Episode #42 – The Burden of College Debt!

The burden of college education is affecting families for decades. Is there an answer? Do you have to go into debt to get a college degree?

We talk about this and more on episode 42.







Well hey, everyone Dan Thompson with you again on this wealthy and wise Wednesday, glad you can join me, hope you are having a great week. I have been thinking a lot about different topics that we can talk about and for some reason I don’t know what happened but started talking to some clients about college tuition, college education for kids and I got to thinking that what a big decision this really is, you know obviously I think it is pretty common to think you want your kids to go to college and obviously that is a good thing for the most part but I don’t think that we have really take into account what that really means anymore and I thought that it would be good just to kind of talk about some facts and you know some statistics and maybe come up with some solutions that might help a little bit.

[00:01:22] you know first thing we got to realize is just the cost and if there is anything we can do to reduce them at all. I get a little frustrated with the college community because it seems that they are not trying to do much in way of helping kids get through school without this huge debt. So let’s just talk about a few things, so what is the average cost across a country, well a public 2 years’ college is about $44,000 a year and these are all averages. So what that means is that there is going to be some school more expensive and there is going to be some schools less expensive. Then the average public four-year college in state is ninety-four hundred a year, so let’s go back to the two years, so $34,000 a year, you could basically in a two years’ college get out of there for less than $7,000. A public four-year college at ninety-four hundred a year, so we are looking at about $40,000 to get through school there.

[00:02:40] a public four years’ college that is out of state is more than doubles, that gets you about $24000, so this is called twenty-five, four years that is one hundred thousand dollars’ college education and a private four years’ college is running at about thirty-three thousand a year, so now we are 120, 130 thousand dollars for your education. But all in all, cross the board, average cost, people spending about thirty-four thousand dollars. So again that is the highest and the lowest that community colleges, the more expensive college. You know the most expensive college out there and I believe this figure includes some tuition, some books, supplies, it might even include a room on board, I am not 100% sure. It was just a big number; $61,000 a year goes to Sarah Lawrence college. Now I have heard of a lot of colleges and I can’t say I know exactly what Sarah Lawrence college is but it is 61, 62 thousand dollars a year. Quarter million dollars’ education, hopefully it is really good. In comparison, MIT is fifty-four thousand a year, Harvard is forty-three thousand a year and both of those, so MIT is fifty-four and Harvard at forty-three and that does not include room, board, book, supplies, and fees.

[00:04:23] So again, you are probably going to attach on another ten or fifteen thousand dollars there as well, so and you know not everybody is going to get an MIT and Harvard degree or Sarah Lawrence college degree. I realize that most, I’d say a vast number of college students are somehow in state or close to instate as they probably can be. Let’s just see what happens today. So if you have a child today, is you are going to send to school 18 years from now and we are just going to assume a five percent inflation rate, well a five percent inflation rate is a little bit low, it is real because college cost a really closer to seven percent in escalation. So I will throw this graph up there so you kind of see how this works but well if you look at this graph in the middle, it looks like public and state Universities, you can get out of there with about a thirty nine thousand dollar cost. In 18 years, that same thirty-nine thousand is going to turn into ninety-four, almost ninety-five thousand dollars. If we look at the graph just to the graph, a two years’ community college and two years’ private college, that would look like $77,000 currently but in 18 years, that is about a 186 thousand dollars with just a small inflation rate and then just private college right now, you are looking at about a 134, just a little under a 135 thousand dollars. That is going to grow to over three hundred and twenty-three thousand dollars by the time your child gets to be 18.

[00:06:17] so you can see, this is huge, this is big money, these are retirement fund and that is part of this whole battle here is it more important for you to be saving, investing and preparing for your retirement, that could be as long as thirty years or should you be taking that money or saving it for your kids’ college educations. You know because having two, three, four kids, you are taking hundreds of hundreds of thousands of dollars. And if the parents don’t pay for it then the kids are going to have to pay for it and unfortunately kids who are typically not in a situation where they have a job that is going to be able to handle all those kinds of funds. So what do they do? They go into school debt and kids are going into school debts, I mean just like it is going out in style as they used to say and it is just hanging a chain around our kids neck and then pushing them off the dock and hope they can tread water for a very long time. It is just a burden that have never been put upon kids like it is today, I mean even back when I was younger, not many kids went into debt, somehow, it was either they worked through school, they went to less expensive schools but then the government comes along and they say hey, we are going to guarantee these debts and it is like wow. It is just crazy the amount of debt these kids take on and right now, school debts are 1.4 trillion dollars, just in comparism, that is six hundred and thirty billion dollars more than all the credit card debts out there. And we know how bad credit card debt is but we have 1.4 trillion dollars out there in school debts of which it really can never be bankrupted out of.

