College: More expensive than ever

College costs are higher than ever, according to a new report, putting a degree even further out of reach for many Americans.

Help your child manage credit

In recent years college students could get credit cards almost as easily as they could score beer. Some 84% of undergrads have at least one card, a Sallie Mae study found, and half carry four or more.

Best Place for Your 529 Funds

More than 11 million families are saving for college using a 529 savings plan. Those plans have suffered big losses along with the rest of the stock market, creating a dilemma for parents whose kids are headed to college in the next five years. How do you invest your 529 funds today to make up for recent losses, yet not put yourself at risk of losing even more as college fast approaches?

My sister wants to borrow money

Question: My sister and brother-in-law have announced that they are broke, and want to borrow money. They went bankrupt a few years ago, but have since blown two inheritances on high-risk investments. They also borrowed extensively from our parents and never repaid the loans. Although both are college educated, neither has had a regular job for years, and now they say they can’t find work. We turned down their loan request, and now my brother-in-law is threatening to never let us see my sister and nephew again. What are your feelings about loaning money to relatives, particularly when they have a history of not repaying loans? –Elaine

Recent College Grads Say Goodbye to High Salaries

Given the hard time experienced workers are having finding jobs (much less securing raises), it comes as no surprise that recent college graduates are experiencing their own problems.

11 ways to graduate with less debt

Whether you’re already in college or looking ahead, there are steps you can take now to lighten the load when you finish college.

Finding last-minute tuition money

It’s only a couple of weeks or even days until school begins. And if you don’t think you’ll be able to get a handle on your college tuition bill, here with your guide to last minute money.

Can colleges keep promises of aid?

Many universities replaced loans with grants and otherwise worked to make college more affordable. But that was before once-hefty endowment funds started shrinking.

Eaten by Sharks

Nick Friedman and Omar Soliman got torn to shreds on ABC’s Shark Tank after they demanded $1 million for only 10% of their company, College Hunks Hauling Junk, in exchange for an investment in a co-ed spin-off venture. “You’re pigs,” spat investor Kevin O’Leary. “And pigs get slaughtered.” What do they have to say about it?

Eaten by Sharks

Nick Friedman and Omar Soliman got torn to shreds on ABC’s Shark Tank after they demanded $1 million for only 10% of their company, College Hunks Hauling Junk, in exchange for an investment in a co-ed spin-off venture. “You’re pigs,” spat investor Kevin O’Leary. “And pigs get slaughtered.” What do they have to say about it?

Easy Ways to Make Money

As college students get ready for a new year of classes, there’s a lot more to worry about than Shakespeare and molecular biology. With the recession in full swing, colleges are raising prices at just the time when students and their families are least able to afford it.

What is the Value of a College Education?

This is a guest post from Jason Barr, who writes about personal development at Start Being Your Best. Jason is a potential Staff Writer for Get Rich Slowly. His first post described what he learned from failure. Jason is 32 years old, has been married for seven years, and has a 2-1/2 year old son. He’s now a financial analyst, but he spent five years in the army as a Chinese linguist.

What is the value of your college education? It seems as though it is almost impossible to find a job today without one, and even advanced degrees are becoming more and more commonplace. But is it really crucial for “success” (defined here in a financial sense; your definition of “success” may vary) that you even have a college diploma? There’s an argument to be made that it’s not.

The value of a college education
I’m currently saving funds for my son (who’s 2-1/2) to attend college. It’s a daunting task. According to collegeboard.com, the price of a four-year university rises somewhere in the neighborhood of 5.5% to 6.5% a year. It’s actually a higher rate of increase at public institutions than at private. An 18-year-old, beginning their studies in the 2009-2010 school year, can expect a tuition bill of $109,828 for a four-year degree at the average private university in the United States (assuming a 5.9% increase year-over-year). That’s the kind of money we’re talking about here.

But, according to the United States Bureau of Labor Statistics, the median income in 2008 for a worker with a high school education was only $591 a week, while a college graduate’s median salary is $978. Seems like a good trade off, right? Surely it’s money well-spent.

