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Jill on Money: Families take on college debt they can't handle

When I talk about paying for college, I proffer the usual advice: Build your family's financial foundation (pay down debt, establish an emergency reserve fund and maximize retirement plan contributions) BEFORE trying to tackle college funding; talk to your kid as early as freshman year in high school about what the family can afford; and don't shortchange your own or your child's financial future by amassing mounds of debt.

But after countless conversations on the topic, I am often left with the feeling that people are unlikely to heed my advice. After I interviewed economic anthropologist Caitlin Zaloom, I better understood why college funding is so confounding.

In her book "Indebted: How Families Make College Work at Any Cost," Zaloom argues that "the problem of paying for college today involves such profound moral, emotional and economic commitments that it has, in fact, redefined the experience of being middle class." Zaloom defines middle class as those who make too much money to qualify for major grants, but not enough to save or pay for college out of cash flow.

Zaloom underscores that a college degree has become an important credential in the U.S. labor force and can be a pathway to financial success. As a result, providing the opportunity to attend college has become a moral obligation for parents (and grandparents).

But this obligation has become more and more difficult to fulfill over the past few decades, as incomes have stagnated and college costs soar. To bridge the gap, "middle class families must now make their way through a thicket of financial policies and programs" that Zaloom calls "the student finance complex."

At the center of the complex is the federal government (specifically, the Department of Education), but there are also banks, universities and financial institutions that provide the funding necessary to claim that golden ticket: the college diploma. After conducting 160 in-depth interviews across the country with college students and their families, Zaloom found that most of those involved in the process knew full well that educational loans were expensive, but they believed that college was the best way to cultivate "open futures" for their children. "Ultimately, middle-class families value their children's potential above all else."

According to a survey from student loan originator Sallie Mae, 84 percent of families believe college will help their student get a better paying job and 90 percent view college as an investment. Of course like all investments, this one has risk. Zaloom says the steep cost of a college degree has pushed middle-class families to assume risk or "social speculation," where parents must bet that money saved or borrowed today will translate into a pay off in the future. "Unfortunately, there is no guarantee that this bet will pay off — for the parents or the children."

This child-first mentality can thwart the parental goal of creating emotionally and financially independent children. That's because the student finance complex "links students to their families for well into their adult lives, drawing down parents' resources at the very same time that they nudge their children toward autonomy."

Zaloom knows that there is no easy answer. Until there is a major reform of the U.S. college education financing system, the problem is one that sits squarely on the shoulders of families. The entry point of the student finance complex is the Free Application for Federal Student Aid, which determines how much students and their families will receive in terms of college grants, scholarships and loans. The FAFSA became available Oct 1 for the 2020-21 academic year.

Jill Schlesinger, CFP, is a CBS News business analyst. She welcomes comments and questions at askjill@jillonmoney.com.

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