[00:08:29] the only time it could potentially be forgiven is if you carry it for 20 years. So think about that, you are 25 years old and you carry debt for 20 years and now you are 45 years old and you might be able to get some relief from that debts. The sad part is, it has taken 21 years on average to pay these debts back. That means obviously some are paying it back sooner but some are going longer than 21 years just to get that average. I mean 21 years to pay off a school debt, that is just a burden that is just on you constantly month after month. You know I work with a dentist a while back, he has been practicing for 20 years and he still had a $100,000 in school debts twenty years later. Now obviously some do better than others at eliminating that debt when they get out of school, I mean some of the most successful people I see out there are those who got rid of the debt quickly. I can tell you story after story out of you know whether it is dental school or medical school. Now these guys are really rack up some debts, you can be talking three to four hundred thousand dollars in debt currently to get through medical school and dental school. But the ones that are wise get out of school and they kind of just mhen, they just suck it up and get tough and live like paupers for a while and they get that debt out of the way as quickly as they possibly can and then they become some of the most successful businessmen, whether again medical, dental, attorney, engineer, whatever that might be.

[00:10:15] If you can get rid of that debt quickly, you have a chance to be much more successful. The critical thing is when you get out of school, if you do have debt, try to return that just as quickly as you can. There is a counter-arguments out there that says because school debt is a very low interest rate typically then you should retire all that quickly and you should be saving and investing. Well, I have just seen it way too many times, if you carry that debts, the chances are all that burden is just going to become so heavy that it gets really difficult to concentrate and just to always looking at that can be extremely frustrating. So that is just so burdensome to young families, you know they recently did an interview of how I think it was a thousand different college graduates but here is what was interesting, 70% of them were either unemployed or working in nonprofessional jobs just to make ends meet and these jobs, they do not need their college education or their college degrees to get those jobs and 20% of those that were working were already looking for another job. So what I get frustrated at is this promise and this misconception that if you get this degree, you are going to get this great job, you are going to get your debt paid, everything is just going to be you know just perfect.

[00:11:46] I remember years ago, not even years ago just a couple years ago, talking with this young girl who is trying to save and put away some money, she had forty two thousand dollars in school debts and her jobs was paying her twenty two thousand dollars a year, so she was making less than two thousand dollars a month and her school payments owes like $400 or something like you know twenty or twenty five percent of her gross income was having to go pay these debts, she was not getting anywhere, just really frustrated, so she was frustrated on many accounts, one that she went into the debts, the other she couldn’t find a job that paid enough that helped her retire that debt. And that is what is really hard for me to swallow is when people goes to school for these degrees that are sometimes, they are just degree to get through school, to say you have one, they will have no idea what they are going to do in life or what their interest are and yet they come out with these massive school debts. So what do you do about it? Well, the first thing I think you should do is have an objective, I mean what is your dream job, what do you really want to do and search for that and figure that out and have a reason to go to school, have a reason to get that degree so that you can achieve that particular college trained job. If you can and you probably can, walk through school, pay for it as much as you can, pay as you go. With this little debt as possible.

[00:13:33] you will be better off taking six years to get through schools so that you can work through summers and have a part times jobs and take school a little slower if you have to and get rid of it and retire that debt as you go along. Stay in state and maybe at a community college, at least for those first couple of years where they are called classes where they are probably not that meaningful. Apply for grants and scholarships and anywhere you can get some money and like I always told our kids, get good grades right. Good grades help you get a few bucks, we had very success story with colleges but one of our kids did very well when it came to grants and scholarships and that kind of stuff and think he actually came out of college making money. So it can be very beneficial if you could use those things. So try to stay out of debts as you are going through school, that is the big thing because that nooks around your neck for decades to come is so frustrating.

[00:14:49] well I will end on this, you know schools are so far behind technology and I don’t get it, I mean school should be leading edge, it should be where you are learning the best of the best and the newest from the brightest but they are so far behind time, why is school no online, why isn’t possible to jump on a computer and go to school. I mean I know it is, but why is that not pushed more and why isn’t it so cheap. I mean you can learn anything right now on the internet. Let’s suppose I want to be an astronomer, I can spend an entire time or semester learning right here from my computer because I was interested in astronomy, I want to learn everything about it. There is so much information out there, I could get an astronomy degree on my own right here. Now I realize that it doesn’t count for anything because they want you to take their test, they want you to be in their lecture halls on and on and so I blame a lot of these on the school system and how archaic it is but I think they got this hold, I think they got this monopoly and I just don’t see it changing because it is too profitable, too much money in it. Putting debt on kids is just awesome for them and it doesn’t have to be that way, like I said with technology, we could be as educated as we wanted to be. So I get on this [00:16:30] get little frustrated with this archaic system that we live in and I know there are some good. Don’t get me wrong, let’s not throw it all out, I know there is time where you really needs to be in class with a group or with a professor of some sort. And those I get, I just think there are so many things we could use technology for and get way ahead of these things.

[00:16:57] more importantly, thinking about our kids and the debts and the burden we are putting on them for years and decades to come, I just think that is a crime. So I guess the moral of this podcast and video is just doing everything we can to stay out of the debt trap, to stay out of putting that news and chain around our kids neck for the next number of years. Well that was fun right? Feel free to write to me any questions, email me, you know questions@wisemoneytools.com. I will be happy to answer them as quick as I can, this is a good topic, it is a vast topic we can probably do two or three different podcasts on this because there is so much to talk about but I hope at least got you thinking and if you have got kids that is coming up or in school right now a hope that gives you some ideas and maybe had eliminate and avoid some of those debt traps. Alright that is it, well you guys have a great week, I will talk to you next week, take care.

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