Above Average in Student Loan Debt?

The numbers are out for the class of 2011 and two-thirds of the graduating class graduated in debt. If you are an average borrower, you owe $26,600, exceeding the class of 2010 by 5%, Was it worth it? In 2011, the unemployment for college graduates was 8.8% while unemployment of high school graduates was at 19.1% so the employment number would say yes.

So you decide to go to college. How do you reduce the amount of money you will borrow, have a good time, and graduate? Here are a few ideas.

1. Graduate on time or early. An extra year of college can cost you can $50,000 or more. To calculate the cost of that extra year, add your tuition, fees and books to your potential starting salary. Say that your tuition, book, and fees are $20,000 and your starting salary is $30,000; that extra year cost you $50,000. This number could be higher or lower depending on where you attend college and your career. Just for fun, calculate your own cost of an extra year of college. If you were to graduate in 3 years, you just saved $50,000!

2. Go to a college you like with a major you like. Transferring from one school to another can cost you an extra semester or year, depending upon what credits transfer and how credits are applied. If you do transfer, check with your advisor or Registrar’s office to make sure that all credits transferred and were applied correctly.

3. Do your homework when picking a college to find out what the average student loan debt is for that institution. Some colleges work very hard to offer students work-study money and enabling students to graduate either debt free or with small student loan amounts. College of the Ozarks, Knoxville College, and Berea College are strongly committed to students graduating debt free.

4. Apply for scholarships and grants. Grants and scholarships do not have to be repaid. Great places to check are fastweb.com as well as with local organizations or employers who might grant scholarships. If you were to calculate the time you invest in researching opportunities and the funds you receive, you will be surprised at your hourly wage.

5. Take 15-18 credits per semester. To be classified as a full-time student, you must be enrolled in 12 credit-hours per semester. However at many colleges, you can take 15 or 18 credit at the same cost of taking 12 credits. That is like getting two classes a semester for FREE! You will have to work harder and you don’t want your GPA to slip, but consider maximizing your schedule so you can graduate early or take extra classes for a second major.

6. Take college level classes while in high school. In many high schools, student can have dual enrollment in both their high school and in a college. Many of these partnerships are with local community colleges. The high school pays for the class and the student can graduate with college classes. Who knows, you might be able to graduate high school as a college sophomore, completing enough college classes while in high school.

7. Talk to your admissions counselor and financial aid representative. These two contacts can be worth their weight in gold in looking for strategies for reducing college debt and increasing scholarships and grant awards. They know the inside and are usually more than willing to help you put together a plan to pay for college.

8. Take classes at your local community college. Most institutions will transfer in 62-64 credit hours if transferring from a community college; some institutions will take more. Work with the institution that you want to transfer to when you register for your community college courses. This will ensure that the courses you take at the community college will apply directly for your degree completion at the 4-year institution. I would encourage you to save the e-mail or have it in writing on what courses will transfer. Not every advisor is up to speed on transfer courses.

9. Create and live by a budget. College can be very expensive with a lot of extra-curricular activities. College should be fun, but some of that fun can be expensive. Know the opportunity cost of your fun and look for inexpensive alternatives. With your budget, you may not need all the money from your awards letter. It is okay not to borrow all the money you can while in college.

10. Start a 529 College Savings Plan. The earlier you start savings, the more time the money has to grow. Saving for College.com has details on every state’s 529 plan and college savings plan. Do your research and start saving early. An old saying states that “The best time to plant an oak tree was 20 years ago. The next best time to plant an oak tree is today.” Get started today saving for college.

There are many different routes to your college education and they don’t all have to be expensive. Take time to choose the right one for you.

What other strategies do you have for lowering your student loan debt? Leave us a comment and share your idea.

One Key Thing

Last Friday, I had the opportunity to go to Hawkeye Community College in Waterloo, Iowa and speak in Mark Ryan’s Personal Finance Class. This was the first class that I visited that is using our Personal Finance book. It was really fun and exciting to be at a different college and in a different classroom and answer the student’s questions. The one question that I thought was most interesting was “What is the one key thing, or most important part of your book?”

After a little time, I answered that Chapter 1, ‘Values, Vision, Mission and You’, was the most important part of the book. If you know your values and have a vision for your future, financial decisions become easier. Whenever you make a financial decision, ask yourself if this decision or purchase is a reflection of your values. Is this really how you want to use your resource of money? Framing your decisions around your values allows you to achieve your goals and work towards your vision.

Knowing your personal mission helps you define your passions and what you do best. If you can turn your passions into profits, you never have to work another day in your life. Knowing you passions and strengths helps you find careers where you can excel.

I also shared with them that I thought our Personal Finance book was really about helping you increase your happiness. Money decisions are stressful and knowing your values, and setting your budget based on your values will reduce your stress and increase your happiness.

We hope that this blog and our Personal Finance book increases your happiness, helps you discover your vision, values and mission, and be in control of your finances. Thanks again to Mark Ryan, Hawkeye Community College, McGraw-Hill, and most importantly, the students in the class for hosting me for the hour. It was an honor to spend time with you.

All our best, Bob and Kristy

Living off the Grid

It has been six weeks since we sold our house and moved into our motor coach. If you read our previous blog "Homeless" you know it was quite a shock moving from 3,000 to 300 square feet. The idea of living in our motor coach for 6 to 9 months while we build our next home was a great plan as we sat around the dining room table of our old house. The good news is that it gets better.

To bring you up to speed, we now have electricity as of two weeks ago but still do not have running water. When we were showering in the motor home, our 85 gallon water holding tank would last us about one week. Tuesday was our day to take the motor home out to empty our tanks and fill up with fresh water.

We changed our ways two weeks ago. We now get up at 5:00 am to head out to the Campus Wellness and Recreation Center (CRWC) for a work out and morning shower. We can now stretch our 85 gallons out for one month.

