Friday, April 1, 2011

Are We Having College Fun Yet?......You Betcha!

***If you have a child approaching the age when they are ready to start considering colleges(heck if you have a kid over the age of 10), you may want to read this.  I'll warn you it is long  and I've spent the last week or so constructing grab a drink before you start. ;-)
As the parent of an almost college student, you should also go do your own research and read everything you can on the subject.....and that doesn't mean the propaganda that the colleges send you or put up on their website. 

Let me preface this post with my feelings on children and college funding.
Hubs and I are of the opinion that no parent owes their child a fully paid for college education.
If your income can support dropping large amounts of cash on this tool and you feel your child will derive great benefit from using your money in that way, good for you and by all means pay for as much as you want!
However, I don't see alot of people out here who can afford the current over-inflated price tag on most of the schools out there clambering to separate you from your money, especially since most parents need to pay mortgages and other necessary bills of living(utilities, food and maybe the odd car payment) as well as fund their retirement accounts before they start committing to forking over tens of thousands of dollars a year to a college.
Like they say, the best financial gift you can give your kids is to NOT have to burden them with supporting you in your old age. 

Your opinion and actions may differ widely from our views. ;-)

So here I am laying it all out, bare faced on the table.....

Daughter applied to 5 schools--

1-a small ridiculously expensive out-of-state private school
2-a large fairly expensive out-of-state university
3-a large fairly expensive quasi-state affiliated in-state university(this was her 1st choice),
4-another large fairly expensive quasi-affiliated in-state university
5-a smaller less expensive in-state state run school(her safety school).

She got in to all 5.
Great, right?
Getting in is the easiest part I told her....

By living well below our means for many Many years and Hubs raking in a very nice salary, we have been able to put aside(above and beyond any money we need to pay necessities and money we need to put into retirement accounts)a modest chunk of cash for each of our 3 kids.

We have $60K put aside for each kid's college education....or if financially things don't change for us for the worse in the next 6 years, we will have this amount set aside.  We are still putting some aside to get to this fully funded goal.
That comes out to $15K per each of the 4 years it should take to get their degree.
If they plan on doing a "5 or 6 year plan" to get to a degree, well, beyond the 4th year, it's totally on their dimes.

Because we have lived frugally for eons and were able to amass this cash, we are considered 'rich' by the federal powers-that-be that grant loans and financial need scholarships to students.  We qualify for about $2000 in subsidized federal student loans.  Any other loans we get are not subsidized(meaning the interest accrues the moment we take the loan and the interest rate is higher)or private institutional loans(like bank loans and are also at a higher rate and interest accrues from day one).

Now, if we had spent all our money as we made it(bigger house with large mortgage, new cars with payments every few years, nice vacations, cruises, electronics, toys, etc.)like people who made similar incomes have done, instead of saving it, we would qualify for much larger sums of aid-both loans and money via grants/scholarships that don't have to be paid back.
So since we have been thrifty, we are penalized.
Sucks to be us, huh? ;-)

If any of our kids plan to attend a school that costs more than the total we have for them, it has to come from other sources.

So here is where we stand now with Daughter.....

School #1--costs $50K a year.  They gave her $6K in scholarships off the top of their heads and we are still waiting for the Financial Aid letter to come.  Unless they give her more merit-based scholarship money, Daughter will have to find loans of $29K per YEAR to go here.  Over 4 years, that amounts to $116K in loans.
Are you laughing yet?  I am.

School #2--costs approx. $36K a year for out of state students.  The Financial Aid letter has not come yet and they haven't given her any 'teaser' grants/scholarships.  If they give her no free money, she needs $21K per year more to attend, or $84K over 4 years.
She applied to these out-of-state schools because some of her friends from camp live in this state.  Now isn't that a wise way to pick a college?

School #3(her 1st choice) costs approx. $25K a year to attend.  The Financial Aid letter came and they only gave her Loans in the amount of $5,500.(Half are subsidized, half are not....because you know, we are rich.)  She needs $4,500 more in private sourced loans for a total of $10K a year in loans to attend and she'll have $40K in student loan debt when done.

School #4 costs approx. $24K a year to attend.  The Financial Aid letter came and they only gave her Loans in the amount of $5,500.  She needs $3,500 more in loans for a total of $9K a year in loans to attend and she'll have $36K in student loan debt when done.

