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Financial Planning / Paying For College


Subject:  Re: Parent vs Child Assets Date:  7/28/2001  1:53 AM
Author:  CCSand Number:  4096 of 8571

As a father of a 14 month old, I was curious if anyone regrets putting the money in your child's name. It seems to create a lot of financial aid problems that would be avoided by keeping the money in your own name. I realize this strategy negates the possibility of an Ed-IRA or a 529plan so there are certainly pros and cons to both.

This may not be the answer you want to hear, but I hope I can give you a little perspective.

I am an attorney. My education was both too long and too expensive. Fortunately, I was lucky to have parents who earned, invested and saved a lot of money to send me through college, paralegal school and then law school. It is not recommended that full time law students work a full time job, therefore my parents gave me an allowance to live on. It was an incredibly small allowance. I had a nearly impossible time making ends meet. I didn't live extravagantly. There just wasn't a lot of money.

My friends encouraged me to get a student loan. I had never applied for one before and so was a novice. I barely had a credit card at this point. But they all said it was easy to get and, as I found out, it was. The first loan was for $4,000. I soon ran out of that money and the following year, I applied for a larger $20,000 loan. The only smart thing I did about that was to take $4,000 off the top of the second loan and use it to pay off the first loan. I figured it would be easy to repay once I was out of law school and had a high 5 figure salary.


Rude Awakening #1: I graduated from law school in California in 1992. We had this little problem called a "recession". It was a depression as far as I was concerned. As a part time job to pay for a summer law program, I worked in Law Career Services my second year. During that year of law school, law firms cut back on their recruiting and only interviewed third years for summer associate positions. No job for me. My third year of law school, law firms cut back even more - nearly one-half of our on-campus interviews were cancelled. There were no jobs. Even long time partners were getting laid off at the big firms. One year after I graduated in 1992, 85% of my class still didn't have a job. Although I was in the lucky 15%, my job sucked, to put it mildly. I earned $12,000 my first year out of law school. I worked for a sole practitioner in family law, a field which doesn't typically pay. At least it was a job.

Try living on $12,000/year in the Bay Area. It's impossible now. It was only difficult then. But there was no money left at the end of the month to pay those student loans. So I deferred them, which I was allowed to do, up to two years after graduation. Well, things weren't any better in 1994 than they were in 1992. It's exceedingly difficult to get a lateral position out of law school. Law firms don't hire the way the general marketplace does and I didn't understand that. I quit my job after the first year, and went into business for myself.

Rude Awakening #2: I worked my butt off and although I pulled in nearly 4 times what I was being paid in wages, the overhead of running a law office ate 50% of my gross. I then paid another 15-20% in taxes, and lived off of what was left. Still no money to pay those student loans. I even went to Consumer Credit Counseling and they looked at my income and expenses and told me there wasn't much room to cut expenses. I had to earn more.

At this point, I had my only two credit cards up, which probably didn't make any difference given that the credit grantors had closed them anyway. I was barely treading water and every time it seemed like I was getting ahead, something would happen and I'd be mired in ever more debt. My debt load was enormous. But no one had ever taught me how to manage it.

The Solution: I quit being an attorney. I took a break. I know that sounds rather extreme, but I made more money as a top notch litigation secretary than I was making as a beginner attorney. I slowly began to pay the debt off. I began to earn more than I was spending. It took me five years to pay off all my debt. Little by little. Chunk by ignominious chunk. By the time I got married in 1998, I had payed off everything except $400 in bills, $1,500 for my car and my student loan.

Back to The Student Loan: Oh yeah. That $20,000 student loan managed to multiply itself into a $26,000 student loan in just 8 years. I paid it off in full in 1999. How did I pay it off? My husband got a huge bonus which we used to pay it off. I'm now repaying us the $400/month I was sending to someone else. So I guess I'm still paying it off, but at least I'm paying us.

The Lesson: NEVER teach your children to mortgage their future. That's exactly what they're doing when they take out a student loan. Having to repay a princely sum every month right after you graduate when you're not making a lot of money is simply asking for trouble. If I hadn't had to repay those loans, I might have been able to take some calculated risks with respect to my career that I couldn't because I was worried about repaying that damned student loan.

If a student loan is the only way you can get an education that's one thing, but if you have the foresight to make a difference in the life of your child, all I can say is do it.

You never know what the future will bring, so be financially prepared for it. And prepare your children.

CCSand, Esq.

POSTSCRIPT: I'm now working at a major law firm. I'm not a legal secretary any more, but I'm not yet practicing law again either. But I'm doing well, so I'm not in a big rush. I'm back in school for an advanced degree, and this time I'm paying the balance of what my tuition reimbursement program doesn't pay. I love what I'm doing. I'm not in debt. I love the people I work with. I learn something new every day. And I'm not looking back over my shoulder wondering when the debt collector is going to find me.
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