College - Make It Worth It
What To Consider When Paying For College
College. It's safe to say most college grads deem their time at school as "the time of their life" - it's the only time you're surrounded by potentially tens of thousands of people your age. The energy, the parties and oh yeah...the education and eventually, the degree. It's a perfect storm of goodness, but the whole process can be overwhelming - after all, it's one of the biggest financial decisions a person makes in their life. And now that you've blown out 18 candles, you're supposed to have life all figured out, right?! I know I didn't.
"College can be the best thing that ever happens to you or it can put you into a mountain of debt. It's important to know what you're investing in and how to get the most out of it."
Having worked in higher education after graduating college myself, I had the opportunity to see first hand how much college can change someones life for the better, but I also saw the ugly side of it. I saw how being irresponsible financially in college can bury someone in a mountain of debt.
Every person has to decide if college is right for them. In general, it's an outstanding way to increase your lifetime earning potential and get ahead in your career, but it's crucial to understand how you are investing in a college education.
Don't Be Afraid To Be Alternative
Financial hipster is all about finding ways to make better money decisions by doing things differently.
Be creative! That's often the best way to get ahead. Find out how to get an education and pay for it using alternative techniques. It's okay to go against the mainstream, that's being a financial hipster. If we do what everyone else is doing we'll get the same results.
For example, I have a colleague who is sending her kid to film school in Europe and she is able to get the equivalent of a bachelors degree in two years at half the price tuition would cost her here in the United States. Not only will she learn great life lessons from traveling the world but she can come out of school with no debt because her parents found a way to pay for her education. Now that's a bad ass way to acquire a degree if you ask me!
Things to Consider When Choosing A College
If you are deciding whether or not college is right for you, here are some important things to consider:
- The demand for the degree - https://www.bls.gov/ is a great resource to find career outlooks
- Placement rate of graduates from your chosen school and degree - When investigating this, make sure you get accurate data, this post talks about why you have to be careful.
- Your interest in pursuing that degree - Are you going to college because you're suppose to or want to? If you're not fully invested in college, finding lower cost ways of getting an education might be the right decision for you.
- Typical salary for people working in your field of choice - Check out www.salary.com
- Tuition cost, including room and board - Check out your college's website for specifics
- Calculate what you can afford - Determine how much you'll need in loans vs what you will be able to pay for on your own.
Once you have this information, run some numbers based on what you think you can make if you don't go to school vs. what you anticipate you can make if you do. This chart shows the average difference in lifetime earnings based on your level of education:
Learn everything you can about paying for college. What types of loans, grants, and scholarships are available. What types of loans will you need and once you have them, when will you have to pay them back.
Too often I hear of people who went to school or continued onto graduate school because they didn't know what they wanted to do in life. College is a very expensive place to figure out what you want to do, especially if you are the one paying for it.
It can also be a really bad investment if you choose to get a graduate degree and then don't use it. I know many people who went to medical school because the career pays well just to find out that they don't enjoy their profession.
Mistakes are inevitable in life, but try to avoid them by doing more research.
Make Good Decisions While In College
A college campus on a Saturday night is full of wild times and questionable decisions. Now, more often than not, those crazy nights are the ones that make it the time of your life, but that's not what I am referring to here. We are talking about making smart decisions about your college investment. For example, I've had classmates drop a class after the drop deadline because they decided they didn't like their teacher. That's a poor money decision - one that did them a lot more harm then it did the educator.
When I was teaching, I worked with a student who maxed out of her federal student loans at $57,000. Though she could have used a private loan to cover her last class, she chose not to and dropped out of school. I hate debt as much as the next person, but in this case, it killed me that she didn't borrow the extra few thousand dollars in order to finish her degree. By leaving the program, she walked away with $50k+ of student debt, and nothing to show for it. That's also a poor financial decision - and unfortunatly, one that will be really, really hard to recover from.
