You know how I feel about college, but what about a view from a Generation X’er? Ben from MoneySmartLife and I decided to talk about how certain view points can change from the perspective of a different generation. I am graduating from college this May (thank God!) and Ben is starting to save for his son to go to college. His son is not even a year old and he is already writing an apology letter to his son.

Here are some highlighted points from the letter.

I hope you decide to attend college someday and experience all it has to offer, except the loans of course.

 We started saving money in a 529 plan before you were born but I’m afraid it just won’t be enough.

 We’ve been saving heavily in our retirement plans since we were married, at the expense of a college fund, because you can get a loan for college but we can’t get a loan for retirement.

P.S. In state tuition is much cheaper. Go Mizzou!

 

College Tuition Costs Gone Wild – An Apology letter to My Son

I wouldn’t worry Ben. Smart people can find a way to make things happen.

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College is a necessary part of life. Here’s a quick quote from Orange County explaining my feelings about college. “Shaun: I have to go to college. Cindy: Why? Shaun: Because it’s what you do after high school.” Those few lines sum up my feelings about college. Why go to college? Because educating yourself is a key part of life. One of the major reasons why people now attend universities is the incredible networking opportunities that unveil themselves throughout the college experience. It’s not what you know, but who you know. This old adage saying is becoming more and more important in today’s world.

Unfortunately, college ain’t cheap. There’s a large sum of money due before you walk down the aisle (and I’m not talking about getting married). Most people don’t have large stacks of money laying around for education. That’s where student loans come in. Let me be the first one to tell you that student loans are still one of the most powerful debt instruments in the world. They provide the financial backing for your future financial successes. There’s a strong correlation between education and yearly salaries. Here are some figures brought to you by the Census Bureau : $36,302 for a high school graduate and $60,020 for college grads. Double the education, double the pay. It pays to go to school.

The scary part is education costs are going up faster than inflation.

What can you do to receive a good education and not drown in student loan debt? Stick to in-state schools. A lot of research has shown that making the most out of your education will mean a lot more than the name of the college you graduated from. In-state schools will provide a tuition discount and will save you a boat load of travel expenses. After graduation, many local businesses will select in-state grads to fill positions before they scout for out-of-state grads. Do your parents and yourself a favor by sticking to in-state schools. It’s also good for your state economy which is a huge plus!

If you fail to plan – plan to fail. Don’t let scary TV shows about tuition increases get to you. You just need to plan ahead. College is a great way to meet new and exciting people while getting a ticket for more money in the future.

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Today I start the repayment of my student loans. This is the 2^nd biggest debt I have other than the mortgage. For 15 years I will be paying ~$82.00 a month, but there some easy ways to getting that amount cut. 1^st (the easiest one) is to auto-debit your account for .25% reduction. 2^nd After 24 on time payments you will receive a 1% reduction on your rate. Currently my consolidated rate is 4.875%, but when I add the reductions it goes down to 3.625%. Easy things like that could save you a ton of money. Another great thing is that the most of the interest paid on the loans will be tax deductible. I think that when you have a full time job you should try to add some extra principle to your payments so you can get rid of your student loans as quickly as possible (Huge credit score boost).

Don’t be dumb and try to postpone your student loan debt. On my repayment schedule sheet it boldly says “Please remember that failure to repay your loan according to its terms and conditions may result in reporting the loan to a credit bureau as default, and may result in any or all of the following:

1. Loss of Federal and/or State income tax refunds
2. Legal action
3. Loss of eligibility for federal aid
4. Difficulty in obtaining credit“

One of the best things about your student loan lender is that they will help you out in hard times. If you cannot make a payment, alert them immediately. They can usually switch you to a plan that is more comfortable for your circumstances or place your loan in deferment if you meet certain circumstances.

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Finally, you are done with school, you got a great job, and your parents cut the financial umbilical cord. You’re finally on your own, but those student loans that you took out for “school necessities” want their money back. Now it’s time to prepare a smart plan to pay back your debt. What are your options? What are the terms that you quickly signed? How much money will it really cost you? These are relevant questions that I will answer and some of the best ways to get started on your student loan pay-back journey.

First, I must say that student loans are usually a great debt to have if you used the money wisely. This loan is one of the best investments you will ever make. Some of you might be saying “Jeremie, what do you mean? I took out a loan. How can that be a great investment?” The reason why student loans are such a great investment is because you invested the money in your education. In other words, the money you will receive having a college degree is higher than just having a high school diploma. According to the Census Bureau, college graduates receive over one million dollars more than a high school graduate. Now isn’t that a great return on investment? There are many other advantages to higher education. Check them out here.

Your options after taking out the loans could take many hours of reading so I picked out the real important ones. One of the first things you do is decide whether or not to consolidate your student loans. This is a no brainer. If you consolidate all of your Federal Stafford loans (the most common student loan) you will lock in a good interest rate, good repayment options, and save a ton of money.

Choosing your repayment schedule is a very hard thing to decide when you consolidate. The terms are usually ten to thirty years. The shorter the term, the higher the payments, but the less interest you will pay over the life of the loan. If your loan has a longer term, you will have lower payments and pay more interest over the life of the loan.

Example: Loan amount $35,000/ Interest 4.25%/ Term 10, 20& 30 years.
10 years your monthly payment would be $358.53 and total interest would be $8,024
20 years your monthly payment would be $216.73 and total interest would be $17,016
30 years your monthly payment would be $172.18 and total interest would be $26,984.

You will have to decide whether or not you can afford the larger payments. I recommend going for the 20 year term and paying it off in 15 years if you can.

*This example was taken out of one the best personal finance books for younger people. “Suze Orman’s The Money Book for the Young Fabulous & Broke” This is a MANDOTORY must read. She’s one of my favorite authors and coaches, so please buy the book and start watching her show.*

Do you have a huge student loan over $50,000.0 and you just can’t afford the monthly payments? Do you feel like you are drowning in debt, and you feel like you cannot get out? Well, unfortunately you cannot file for bankruptcy and get rid of this debt. It stays with you till the day you die. So pay it off. This is an contract you signed when you agreed to the terms of the loan. Be good to the student loan people and they will be good to you. If you cannot afford the payments call and ask if there is a flexible payment plan that they can qualify you for. *Remember if you took out a loan have the common courtesy to pay it all back.* If you don’t think you are ready to get yourself in that kind of debt do not get a student loan.

Here are some great ways to save even more money with student loans. Have them auto debit your checking account to save .25% If you also make three years of consecutive on time payments your interest rate will drop a whole percentage point. That’s a 1.25% reduction for doing almost nothing. Another thing to remember is that a lot of the interest on your student loan is tax deductible. Make sure you talk with your tax advisor to see if you qualify for this incredible deduction. *Most people will qualify for this deduction unless you make over $50,000 *

This should lead you in a good direction on how to handle student loan debt. Like I said before, read Suze Orman’s book “The Money Book for the Young Fabulous & Broke” and actually use the advice she gives in the book. If you apply the tactics she writes about correctly, there is almost no chance you will retire broke. Remember there are three organizations you don’t mess around with. The IRS, the Mafia (ha), and The Student Loan Lenders.

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