School #5 costs $14K a year to attend.  They offered her a 1/3 of tuition(it's about $2K)per year merit award off the top of their heads and we're still waiting on the Financial Aid letter.  If she gets no more scholarship money, the amount we have for her college will cover the cost will a small cushion for when the costs will rise in subsequent years(and they WILL as they have at every school, every year since 1978).

Te recap Daughter will graduate with either
1. $116 THOUSAND in debt.
2. $84 THOUSAND in debt.
3. $40 THOUSAND in debt.
4. $36 THOUSAND in debt.
5. $00 in debt.

Daughter had her heart set on school #3.  It's the only one that offers her specific major(it's sort of a combination of 2 different disciplines). Daughter wants to go to Medical School after earning her B.S. in Pre-Med at this school.
If she has to go to school #5, she will have to major in Chemistry(or Biology)as this school doesn't have a Pre-Med degree(though they have a 'concentration').

#3 is a prestigious large school and she feels she will have a better chance of getting into a top Medical School if she goes there rather than her #5 safety school.  If she goes to #3, she'll end up with at least $40K in debt when she finishes.  Then she'll have to borrow BIG MONEY to go to Medical School.....think $160K+ living expenses.
If she goes to #5, she'll have no Debt when she goes to apply to Med School.
So if she decides at some point in the 1st 4 years of school that she doesn't want to be a doctor anymore, she won't be pushed to go ahead into Medical School because she already has $40K in debt.

Now I KNOW that everyone says that 'student debt is good debt'.  Borrowing to get a degree is wise, since getting a degree over the course of your life will increase how much you earn.  Statistics show that when you put a college graduate and a high school graduate in the small job, the college graduate will tend to start at a higher salary and they will see higher increases in their wages over the high school graduate.

However, we feel that you need to balance how deeply you get into student debt with the possibilities of what the earning capacity for your chosen degree/field may turn out to be.
For example, how wise is it to take on $100K in student loan debt to earn a B.A. in English or Philosophy.  What job can you expect to get once you graduate and what is the usual range of income for that job?   An English major in an entry level job in an office somewhere will have a rough time paying their bills(rent, food, utilities, car payment)along with an almost $800 per month loan repayment(that's figuring they give you 20 years to repay the loan).

But Daughter thinks that by becoming a doctor she will be able to repay massive student loan debt back, since the profession is very well compensated for their work.  So I showed her that if she ends up with a realistic $250K in loans after becoming a doctor that she'll be required to make payments of approx. $2,000 a month for the next 20 years on that debt?  Add on living expenses(including the really nice car she wants to drive)AND the HUGE malpractice insurance premiums she'll have to carry to practice and her large monthly salary quickly disappeared into thin air.  And then, if she wants to set up her own practice, well, she'll need to take out even more loans to do that!

I also added that with this Nationalized Health Care we seem to be destined for, once the government is her employer, she will be restricted on what she can charge for her services.....meaning she'll still have massive debt but there will be a ceiling on what she can expect for a paycheck, and we have no way of knowing how low that ceiling will be.

Why go into debt if you don't have to?
Daughter said that it will be easier to get into School #3's medical school(or another top notch school's program)if she has a B.S. from them.
From what I have read, what school your B.S. is from has alot less to do with what Medical School program you get into.  And specifically for school #3, most undergrads who get their B.S. in pre-med do NOT go on to that school's medical program.
The bigger determiner of what medical program accepts you is how well you do on the MCAT exams.

I have also mentioned to Daughter that most(about 80% is the statistic I have seen)college students do NOT graduate in the major they declared as freshmen or sophomores.  Hubs and I can attest to that!  He was a Political Science major and I was a double major in Art and Biology.  He ended up with that worthless English degree and I ended up with the even more worthless Theatre degree.lolol

I brought up the scenario that Daughter may go into $40K in debt thinking she'll have a doctor's income eventually but change horses mid-stream and end up with a Philosophy degree and managing an Applebee's and still have $40K in student loans to pay back on that income.  Ok, so paying back $300 a month isn't so bad, but if you are only clearing $1,500 a month you won't have any money for going out with your friends each month after you pay the loan and your living expenses.