Lessons learned over the past 6 weeks:

1. Running water and electricity are great luxuries. There is nothing like a long hot shower.

2. We have a new appreciation for space. Bob misses his home office and fast Internet. Kristy misses her closet and room to get ready in the morning.

3. Living in a small space makes every other house seem enormous. We spent time at Kristy's parents’ house and our kids’ house and they both seem gigantic! Such a luxury to spread out and have separate rooms.

4. Public libraries are great places. Without a home office, Bob has been spending time working at the Coralville Public Library and he appreciates free Wi-Fi.

5. Laundromats have free Wi-Fi and you can do a week of laundry in less than two hours. They also have cable television and we can watch channels that we don't have.

6. Why did we pay so much for cable? We are using the antenna on the motor home and the reception is great. We get 27 channels from our pasture.

7. Living off the grid is frugal but the 'fun' varies.

8. Life is good. It's not the space you have but the people in your life that makes life good. When we are with family or friends, the space never feels small. For all our family and friends, we are very thankful.

Homeless?

This week we closed on the sale of what had been our home for 19 years. Going through a packing frenzy of moving life-long belongings and wanting to pass on a sparkling, clean adobe; the moment caught me completely off-guard. I am not an emotional person, but upon the final signature at the closing, I burst into tears and hugged the new owners of our home where we had raised our family. I was passing a part of us on to these newly-met out-of-towners.

Over the course of the day, I went from exhaustion, -to tears, -to exhilaration. For the first time in three decades, we were mortgage-free. It felt gypsy-like. Think of how close the moment of being totally debt free. This summer, we purchased five acres out in the country, have our orchard started, a vegetable garden in, 41 grape vines underway and four hens laying eggs – but no house. Not wanting to risk two mortgages, we made the decision that we would sell our current home before building our next home. And in the interim? We would make due with our motorhome.

Still waiting for electricity and water, living in a motorhome parked in a cow pasture feels a little too off-the-grid for me. Yes, we are saving lots of money and are appreciative for the next space already. We are open to the 6-9 month adventure of what I consider an ultimate frugal life-style. But there are two sides to this coin and we are finding ‘homeless’ comes with both its hardships and its blessings. Hopefully, the blessings will continue to outpace the hardships.  

What extremes have you taken on, in either risk-aversion or in goal-savings? I want to hear from someone more nuts than us. :)

Frugal Fun Night?

As classes have started and I’m back to teaching personal finance, I have a challenge for all the students taking this class and using “Personal Finance; Building Your Future” by Walker & Walker. I want to know who can come up with the best frugal fun night. Add your suggestions and ideas by adding it as a comment to this blog. Keep it clean (PG rating), include an estimated cost and how this Frugal Fun Night reflects your values – the values that you worked on in Chapter 1. Remember, being frugal is not being cheap, but it is the wise spending of money in accordance with your values.

I look forward to reading your responses and getting ideas of how I can spend a Frugal Fun Night!

Should You "Bank" on Your Home?

We are just about to close on the selling of our home of 19 years and I was wondering what the appreciation was over the past two decades. This was inspired because my realtor keeps reminding me of how much I paid compared to our selling price. The actual cost can get really complicated (considering home improvements, tax benefits, repairs and maintenance, etc.) but I wanted to keep it simple.

I took our purchase price as the present value and our selling price minus realtor fees and updates to the house for selling as our future value. The 19 years of compounding yields a whopping 2.2% return on our house. I know all of you finance people want to look at my investment (down payment) and calculate the return based on that, with tax advantage on interest, also calculating in home repairs and maintenance, but that gets complicated really fast, and I don't have all of those records (shame on me). But this shows that our house appreciated an average of 2.2% over 19 years or about the average inflation over that period.

My grandfather always told me "you buy a house to live in and not as an investment." The house has served us well as a happy home to raise our three children; But as an investment? -Not so much. We are glad that we sold our house. We hope that the buyers enjoy the house as much as we did and they make it into their happy home (but not bank on it as their happy investment ever-after).  

Paying for College – Your Award Letter

Sallie Mae just released a study conducted by Ipsos Public Affairs titled “How America Pays for College 2012”. The burden is shifting to the student, up from 25% in 2009 to now 34% in 2012.  As a student, after you complete the free application for Federal Student Aid (FAFSA) form and send it to your school, the school will send you an award letter, stating scholarships, grantos, work study, and amount available through federal subsidized and unsubsidized student loans. As you start the fall semester, it is a good time to start paying on your student loans. How are you going to pay?

If you borrow money for college, you should take advantage of subsidized federal student loans before unsubsidized federal and tap private student loans as a last resort. The difference between these options is that the interest of a subsidized student loan does not accumulate until you are done with school while the interest in an unsubsidized student loan starts to accumulate while you are still in college. Private student loans have the highest interest rate; the interest and payments start immediately. But, should you borrow all you can while in college?

To me, the answer is ‘No’ to borrowing. Take full advantage of grants and scholarships – you don’t have to pay those back, but be careful of how much you borrow. Loans have to be repaid. If you don’t need it, don’t borrow it. This will require you to create and stick to a year-long budget. Once you create a budget, you can determine how much you will need to borrow for college. You can also work on campus through work-study programs which will help reduce the amount you need to borrow.

With total student loan borrowing exceeding total credit card borrowing in the United States, as a student, you will want to take a hard look at how much you should borrow for your education. Student loan money is not free money and the less you borrow, the less you will have to pay back. Complete a budget for college and seriously consider how much you need tn borrow when you get your awards letter from your school. I challenge you not to take your full award if you have to borrow on subsidized, unsubsidized or private student loan. However, if you need the money to stay in college, borrow the minimum amount so you can graduate on time.