There was some eye-opening news recently about student debt.
From the WSJ article:
… As of July, 6.9 million Americans with student loans hadn’t sent a payment to the government in at least 360 days, quarterly data from the Education Department showed this past week. That was up 6%, or 400,000 borrowers, from a year earlier. [my emphasis]
That translates into about 17% of all borrowers with federal loans being severely delinquent, a share that would be even higher if borrowers currently in school who aren’t yet required to repay were excluded…
This will continue to be a spiraling problem, and there are few very good solutions on the horizon — at least as far as the system itself is concerned.
Families, on the other hand, can be wiser about how they approach finances that surround college. Because it’s not just tuition we’re talking about — often the kicker can be all of the ancillary expenses for the life of a college student.
So, if you care at all about the future financial health of your college student child or friend … do them a favor and share this with them.
Campbell On Real World College Expenses
“From what we get, we can make a living; what we give, however, makes a life.” – Arthur Ashe
It’s natural to be nervous about starting school. Many students quite understandably worry they’re biting off more than they could chew.
But the main problem that many in this generation are finding is that much of the worry about the college experience itself — classes, social life, housing, etc. — are dwarfed after the fact, by big money mistakes that haunt college students for years.
If only many students were asked to consider their college expenses in light of these principles more heavily…
Who is actually paying for college?
Many have their undergraduate education paid for by parents, scholarships, and/or loans in their name (or their parents’). If your parents are paying for your education, be careful not to fail any courses! If you fail a class required for your degree, you will have to take that class again, paying for it twice. It’s not worth it, particularly since it’s usually difficult to outright fail a class.
Paying for college yourself supposedly gives you ownership of your academic decisions while in school, but if you’re in a situation where you don’t have to worry about affording your own tuition, then consider yourself lucky.
There are oceans of articles now about ensuring you aren’t taking out monster loans for a degree with no real value.
Just google “anthropology major” and “student debt” and you’ll see what I mean. Carefully consider that college is much more than simply training wheels for the “real world”. The decisions you make about your course of study do, in fact, have ramifications for the first few years out of school and can set a course.
The good news, of course, is that when you ask many adults whether their career has been determined by their degree, they will tell you “no”; you aren’t absolutely limited by your choices. However, it DOES play strongly into your initial post-college years, and these years DO have a big impact on your eventual career path.
But remember that nothing in life is final. Just don’t go into $200K of debt for something which you may later regret, if you can help it.
Open a Roth IRA.
These retirement accounts were brought into existence about 20 years ago in 1997. And if students before that point had had a way that they could put money away for retirement in a tax-advantaged account while they were in such a low tax bracket, they might have taken advantage of the opportunity.
Then again, they might not have. It’s hard to imagine retirement before you’ve officially begun a career, but it’s harder to argue with long-term investing in the stock market — even in these times of economic uncertainty. Many have interests aside from investing, so they don’t particularly think about having a secure financial future. I’m not going to go on and on about the power of compound interest here, but suffice to say — it’s incredible when you get it started in college.
Avoid credit cards.
The credit card companies are (still) vultures on college campuses. And having a credit card without a job is asking for trouble.
One particularly sneaky aspect of college-geared credit cards is the introductory offer. Even with the recently-passed CARD Act, the fine print on these deals are heavily weighted AGAINST the college student, and (of course) in favor of the banks.
Further, here are some other quick pieces of advice for the soon-to-be financially-savvy student:
* Use credit cards sparingly
* Pay all credit card balances in full
* Get the best deal on a checking account
* Start saving
* Keep track of your spending
* Set a limit on entertainment
* Shop at second-hand stores
* Keep an eye out for free money
* Get a part-time job with tips
* Walk or ride a bike — don’t drive
* Avoid the tax on stupidity
* Look for student discounts
* Don’t eat out all the time
Had I known what I know now about compounding interest and the tendency for the stock market to increase over time — not just theoretically but from experience — I’d be in an even better financial position right now. And so would you, I’d imagine.
After all, let’s remember this: it’s not about having more money, it’s about having more options for doing the things to which we are called, and which we enjoy doing.
And that kind of thinking is best served while young.
Warmly (and until next week),
Jeffrey A Campbell CPA