Hubs and I also feel that the cost of a college education these days is greatly overvalued.  Did you know that the cost of getting an average 4 year degree has increased 489% since 1978?
Let me say that again.....the cost of obtaining a 4 year degree has increased 489% since 1978!!
Just to show you how out of line with how much the cost of living has increased since 1978, look at this graph....

The blue line is the Consumer Price Index....that's the inflation rate of the cost of things you's about 3.9-4% a year on average.
The red line is the price of houses.  See that "bubble" in the line from 2003-2007?  That was the housing bubble when prices rose alot right before the housing crash in 2008.
That brown/burgundy line is the price of college tuition.  See how much higher it is?  Extend that line a few more years and you'll see the MASSIVE "education bubble" that is coming!

The way Hubs calls it is this.....He attended one of those top-notch Universities back in the 1970's.  His first year of college his bill was approx. equal to the cost of a nice, midsized car which was $4,000.  The median income was about $13,000 for a college graduate.
Fast forward 35 years to 2010.  Media income is about $39,00 for that same college graduate, that midsized car costs you $35,000 and the top notch University will cost you $50,000.
You'll notice that the car vs. college costs are a bit higher, but look at the percentage of the median income that both car and college take out of the current income vs. the income of 35 years ago.

Partly because of all this easily obtainable debt for education that is available and pushed onto people and the schools jacking up the costs of attending(of course they are going to jack costs up as long as people continue to pay these ridiculous amounts for degrees!), we are headed for a large meltdown in the higher educational system in this country.  There are more forces at work and my explanation is fairly simplistic but just know that the bubble is going to burst and it won't be too much longer.  I am not alone in thinking this.....many far more educated people in high places also see it coming.

Between overpriced educations earned on the backs of high debt, the lack of jobs being created for all these graduates and the lack of current older employees not retiring due to their retirement portfolios shrinking overnight, we are headed for a massive bottleneck in the job market in this country.
Many people in the education field already see signs that the bubble is approaching it's apex.  Banks are discontinuing giving private educational loans(you can still get lots of federal loans if you aren't rich like us.....yes, they called us rich.....move over Rockefellers and Warren Buffet lol).  Enrollments are declining at expensive smaller, not top-tier schools.  Enrollments are increasing at community colleges(some have waiting lists as they can't accommodate the deluge of students)and state schools.

Hubs says that another less noticeable sign that it's about to hit the fan will be non-tenured track or adjunct professors at small less prestigious schools turning in their notices to find work elsewhere.  As some schools will have to start cutting back on the spending(as they won't be bringing enough income in to support their budgets), they will look to cut salaries of non-tenured teachers and  support staff.  The reason many adjunct professors stay at their schools, earning measly wages and being overworked is because they have the carrot of the possibility of "tenure" down the road in their career.  They stay in the hopes that eventually they will be offered a tenure track position with it's higher pay scale, other perks and it's 'can't be fired or let go' guarantee until you decide to retire.  If there is no carrot(the school has no future), they will leave.  These will be the "insiders" jumping from the sinking ship....much like when the "insiders" in the investment industry started jumping ship/selling off their holdings.

These schools won't cut anything that they feel draws the students to cushy dorm rooms or dining halls with gourmet food, or exercise rooms with fancy gym equipment, bringing in celebrity entertainment, etc.  All the "frills" that teenagers think is the 'important stuff' about college.  Next to go will be administration jobs...downsizing  the bureaucracy.  And then the tenured professors will start complaining since they will have to actually teach again, as the adjuncts will be gone.

Eventually the cost of college will decline after the bubble bursts.  And all those graduates that paid the large prices/took out those massive loans at the height of the market will be stuck repaying all that money for something that isn't worth in that future market what they were charged.  And they will have to pay it because student loan is no longer bankrupt-able in this country.
Oh, it's going to get ugly my friends.

Anyway, this is where we are in the process and once the last of the Financial Aid letters arrive, we will soldier onward and see what Daughter decides to do.
We have laid out our cards on the table and told her where we stand.
But even though we know what we would do if we were in her shoes we are leaving the choice up to her.
After all, it is HER life.  And if she has her heart set on doing what we wouldn't do, so be it.
She fully understands that while we will love and support her emotionally, she has to make the choice and if she takes on debt, it's HER debt and she can't look to us to bail her out of it.
Even though the government says we are rich......



