong on this? It seems that so many people want to “snowplow parent” their kid through college. I just don’t think that’s a good idea. 

Or are there a lot of parents like me? I just don’t notice them because the subject never comes up?

82 > 87
Simple math.

1. because you have had 25 to 30 years so you should have a lot of money. since you dont, you should just rack your debt and make sure your children are successful. since if you die, your debt dies with you, while they should always have a clean balance sheet as they are the future!

2. 7 to 8 percent is an estimate of what you would earn and can vastly vary. while the 6 percent your child will pay is guaranteed. also people who are really wealthy dotn want to pay estate taxes, they typically give 15k per year on top of annaul expenditures, wait till they rack up 20m, and then place it in a trust for their dynasty so it estate taxes are avoided.

3. student loans are subsidized by government so the guarantees should be more severe. its actually amazing that unproven people shoudl receive financing at such low rates.

4. i agree with you here. but i think the key is just keeping them accountable. if you say finance them, they may just as easily get more student loans on top of that. so you would have just wasted your money. i guess it depends on the kid. much like an investment, if the kid has low potential, do not finance their projects.

I love my cheese. I got to have my cheddar.

I think the idea is to not discourage the kids from pursuing educational opportunities. The other mentality is probably that the kids are the parents’ responsibility until they finish education. Most parents with means probably decide upon the child’s birth that they are accepting the responsibility of paying for education. Other expenses, like buying a house and car that needs a loan are generally “adult” things that the parents don’t think they are responsible for, even though some parents do help their kids pay for this stuff. 

Why limit this to education anyway? This is just one of countless costs to raise kids to adulthood. You could also choose for the kid to take out loans to pay for their own food and housing while they are growing up, and pay someone back later. Parents adopt these costs because they consider them to be conventional costs of upbringing. 

“Visit the Water Cooler forum on Analyst Forum. It is the best forum.”
- Everyone

My school cost $70K a year. My parents basically knew I wouldn’t go to college if I had to finance it, which means they valued seeing me go into a suit/tie profession more than just becoming a plumber. 

Also: Where can we watch the live stream of the Lori Laughlin crucifixion? I hope that **** get’s burned alive. She has undermined all the legitimate hard work of millions of students and shame on her. I hope the judge/jury/executioner(Prosecuting lawyer) give her the god damn chair.

¯\_(ツ)_/¯ It be like that sometimes.

Canadian tuition is waaaay cheaper than in the US, but I still worked every summer and paid off my student loans to the penny after I graduated.  My sister and I were in university around the same time, so there was no way we were going to stick our parents with the bill!!  

“Mmmmmm, something…” - H. Simpson

I am not going to bury my son! My son is going to bury me! - John Q

I love my cheese. I got to have my cheddar.

There’s a few things going into this, and when I eventually have kids I’ll probably do what I can to pay off their tuition as well. There’s a few reasons why.

1. I’m guessing you’ve had considerably less debt coming out of college then the average student has now. In the 20 years since you’ve been in college the average tuition has gone up by ~4% per year. it sucks for everyone, but college has just gotten more expensive. Your 3.4% APR for student loans isn’t accurate either. 5-6% is much closer to the actual, and at 50 years old (when kids would be heading off to college) isn’t far off from the expected return of portfolio, since i’m not in 3x ETFs.

2. I’ll (probably) be able to afford it when I’m older assuming everything continues as is. In this scenario, I can already afford everything i need in life, why not help out my children instead of buying wants.

3. I see car debt/house debt as a luxury, you can rent/drive a beater and not have your lifetime of earnings materially impacted. Going to a worse school just because it’s cheaper would have an impact on your lifetime earnings.

4. It’s a little more than financial discipline, tt impacts your savings/retirement, and gives you something to be permanently anxious about for 10+ years.

5. Parents don’t see their job being done until their kid is able to exist on their own, which for most kids means until after college. If you can help your kid get a leg up on the competition, why wouldn’t you do it? Kids are generally a net negative financial deicions, but people still do it, this is just a continuation of that.

Let’s be real, Greenman is just pissed his AUM is decreased to pay for the kids’ college.

you basically need to come from a target school pedigree/work at prestigious firm in the US/have a really good connection.

- AF hivemind

i actually think that your kids are going to be your best investments. and if you only have one then you are putting all your eggs in that 1 basket. so always have as much as you can so that you are fully diversified. and never equal weight them, always put more in the kids with the most promise.

anyways, i think education should just be for rich people or smart people because it has more impact.

if you are smart, then it makes sense that you are educated because you willl proly be more productive than the dumb ones, and you will prolly be educated with the least costs.

if you are rich, and have 120b in aum, then eeven if you pay 100m for an education then it makes sense because your decisions have a higher impact. a irch buddy of mine told me, that bottles and models are expensive, but bad investmetns are far worse.

if all your kids are idiots and no form of education will help, then perhaps the best gift is just an irrevocable trust with a stipend that they will have to live off of. 

the costs to do something needs to make sense with the reward. if education costs rise a crazy amount with no benefit in salary gains or you are from a poor family. then it would make sense not to send the kid to college. 

