Personal Finance: College and Credit Cards

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Michelle Singletary
Thursday, November 12, 2009; 10:38 AM

I'm always so sorry I can't get to all the questions that are submitted to my online discussion, so here are a few left over from the last chat.

Q: My kid and I have an argument. She will be going to college next year. She has applied to state schools and private (ivy league) schools. I tell her that if she gets a scholarship from one of the schools she has applied she should take it and go to that school. She says that if she gets into an Ivy League, she will go there regardless of the cost. What do you think?

A: I think you stand your financial ground. You are right. She's young and irresponsible and likely sees that Ivy League school much like she sees brand-name jeans. It's a must have.

But that's not true. You can live a great life and get a fulfilling job without going to a brand-name school. I just don't get this thinking our culture has passed on to young folks that college is worth the cost at any price tag.

It's not. And I have dozens and dozens of e-mails, letters and testimonies from broke college graduates who are struggling financially that prove otherwise.

I wouldn't turn down a scholarship to a good school. In fact, I didn't. I got a full scholarship to my state school, the University of Maryland at College Park. Initially I didn't want to go. My preference was to go out of state, but my grandmother would have none of that. Big Mama was right. I received a great education and ended up working at the Post alongside colleagues from Ivy League schools, and my path to the paper wasn't any harder than theirs.

Stick to your word and if she wants to borrow the amount of money it takes to get through an Ivy League school without a scholarship or grant, let her be hardheaded and spend decades trying to pay off that debt. Let her take the hit and experience the consequences of her decision. As Big Mama used to say: "A hard head will make for a soft behind."

Q: My sister and I are both huge fans of yours. We even help one another by asking: "What would Michelle do?" (Recently that meant I didn't get to join the fancy gym I wanted to, but that's okay.) Anyway, we were discussing a purely hypothetical situation we thought you might find fun. I have a 16-month-old son and have a 529 plan for him, to which my husband and I contribute monthly. We also put in any monetary gifts he gets. Assuming life goes according to plan (ha ha!), we should have enough in there when he's 18 to send him to college without incurring debt. Here's the question: Let's say he turns out to be an amazing athlete and gets a full ride. Do we give the money to my son upon graduation? Buy a beach house? What's your opinion?

A: Typically if you withdraw money from a 529 plan and the cash is not used for qualified education expenses you have to pay taxes on the earnings and a 10 percent penalty. But there are some exceptions. You don't have to pay the penalty if the beneficiary has died or is disabled, received a scholarship or decided to attend a U.S. military academy such as West Point.

You still might want to hold onto the money in case your athletic star doesn't go pro and wants to return to school. You could also transfer the money to another beneficiary or use it yourself.

I would try my best to use the money for education expenses for that kid or another one or a relative, etc. If at the end of the day, there's no one else to educate that you want to help, I would probably use it to help my kid buy a home (of course realizing that the tax and penalty would have to be paid).

Q: To raise my credit score, should I pay off my $12,000 debt or should I pay my $11,000 IRS bill? If I pay my debt off, I will raise my score, but I can't get the government job I want unless I pay the IRS off. I don't know which way to go, because they look at both credit score and pending IRS bills.


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