  1. Hi Sluggy!

    My son is a junior in high school, so all of what you are talking about is coming to our forefront right now. We too were thrify and are 'ready' with our contribution. I KNOW many friends who have done nothing. I am SURE they will get more aid that us. I find it majorly frustrating that we did the 'right thing' and yet those who didn't will get more help! (sorry, off the soapbox now.)

    Just curious if you have any tidbits of advice for us? We are just starting to look at schools. My son would like to go some place warmer than gray/gloomy RI. But URI is a fine school and the price is good... He will do what he wants and I like how you've put it all down for your daughter to make the decision... I just find the whole things stressful and leaving a decision of such massive proportions to a 17-year-old will be difficult for me. I love my son, but I'm sorry, kids can be fools!

    I'm blathering... but just curious if you have any tips as we enter this journey too...

    Deb G.

  2. I came from 7 kids and my dad didn't make much. My mom taught at our church school for free tuition for us. So if we wanted to go to college, we had to pay for it ourselves. But that was when college expense was 350% smaller... 1984-88. Luckily I was at the top and bottom of my class (I was the only HS grad) that year, so I got a little bit of financial aid and some work study money. I ended up with several student loans and then one lump loan at the end. Dad signed all the financial papers but swore with each one that it would be the last one he would sign. Two kids later, he was still signing them and saying the same thing...
    I am worried when my 16 year old graduates from HS. She's smart and will get in anywhere. I'm banking on the validictorian full ride scholarship.... We make a good living, but most of it's spent or owed almost as soon as we get it. I have no idea how that will translate into what the colleges think of us... They'll probably tell us to cash in our retirement fund... which isn't much either.

  3. "An English major in an entry level job in an office somewhere will have a rough time..."

    I am sorry, but an English major is not just just qualified for entry level work. As an English major who has English major friends, this is not the case. I will definitely grant that English majors will not make as much as a doctor or accountant or a dozen other professions. But, doing what feeds the soul is part of life. A soulless existence is harder than a frugal life. "Useless English degree" I disagree.

    However, the focus of your post was on the prudence of taking out loans. That said, I have read that a person's ability to make wise choices does not occur until the age of 25. So, shouldn't your voice be the voice of reason, vetoing choices that will prove possibly bad for you daughter in the future.

    A child should have choices. "Child" is the operative word here. You are doing a good job in laying out her options and the reasoning behind your opinions. But, will you really allow her to go ahead and plunge headlong into debt for all the wrong reasons? At some point in the education process, I believe it is necessary for the parent to outright veto choices.

    Oh, by the way, I sat in a Chaucer class with two students who were accepted into medical school. Yes, they were English majors. Well, I did not just sit there, we were all studying Chaucer.

  4. How does she feel about working 3 28 hour days in a row? Because that's what she'll be doing for her residency when she graduates med school!

  5. I hear ya! I am several years ahead of you on this deal. Both my kids insisted their lives would be over if they didn't get to go to the fancy high-dollar out of state private liberal arts school they both had their little hearts set on. We sucked it up and did it. After one year we had to go get the boy and bring him back home. He did not do well with no structure. The girl child did well and flourished. But now that she is graduated and looking into higher education, she wishes that she had used less of the $$ on the under graduate degree and had some left for law school or whatever masters she winds up getting.

    The boy floundered around a bit until it finally clicked for him what education meant and what he would gain from it. He had to come to this by himself the hard way. He attended a local community school for 2 years and got busy applying to all the local universities and financial aid and scholarships. (Scholarships are KEY, you need 'em!) He got in to all the 5 schools and was determined to go to the top of the heap. But he busted his ass to get all financial aid and scholarships and we are paying the same as we have for the community school.

    All the financial planner people I have read say this:
    1. Send them to community college to get their basics out of the way
    2. This is a good place for them to transition from being a completely dependent high school student into a fairly mature person who has an educational goal in sight
    3. Paying Community College rates for 2 years will help tremendously with having money to pay for the degree of her choice at the school of her choice.

    My own parents told all of us (oldest of 10) that we could go to whichever school we wanted, but their check would be paid to Favorite State School. Ha!