Perhaps not. Let’s assume you were able to provide these types of funds for your son or daughter to begin school in September of this year. Four years from now they’ll emerge, debt-free, into the workforce and will secure a job for a salary of $50,856 (adjusted for an annual rate of inflation of 4% assumed for this exercise). Assuming a constant 4% rate of inflation, and salary adjustments to keep up with that pace until retirement at age 65, your progeny can expect a lifetime earning potential of around $5.9 million. Not too shabby, right?

Against the grain
But what if, instead of paying for your child’s education, you provided this lump sum to them in a one-year certificate of deposit, earning the current highest return available (2.24% as of the writing of this article, according to Bankrate.com)? Now the child’s salary would be greatly reduced; the lifetime earning potential would only be $4.2 million assuming the same circumstances as before.

However, assuming that in both scenarios the child in question was able to save 5% of their annual income (assumed to be a lump-sum deposit at the beginning of the year to keep calculations simple), the child with the high school education will have accumulated $646,532 in the one-year CDs by the time they’ve reached retirement age. The child with the college degree would only accumulate $438.132, a difference of $208,400.

Perhaps it could be argued that the child with the college degree could live with the same expense basis as the one with the high school education, thereby freeing up more money for saving and investing. However, I would encourage a recognition of Parkinson’s Second Law, which tells us that “expenses rise to meet income”.

Rich or poor, thrifty or not, the current savings rate as of the end of May for Americans was only 6.9%. For much of the recent past it’s been lower than that, even to the point of occasionally becoming negative. For as many responsible people who are reading these words, there are many more who would be swept along by circumstances and society, spending exactly what they make (or more), year after year.

Public vs. private
What if one were to assume a lower university bill? Perhaps a private school isn’t in the cards for these two kids (and their parents), but a public four-year institution could be.

The current median cost of four years at a public university for the 2009-2010 school year is only $29,021. At that rate, assuming the same parameters as before (rate of salary increase and inflation, etc.), the college grad does come out ahead, but only by $26,090 at age 65. Certainly, that’s a much smaller margin than I would have assumed, and I would guess it surprises many of you, as well.

In fact, for the lifetime earnings calculation to balance (that is, for both the high school and college grad to show the same dollar figure in savings at retirement age), the high school graduate would only need a “head start” fund of $38,030! Just think, for less than the price of a new SUV, four years of college-educated earning power can be rendered moot. This result, frankly, surprised the heck out of me.

Other scenarios could be run, as well. What if you’re not able to provide any funds at all for your son or daughter? My folks didn’t pay for any of my college expenses; I expect many of you are/were in that same boat. One could look at the opportunity cost of college loan repayment vs. a clean slate for a high school grad with no debt encumbrance.

For a graduate of an average private university, repaying a college loan bill of $114,626 at 6% interest (remember, student loan interest is capitalized while the student is in school) will take 10 years and $152,710. That’s assuming they’re able to make the monthly loan payments of $1,273 right out of college, and don’t have to go with a longer-term repayment plan. After this is done, the college grad will only amass $37,272 more in savings than the high school grad, simply due to the long repayment period they must overcome.

Do what works for you
Be sure you always challenge the conventional wisdom. While often times it’s conventional wisdom for a reason, there are often unforeseen circumstances that cause things to turn out differently than one would expect.

Is a college degree a guarantee of financial prosperity over a high school diploma? As with everything in life, the answer isn’t cut and dried. Depending on the circumstances, it’s entirely possible that college doesn’t make sense for everyone, even from a financial perspective.

If you have the ability to provide a financial gift to your child such as the ones discussed here, you may be wise to consider it, in order to provide options for your children that they may not otherwise have. Certainly there are other things to be gained from a bachelor’s degree than just increased earning potential, just as there may be benefits to some kids to go straight into the work force. It’s really important that a child attend college due to consideration of their goals, not just because “it’s the right thing to do”.

For some people, it may not be.

—
Related Articles at Get Rich Slowly:

• Are College Funds Necessary?
• Why I Love Community College
• Ask the Readers: Is Education Always a Good Investment?
• How One Father Taught His Son About Money
• Daily Links: Grocery Shopping, Stuff, and the Value of a College Education

Hoping to Finish Ahead by Starting Behind

This is a guest post from A.J. Clark, a long-time lurker at Get Rich Slowly. A.J. is a potential Staff Writer for GRS. He is a recent college graduate who writes software in the financial services industry, while trying to find his financial footing in the Real World.

