Preparing Your Child for College: Tackling the Burden of Student Loan Debt

College students across the nation are working toward earning their degrees in hopes of one day having a career that will provide them with financial security. While many students dream of financial independence, the reality is that the rising cost of college tuition is leaving many of today's graduates with burdening student loan debt.

Rising Tuition

Higher education is vital to the success of young Americans as they enter today's competitive workforce. The demand for highly skilled workers has led to a growth in college enrollment - the National Center for Education Statistics shows a 46 percent increase in undergraduate enrollment from 1990 to 2013. This has fueled the rise in tuition and fees at both public and private institutions. The price tag has also gone up as schools raise the cost of classes in order to modernize housing, build world-class facilities and compete to attract and retain top faculty. The last decade has seen a 42 percent total increase in inflation-adjusted tuition and fees for in-state students at public four-year universities, according to The College Board.

Rising Debt

Because of rising tuition rates the college-age population has turned to student loans as a manner of financing their education. Total student loan balances almost tripled between 2004 and 2012 due to the increasing number of borrowers and higher balances per person, according to The College Board. As a result, Federal and private student loans have surpassed a trillion dollars. And there are additional factors compounding the crisis: More young people are attending college, five-year undergraduate programs are more common and the pursuit of graduate degrees is on the rise.

Seven in 10 students now graduate with outstanding loans according to statistics from the Project on Student Debt. An entire new generation has to ask itself whether the major they pick is one that makes that debt worthwhile. That question has always haunted young hopefuls, but stakes could not be any higher today.

Adults can be the first step towards their child's financial future. If college is on the horizon for a child or yourself, here are some helpful tips to keep in mind.

Tips for Planning

  1. Have "the talk" early. Members of Gen Z (51 percent) report that their parents are the number one resource for learning about finances. The research also suggests that children whose parents spoke to them about fiscal responsibility at an early age are more likely to better understand the importance of saving and have good budgeting habits. This can apply to college planning as well. The earlier you talk about saving for college, the longer you have to develop an investment plan that fits your family's financial situation.

  • Learn about investment vehicles specifically designed for education, including 529 Plans, Coverdell Education Savings Accounts and Custodial Accounts. Each plan has different contribution limits, qualified expenses, tax implications, beneficiary designations and income limit restrictions. Determine which mix works best for your college investment strategy.
  • Exhaust all scholarship and grant opportunities. The earlier you begin researching and applying, the deeper the pool of money. If possible, don't wait until senior year to start applying. And don't focus on just the big fish. There are thousands of smaller awards out there that can add up nicely and ease the financial burden of college.
  • Take advantage of free online resources and calculators. Institutions have onsite assistance like financial aid programs and financial advisors, both of which exist to protect students and their money. Or talk to a registered investment advisor who can help determine strategies for planning and investing for higher education.
  • Carefully select the right education. Student loan debt can quickly become a financial crisis for students who borrow for a degree they do not complete. Then they're on the hook to repay the loans, but don't have the earning power of a degree. Families and aspiring students should evaluate the right education option through a careful examination of their career goals and a cost-benefit analysis. Depending on the student's desired career path, any number of institutions may provide the education and training needed to launch a successful career - from public, private, in-state, out-of-state, four-year, two-year programs to vocational-technical and career colleges and community college. Evaluate all options carefully so that the earning power you achieve surpasses the amount you invest.
  • Be creative and encourage your child to do the same. We all have the right to pursue happiness, including in education. However, it is important to have a realistic view. There is always a risk that a pricy degree might not garner as much demand in the employment market, depending on the field. So by all means, encourage kids to pursue the education that moves them - we all have a better chance of excelling at things we love to do. However, if it is a field that is not in demand, help them find creative ways to find opportunities for that degree or a similar option - like gaining real world experience in the field, seeking out mentors, apprenticing with an expert, doing internships, looking into self-employed ventures and more.
  • There is no doubt; college remains one of the most important tools for upward income mobility. As the price tag rises, new generations must plan more diligently to fund education through different avenues. The major they choose and the investment they make in their career may make any necessary debt worthwhile. For families and individuals that have a plan in place, college will likely continue to be an asset.

    TD Ameritrade, Inc., member FINRA/SIPC. Stock investing is subject to risks, including risk of loss. Commentary provided for educational purposes only. Past performance of a security, strategy, or index is no guarantee of future results or investment success.