“Generation D” redux

Posted by on June 16, 2009 @ 8:21 am in Personal finance

Thank you for all of your comments on my “Generation D” blog post. We heard from students, recent grads, parents, and investors. Your comments were insightful and passionate, and pointed to several major themes.

Some of you admitted to, or alluded to, confusion over the terms of student loans and the implications of those terms. “Read the fine print” was the phrase that struck me. (I was looking at a promissory note from Sallie Mae this week, and it’s not an easy document to get through.)

Interest deferral—and the eventual addition of deferred interest to a loan’s principal—was a shock to some of you. One parent who signed for a loan for her daughter experienced credit-score damage when the daughter defaulted on the loan for a few months. So, “caution” may be a great byword for all of us.

(If you’re looking for straightforward information on financing college, there are many sources online, including SallieMae and Student Aid on the Web.)

Another reader got my attention with some advice I remember learning very early in my career: “Financial prudence comes from managing limited resources. You cannot learn to prioritize if you do not give up discretionary items for essentials.”

One of you put it in practical terms. He wrote about financing his education on his own (with the help of student loans), and having the discipline to ignore “low-interest credit card offers with special one-time gifts like T-shirts, CDs and TVs” that seemed to be all around campus. I could sense his pride in making his final student loan payment (many of us remember that day!), and in living within his means—and intending to continue doing so. He called himself one of the lucky ones. As I see it, he’s one of the smart ones!

Lessons learned the hard way

Some of you recommended that financial education not wait until high school.

A number of students said some well-timed advice on managing money and debt would have been very helpful. One former student related his college experience of accumulating $17,000 in student loans as well as credit card debt—and not having a clue how to pay it off. Many of you pointed out that the responsibility for teaching our children to handle choices (money and debt included) is ours, as parents. The bottom line: Everything may be possible—just not all at the same time.

(Just look at the shelves of any bookstore and you’ll see a myriad of titles on this subject. Two to consider: “Debt-Free by 30: Practical Advice for the Young, Broke, & Upwardly Mobile,” by Jason Anthony and Karl Cluck, and “Life After School Explained,” by Cap & Compass.)

One thing we may want to consider is that children learn by example. We all want to give our children the best start, and many of us incur or underwrite a high level of indebtedness to make their dreams come true. At least one reader questioned the advisability of parents placing themselves in the precarious position of substantial indebtedness when they should be saving for their own retirement—particularly when there are other options for higher education, including state schools and in-state tuition.

Notes:

• Links to SallieMae.com and StudentAid.ed.gov will open new browser windows. Vanguard accepts no responsibility for content on third-party websites.

We invite your comments on this Vanguard Blog entry. Comments will be monitored and published at Vanguard’s discretion. Comments received prior to July 7, 2009 will not be published.

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