$76,133.53 — I owe this total to various lenders, who decided four years ago that trusting an eighteen year old with this sum of money was a good idea. However, the original amount of money I owed was much greater ($107,822.33) and even I am amazed with the amount of debt ($31,688.80) I have paid off during my time in college.

Following my heart
A little over four years ago, as I was preparing to graduate from high school, I was in the midst of making a life-altering decision. I needed to choose between attending a public school a few hours from my home in Florida, or my dream school: a private institution in New York City, a school that I fantasized about attending ever since I was a child.

I would be the first person in my family to attend a traditional four-year college or university, and I wanted to make sure that the degree would allow me to live a better life than my parents, and someday achieve financial independence. I was worried that the public school that I had the opportunity to attend would not provide me with the proper set of life experiences that I needed to be successful in life, and I knew that the school in New York City would be able to give me a unique college experience, and put me in a strong position to succeed.

Putting the financial ramifications of my decision in the back of my mind, I decided to follow my heart, and go to New York City. However, I did not fully understand the financial impact of my decision until years later.

A baseball analogy
I liken my current situation to that of Chien-Ming Wang, who is a starting pitcher for the New York Yankees.

Wang had an atrocious beginning to his season, giving up over twenty earned runs during his first three starts. In each outing, Wang lasted no more than two innings or so, and by the time the Yankees decided to put him on the disabled list, Wang had an ERA of over 35.00.

In order to lower his ERA to an acceptable level, Wang would need to pitch a lot of scoreless innings. In fact, during a game earlier this season, an announcer made a comment that Wang would need to pitch sixty or more scoreless innings just to bring his ERA down to his career average of 4.16; needless to say, that feat would break many records.

My financial earned-run average
In a sense, my ERA is my collection of student-loan debt (the composition of which will be a topic for another post), which is barely manageable. In order to bring my debt down to a manageable level, I need to have five or more years of “scoreless innings.”

As many personal finance bloggers can attest, consistently completing scoreless innings is a difficult thing to do — one life emergency is able to impair one’s ability to “compete” financially going forward in life.

• Build an emergency fund?
• Contribute to a 401(k)?
• Be more frugal than a broke college student?

Starting so far in debt to begin with makes it difficult to do these things, though I’m trying to put my best foot forward in my quest for the elusive state of financial freedom. In fact, for the last six months, I have been devouring any and all information that I can find on personal finance, and have learned more or less what I need to do in order to achieve this goal.

Choosing to start behind
However, one thing that has become readily apparent is that unlike Wang, whose high ERA was not intentional, I chose to start behind. I chose to attend a private school in New York City. I chose to incur over a hundred thousand dollars of debt.

Although I am starting with a significant amount of ground to cover before I am able to reach a point where I am debt-free, attending college in New York City, albeit at a high cost, has provided me with many unique opportunities.

For instance, during my sophomore year of college, I was able to obtain an internship with a prestigious firm within the financial services industry. Since I went to college in New York City, I was able to work part-time at the firm during the school year, which ultimately allowed me to begin a full-time job there immediately after graduating — something that is relatively unheard of in this economy.

Much to learn
Growing up, I was taught that some things in life do not come easy, and that money is not the ultimate source of happiness. Although I believe I have a strong working knowledge of the personal finance arena, I know that I still have a lot to learn, and paying off my student loan debt within the next four to six years will be a difficult, if not daunting, task.

Given the opportunity, I would love to chronicle my journey towards finishing ahead (or more immediately, getting to the starting line) here on Get Rich Slowly, and share with the readers the personal finance knowledge I gain along the way, as well as any life experiences that I have relevant to the discussion. If anyone has any questions for me, feel free to leave them in the comments section, and I will respond as soon as I am able.

Chien-Ming Wang photo by Keith Allison.

—
Related Articles at Get Rich Slowly:

• Ask the Readers: Help for a Broke New Yorker?
• What Do You Want to Be When You Grow Up?
• Almost One Million! A Case of Shameless Self-Promotion
• links for 2007-05-15
• Start Late, Finish Rich

Unemployed Woman Sues College for Tuition

Twenty-seven-year old Trina Thompson graduated from Monroe College in the Bronx and now she’s having trouble finding a job with her information technology degree. Her solution? Sue the school, of course!