    It is your job as a parent to not let her make a horrible financial decision she will regret for 20 years. You won't be popular at first but that's not what parenting is about.

    If I had known then what I know now, we would have had the kicking, screaming, pouting, door slamming for a couple of weeks and done the community school for 2 years and then moved up to Big Boy University.

    Maybe I was to learn this lesson to pass it on to you?

    I wish you great luck in teaching this to your daughter. She will appreciate in the end. It's just the middle that is going to suck. Sorry.

  6. Deb--You are about to enter a landmine filled playing field. Yes, I'd equate this time in your life to a war so get ready to do battle!

    I'd say first, go find some books on how other people(writer type people)have experienced in going through this rite of passage of choosing a college and then funding it. For a humourous read get ahold of "CRAZY U" by Andrew Ferguson.

    You, the parent, will start getting offers to take seminars...seminars on how to get your student into college and how to pay for it. These seminars will cost you money and should be avoided at all costs. All the information these people package up in a pretty box tied with a box is all available for free out there. They only people who gain from these seminars are the people running them.

    Sit down and find out what field of study your future collegian thinks they want to pursue.
    Then you can search out school choices together. If they are like most typical 16-17 yr. olds and have no clue about life plans(other than make alot of money and work as little as possible)then search out a school with a solid liberal arts or sciences curriculum. Try not to base any choices on only the propaganda that the school will send you. They will be trying to appeal to your students touchpoints....not earning power or debt loads but the gourmet vegan dining hall, the free concert series of big name entertainment, the new riding stables, the condos, er...I mean the plush residence suites and the Starbucks coffee kiosks located in each lobby. The school will be selling/marketing the 'college experience' to them. Little will be said about how lower level classes will contain 80+ students and be taught by a graduate student/teaching assistant at the large schools or how the small/private schools will have bullshit courses available(but that appeal to teenagers)like "Socialism and Sat. morning cartoons" or "The Zen of Jersey Shore".

    When searching for these possible choices keep in mind what you have or will have available to pay for this education. Then go check out what kind of aid is available to you in your situation and state. If your kid is a top athlete in a sport that colleges value, it gives you more free aid options. In PA, the state has an aid organization that handles loans and I was able to go to their website and look-up according to income what the range of aid is for our family.
    Also go research any independent sources of scholarships available. Companies have scholarships, your employer may have money available to kids of their employees, your local service clubs or a group you belong to may provide scholarships. There is money out there for the taking but it isn't easy to get and will take effort to find and procure. Most free money is a matter of luck and/or putting in work to get. Some scholarships are a numbers game...just sign up for it and hope out of the billion applicants they pick your name. Some have restrictions to qualify some don't. Some require writing an essay or some other effort. Getting your kid motivated to write an essay at a "chance" at some scholarship is NOT an easy thing unless they are one of the few who are THAT motivated.

    Also look at the military and ROTC programs. If your student is considered part of an under-served racial or economic group, you will qualify for more financial need based aid. This depends on the school but usually if your kid waits a year+ between graduating high school and applying to college and is able to economically support themselves w/out your help, your parental income will not count against him/her getting aid. Of course, delaying college may mean it will be harder for your student to get back into the college mentality.

    The key is to educate yourself and not to let the schools brainwash your kid. Kids don't see the big picture and only live in the NOW.
    I'll stop this before I ramble on any longer. Feel free to email me if you have any specific questions on this stuff.

  7. McVal-Until oldest son got to be of age to start his search I was clueless about how much the costs of college had spiraled out of's crazy now!!! Hubs and I don't believe in cosigning loans for ANYONE....not even our kids. Especially our Your dad was a brave man.... It's getting where you can't get a student loan unless the student has a cosigner tho. The lending institutions have wised up about giving tens of thousands of dollars to 18-20 year olds with no income and no resources as collateral.

  8. Practical P--Well we will agree to disagree about the uselessness of a BA in English. Hubs has one from one of the most prestigious schools in the country. Ok, I will admit an English degree is a not as useless as a Philosophy or a Women's Studies degree is out in the world of
    When I graduated, friends with "useless" degrees were hard pressed to gain entry level employment at the telephone company and other large corporations with it. Most of them ended up going on to get Masters or PhDs so they could work in a specific field as it was usually required.