The goal should be to leave school with the smallest loan amount possible. Not everyone can leave school debt free but everyone should have the goal to do what they can to borrow as little as possible. Student loans are not a gift, they are real loans. In fact, they're one of the few debts you can't run away from, even in bankruptcy. They'll come after your paycheck if necessary through garnishing wages. Most people know this, but when you hear students talk about there student loan stipend money like it's a paycheck they are earning for going to school, you have to seriously question our financial education in America.
What You Are Paying For And How Are You Paying For It
Climbing out of debt is hard. Do yourself a favor and make it a mole hill, not a mountain. I have friends who have over 150k of student loans for a history degree. That math just doesn't add up.
This might mean being creative or taking some classes at a community college to reduce your financial burden. Much like buying a house, just because you can take out a big loan, doesn't mean you should.
No one is responsible for our lives but ourselves, so develop a plan based on your situation. Find some creative ways to get an education for cheap if you don't have the support to help you pay for it. The goal remains the same. Minimize debt.
Break Down The Costs
There are a couple important lessons I learned when going through college as a finance major. We broke down the cost of our education per hour of lecture time and we learned the time value of money to see how much our education costs paying interest on a loan. These pieces of information allowed me to make some really good decisions about money and my time.
Don’t Fail a class, it’s not the only F word you’ll be cursing!
Tuition is paid by credit hour. If you take a 4-5 credit hour class, that class costs you the tuition rate multiplied by the number of credits.
Here is the tuition at Ohio State Main Campus for 2017-2018 school year:
"Out of state students at a state school can easily pay $60 for every hour of lecture time. In-state students get a more favorable rate of just under $40."
If you look at the chart you see that a 4 credit hour class costs $1,619 (in state) and $3,184 (out of state).
If you are paying for a private education, that same class can top out at about $6,000.
So what does that mean? Well a 4 credit hour class means you typically have 4 hours of classroom hours, multiply that by 15 weeks in a semester and it means out of state students are paying $53 for every hour in the classroom. In-state students get a slightly better rate of $27. Most colleges group these into two - two hour classes a week.
If you miss one of these classes in a week you are quit literally throwing away up to $106 each time you miss a class. Knowing this information is what made me think twice about ever missing a class.
Lets look at paying for that class using a standard Stafford loan at a 4.5% undergraduate interest rate and paying it back in 10 years. It means that same class costs you approximately $2,514 for the in state student and $4,945 for the out of state student. That’s a lot of money for a class you didn't even get credit for! If it's a matter of not understanding that class material even after working hard at it, that's one thing, but most people I know in college failed a class because they didn't show up or didn't study enough. Knowing this information was a huge part of why I was dead set on never failing a class.
Spend Loan Money Only On Absolute Necessities
There is absolutely nothing wrong with student loans. Millions of people take them out each year in order to help themselves through school, but if you really want to help yourself out, only spend your loan money on tuition. Most people I went to school with didn't abuse their loans. But everyone knows that 'guy' at the bar buying the whole place a round of shots with their loan money. If borrowing money is absolutely necessary to pay for shelter and food, that's cool. It's better than going into credit card debt as an alternative, but if possible, pay for whatever you can along the way in cash, it’s the best graduation gift you can give yourself.
That $30 bar tab is really closer to $47 by the time you pay it back. In another example, if you have 25K worth of student loan debt (the national average) it can cost you 35K by the time you pay it back, that’s roughly 10K in interest.
Understand The Difference Between Grants, Loans, and Scholarships
It is really important to know the difference between a grant, loan, and scholarship. They all fall under the category of student aid, but don't let that confuse you. Many of the students I worked with didn't have the most financially literate people around them, and very few really understood the difference between a grant (which you don't have to pay back) and a loan (which you will have to pay back). Here is a great article with all the details on the difference between the three forms of student aid.
If you decide college is right for you, enjoy the process and don't be afraid to get creative and take an alternative route. Do what makes sense for you and your situation!