I love my cheese. I got to have my cheddar.

I will jump in since I am probably one of the few here who actually has kids in college…and is paying for it. 

I promised my kids a long time ago that we (Mom and Dad) would pay for college.  We opened 529s for both kids and put money in every week.  The investment options stink, but the tax deferral is nice.  And the mental accounting of saving for college may a behavioral sin, but I could show my kids the sacrificing mom and dad are making by putting money away, so they better get to work and get to college. One kid graduates next month with money left over for grad school, and the other is a sophomore.  I cant put a price on what it has meant to us to be able to help our kids pay for school.  I could never say the same for any other purchase, and that includes a house.  

Should I have held on to the money, invested it in our composite, have the kids take out loans and then just pay them off when they graduate?  Maybe.  Paying as you go seemed like a easier way to go. 

My kids are very aware of how much it costs.  I am lucky because the UCs are great schools and relatively cheap compared to the privates.  But I don’t regret one bit paying up now for their education.  If they want anything else (car, house, trips, etc), they have to come up with the money themselves.

That answer is an 11 out of 10.

¯\_(ツ)_/¯ It be like that sometimes.

Greenie: why are you posting questions on Boglehead’s website; isn’t it for DIY investors mainly? 

goes to eleven wrote:

I will jump in since I am probably one of the few here who actually has kids in college…and is paying for it. 

I promised my kids a long time ago that we (Mom and Dad) would pay for college.  We opened 529s for both kids and put money in every week.  The investment options stink, but the tax deferral is nice.  And the mental accounting of saving for college may a behavioral sin, but I could show my kids the sacrificing mom and dad are making by putting money away, so they better get to work and get to college. One kid graduates next month with money left over for grad school, and the other is a sophomore.  I cant put a price on what it has meant to us to be able to help our kids pay for school.  I could never say the same for any other purchase, and that includes a house.  

Should I have held on to the money, invested it in our composite, have the kids take out loans and then just pay them off when they graduate?  Maybe.  Paying as you go seemed like a easier way to go. 

My kids are very aware of how much it costs.  I am lucky because the UCs are great schools and relatively cheap compared to the privates.  But I don’t regret one bit paying up now for their education.  If they want anything else (car, house, trips, etc), they have to come up with the money themselves.

well said, I’m willing to sacrifice to give my kid the best opportunity. The stories of being on your own at 18, working your way up to be wealthy are obsessively covered by the media and used by those who don’t want to provide for their kids as justification. I’m not falling for it. Like in life, the richest formula 1 teams usually win. You may have an anomaly, say a super talent driver but, he won’t stay long at a poorly funded team. 

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!

Greenman72 wrote:

So my question to the BH community is this: Am I 100% wrong on this?

It’s a parent’s decision that’s going to differ by family so you’re not 100% wrong. There are plenty of people that feel the same way you do. That said, you’re 100% wrong. 

The job of any parent is pretty straightforward. Keep your kids healthy, safe, and get them out of your house as soon as they are able. Encouraging them to go to college by offering to pay for it is a nice carrot. Getting them into a good college and out of it debt-free gives the parents the best chance of not having a freeloading 22 year old college grad living in their basement. 

I don’t mind the whole school of hard knocks approach though. I think in some scenarios it’s definitely the right way to parent. For example, I wanted both my kids to have the best immune systems possible so I didn’t get them vaccinated. If they get the measles, they’ll just have to fight through it. Whatever doesn’t kill you, right?

They’ll be the one changing your diapers Greenie.  And this could be the difference between generics and Pampers Plus

goes to eleven wrote:

My kids are very aware of how much it costs.  I am lucky because the UCs are great schools and relatively cheap compared to the privates.  But I don’t regret one bit paying up now for their education.  If they want anything else (car, house, trips, etc), they have to come up with the money themselves.

I’m coming at this from a different perspective.  I have a primary school age daughter who is attending an expensive private school that goes K-12.  It’s a lot of money.  But my thinking is that the best time for me to invest in education is now.  If she applies herself in school, by the time she graduates she’ll be a badass, and then I don’t care if she goes to Big State U and takes out student loans.  I’ve seen so many successful people in life who didn’t go to elite universities, and there are a lot of fantastic students and people who make the most out of Big State U and have a great experience.  I may come to regret this but this is the path I’m on.

public school quality can vary widely. some are ****, some are really good. i went to a public school, thinking i was disadvantaged. but apparently the school was ranked in the top 5% of high schools. anyways i actually lived in teh “ghetto”. so i had to get dropped off to it everyday. anyways free school is awesome. how much is private school?

i went to a top private school in philippines until elementary cuz philippines puiblic schools are for poors. it cost parents about 1k/year. anyways by the time i was in us. i was pretty advanced relative to us students.

anyways i was an underperformer in the philippiesn at the beggining. apparently i couldnt learn how to read. so they hired a nun tutor when i was in kinder for 1 summer. and from then on i was usually top 10% of the class.

