***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 it....so 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 buy....it'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.
Hmmmmm....
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 them...like 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......
Sluggy
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 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.
Hmmmmm....
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 them...like 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......
Sluggy