  9. Alex M--Thanks for the advice. We have told her about the overworked, sleep deprived state of residents and interns. Hubs prestigious University has/had a world reknowned medical school attached to it and we knew a few med students back in the day socially....though we hardly ever saw

  10. Fine.

    Well, I do have a Women's Studies degree and MA also--three degrees. Back in 1964 when I hit campus,I wondered how anyone could get a job with a philosophy degree...get paid to think? LOL The future doctors had a science minor to go with the BA in English. I was amazed at the degree they were pursuing when they were accepted to med school. I wonder if the difference in our times is what made my English major friends successful.

    Of course, many of them were not ambitious. One friend said that now that she had a degree she should not have to work weekends at the photo lab...???

    I will agree that historically pay is not really high for the majority of English majors.

  11. Love this post. I have a junior and we have just started to explore colleges. I felt I had a handle on the college process - until I read your post. Thanks for sharing your experiences. Would love to know the PA website you mentioned above.

  12. This is a very thought provoking post and I agree that college is a ridiculous expense. I don't care what people say about student debt being good debt, I have several family members, including doctors that would disagree. They have been strapped for years with debt and some of them realized too late that they hated their chosen profession, but saddled with so much debt, they had to suck it up. I have held many jobs, attended college and nursing school, been in the military and basically lived life. The one thing I would stress, to anyone, is that by and large, most employers don't care where your degree came from unless it is one of the few positions where an Ivy-league education would have some cache. The key word being 'some'. I also think it is impressive that you saved so well, but if it were me, my kids would be hard pressed to get it from me. You can't imagine how much more responsible and studious the people who had to pay their own way were, including myself. When I had full grants, I skimmed. When I was paying out of pocket, I excelled. In this society, 18 is still fairly immature, especially if they can't see the immediate consequences of their actions. Finally, I have to agree about the English degree. I love literature and read voraciously, but every last person, including English professors advised against this as a major. My cousin has a masters in English and he works at a Wal-mart warehouse.

  13. OK, I thought Sluggy was math challenged?!? NOT!

    Wow girl, that post was AWESOME! You are my GO TO GIRL when and IF my 14 yo is ready for college as he is struggling in MS thanks to XBox/Ipod Touch...LOL

    Thank you for taking the time to edumacating us all :)

  14. I hate to see students go to junior college. I have been witness to the teaching afforded in many classes. A student with about 40 mistakes in the first, short paragraph got an "A." At the university level, these students fair poorly because they do not know what the professors expect of them. I know someone else will have a thousand examples to refute this.

    I am friends with quite a few professors at universities. They don't have much respect for junior colleges or quality of transferees. There are a few students who will excell because of their drive or prior knowledge.

    Junior colleges MUST take anyone who applies!

    However, I had a good foundation in writing when I headed to college and hated the beginning English courses. I could have skipped them. But, a student who for whatever reason did not learn to write and punctuate correctly, write a five-paragraph essay in high school is not going to get much help in junior college if they can manage to pass the entrance exams that might put them into remediation. Even the remedial English classes have a poor record.

    I am not talking about folk who want to be English majors. This is for people who intend to get any major since writing is a part of any course of study. Well, it should be.

    At the age of 32, going back to school, I enrolled in one junior college class, intending to attend one class at a time while I reared three children. It was such a Mickey Mouse course, that I refused to take another course when I finished that one because I learned or was not presented with quality instruction or material. Later, I went back with a friend and unofficially audited the same course, hoping to get the information I missed the first time. The prof had a PP presentation with quotes from the book which she read. No change at all in the level of teaching or information presented.

    Yes, I know that everyone has the best junior college in the country right down the road. There may be excellent teachers (I believe that), but the teachers are constrained by school policy from failing too many people, even the ones who don't meet the required level of expertise. So, for the most part teachers/prof at junior colleges protect their jobs and give good grades. Okay, I will shut up.

  15. I think that your children are blessed beyond compare for having wonderful parents that would do so much for them. And if they end up having to wipe your butts in old age welp they owe you.;P
    Ummmm maybe you should read/watch this

  16. I am so glad we are past the college financial train. I wish you luck on yours.


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