I love my cheese. I got to have my cheddar.

Inspiring..

“Visit the Water Cooler forum on Analyst Forum. It is the best forum.”
- Everyone

frisian wrote:

If she applies herself in school, by the time she graduates she’ll be a badass

Fortunately, when people think private school kids, they think “badass” and when they think elite private schools, they think “K-12”.

#FreeCVM #FreeTurd #2007-2017

I’m getting a mental image of the nun tutoring Nerdy (possibly NSFW because of F word):

“Mmmmmm, something…” - H. Simpson

Nery, did those nuns cane you or make you do half squats when you were bad? I can tell that upbringing must have been a key to your success.

“Visit the Water Cooler forum on Analyst Forum. It is the best forum.”
- Everyone

i actually dont recall her at all. my parents claim she was instrumental and making me the man i am today. lol

maybe shes some kind of repressed memory. so i like to think she is the hot nun chick in sister act that taught me how to become a man at the age of 5 lol. 

I love my cheese. I got to have my cheddar.

Nerdyblop wrote:

i actually dont recall her at all. my parents claim she was instrumental and making me the man i am today. lol

maybe shes some kind of repressed memory. so i like to think she is the hot nun chick in sister act that taught me how to become a man at the age of 5 lol. 

Nah, you repressin’ da beatdowns.

“Mmmmmm, something…” - H. Simpson

“hot nun chick in sister act that taught me how to become a man at the age of 5”

What? This is some Biden level stuff.

https://www.washingtonexaminer.com/news/joe-biden-tells-10-year-old-girl-ill-bet-youre-as-bright-as-you-are-good-looking

“Visit the Water Cooler forum on Analyst Forum. It is the best forum.”
- Everyone

ohai wrote:

“hot nun chick in sister act that taught me how to become a man at the age of 5”

What? This is some Biden level stuff.

https://www.washingtonexaminer.com/news/joe-biden-tells-10-year-old-girl-ill-bet-youre-as-bright-as-you-are-good-looking

imagine if Trump said something like that, cnn, buzzfeed, and other fake news would play it 24/7

We’re gonna win so much, you may even get tired of winning. And you’ll say, 'Please, please. It’s too much winning. We can’t take it anymore. Mr. President, it’s too much.' And I’ll say, 'No, it isn’t!' We have to keep winning!

Black Swan wrote:

Fortunately, when people think private school kids, they think “badass” and when they think elite private schools, they think “K-12”.

Do you have children?  If so, how are you approaching their education?

how do we stop these baby kissing presidential pedos!

I love my cheese. I got to have my cheddar.

Nerdyblop wrote:

public school quality can vary widely. some are ****, some are really good.

Yes, FSU is not the same as LSU.  

That is, Flagship State University (University of Texas) or Local State University (University of Texas at the Permian Basin).  

82 > 87
Simple math.

goes to eleven wrote:

I will jump in since I am probably one of the few here who actually has kids in college…and is paying for it. 

I promised my kids a long time ago that we (Mom and Dad) would pay for college.  We opened 529s for both kids and put money in every week.  The investment options stink, but the tax deferral is nice.  And the mental accounting of saving for college may a behavioral sin, but I could show my kids the sacrificing mom and dad are making by putting money away, so they better get to work and get to college. One kid graduates next month with money left over for grad school, and the other is a sophomore.  I cant put a price on what it has meant to us to be able to help our kids pay for school.  I could never say the same for any other purchase, and that includes a house.  

Should I have held on to the money, invested it in our composite, have the kids take out loans and then just pay them off when they graduate?  Maybe.  Paying as you go seemed like a easier way to go. 

My kids are very aware of how much it costs.  I am lucky because the UCs are great schools and relatively cheap compared to the privates.  But I don’t regret one bit paying up now for their education.  If they want anything else (car, house, trips, etc), they have to come up with the money themselves.

Just curious, do you get any government incentives to deposit money into a 529 plan? In Canada, on a $2,500 annual deposit we get a education grant from uncle Justin @ 20% so $500. 

in cali you dont even get a deduction. whack ass foos

I love my cheese. I got to have my cheddar.

frisian wrote:

Black Swan wrote:

Fortunately, when people think private school kids, they think “badass” and when they think elite private schools, they think “K-12”.

Do you have children?  If so, how are you approaching their education?

My plan for my child investments is for them to roam the wild streets unchecked, disciples of the school of hard knocks, learning the intricacies of porn shop financials and how to manage a proper dual entry ledger of instagram likes, models on the right, bottles on the left.  Eventually after years of borrowing from my children on low interest liars loans, I hope to enroll them in UCLA where they can pursue their own dreams of class mobility, from the C-Class to an E-Class armed with nothing but raw ambition, snap chat filters and a rudimentary grasp of the English language.

#FreeCVM #FreeTurd #2007-2017