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  1. #1

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    University Student Debt, and How to Control It

    My undergraduate school is on the front page of Yahoo this morning, under the title, "Getting a Degree Debt Free". http://financiallyfit.yahoo.com/fina...s?ywaad=ad0035

    A former student wrote a book about how he graduated without debt. He did some smart things - first, he went to community college by choice, to save money. Then he transferred into the best public university in his home state. He did some other things as well, such as working, etc. And apparently, he invested in local real estate (wow). I'm getting a copy of the book from my library so I can see how he managed that last one.

    I also graduated debt-free from this same school, but my method was a bit different. I was able to win a full tuition scholarship based on academics*, and in my sophomore year, I became an RA, so that my housing was free. I also worked.

    A friend of mine did it by joining the National Guard. Of course now days, Guard service means that you pretty much WILL be deployed overseas, so that did extend her time to her degree, but she got it. And she graduated with military experience on her resume, which helped her get her first job.

    Being able to pay for university now is a major, major issue for a lot of families, and I'm seeing more and more students graduate with student loan debt so huge that, in my calculations, they won't be able to pay it off, period. More and more students are proving me right on that one by defaulting on their student loans. I thought I'd ask if others had come up with clever or interesting ways to keep their university costs down, and limit their debt.


    *A lot of states offer such programs now. If you graduate in X percentage of your class, or score over X on your SATs, you can go to any public college, or community college in your state tuition-free.
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    I understand all of the reasons that it is becoming more difficult to pay for college, but I also think people are not managing money well or making the best choices about paying for school versus spending on other "necessities" may be part of the problem in some cases.

    My cousins decided that their amazingly talented son had to stay home and start at community college to save money. Because of scholarships he was offered at four year schools, their share would have been about $700 a month. They just absolutely couldn't afford that--but they pay nearly $500 a month so the whole family can have cell phones with unlimited internet, gps, etc...and they bought the same kid a nearly new car with payments of around $250 a month. Add into this that the kid has had a job for two years and spends every dime he makes himself on whatever he wants--he ordered his fourth iPod Touch from Apple this week. It seems to me that in this case, they could have lowered the phone plans to something cheaper, either not got the kid a car or got a cheaper one, and made him continue working and pay a share of the costs--and the kid could be at the four year school he wanted to be at.

    And I look at some of the families of the kids I taught in the last few years and am guessing that a lot of them could make other choices as well and be better able to pay for college. If your kid has a new Mustang and is on his second or third jet ski---I'm thinking you could have made some different choices and had an easier time funding his education.

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    I don't understand the notion that it's the parents that need to pay for education. If parents are able and want to help out fine, but I would never assume that it's their responsibility. My parents haven't paid for a cent of my education and I'll probably come out of it with $10,000 to $15,000 in debt. That to me is manageable. I do work full time though in addition to going to school full time (barely) and I have pretty frugal living. It'll take me a bit longer to finish my degree but that's okay.

    My sister in law on the other hand paid for her school only by student loans and lived in res and didn't work at all while she was going to school. She has $40,000 in student loan debt from 2 years of school. She ended up dropping out so now is working in a daycare and trying to pay it off. She also wasn't in a program that was going to give her a large income if she had completed it. That to me was just stupid and now she's barely getting by because of her debt.
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  4. #4
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    In 2006, Harvard upped the ante among Ivies and top research universities by awarding more financial assistance to undergraduates, so that students from lower-income backgrounds can graduate with little debt, if any:

    Since 2006, students from families with incomes less than $60,000 who are accepted to Harvard under our regular admissions policies have no expected parent contribution for their education. Additionally, families with incomes between $60,000 and $80,000 have seen their expected parent contributions significantly reduced. Financial aid is available to all students based on assessed need. Families with incomes up to $180,000 have an average expected parent contribution of 10 percent or less of their income and, as we continue to take individual circumstances into consideration in our assessment of financial need, many families in even higher income brackets also receive substantive financial aid.
    http://www.admissions.college.harvar...fai/index.html

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    Quote Originally Posted by made_in_canada View Post
    I don't understand the notion that it's the parents that need to pay for education. If parents are able and want to help out fine, but I would never assume that it's their responsibility. My parents haven't paid for a cent of my education and I'll probably come out of it with $10,000 to $15,000 in debt. That to me is manageable. I do work full time though in addition to going to school full time (barely) and I have pretty frugal living. It'll take me a bit longer to finish my degree but that's okay.

    My sister in law on the other hand paid for her school only by student loans and lived in res and didn't work at all while she was going to school. She has $40,000 in student loan debt from 2 years of school. She ended up dropping out so now is working in a daycare and trying to pay it off. She also wasn't in a program that was going to give her a large income if she had completed it. That to me was just stupid and now she's barely getting by because of her debt.
    I get your point, too. But when the parents are saying that they expected to pay or help pay and can't and, therefore, limit the kids' opportunities while spending a lot of money on things that are not necessary....sorry, I don't get that. And in the upper middle class world I was teaching in, I saw a lot of that. In the example of my cousin's kid, I'm thinking that with the scholarship he was offered, if they cut back on one thing (cell phones with all the bells and whistles for themselves and three kids would be the easiest thing to ditch, I would think) and made their kid pay half of his own expenses--no problem paying for the school he wanted. Instead, they keep their luxuries, he continues to spend his paycheck on luxuries instead of contributing to his own future, and his options for that future get limited. It's not a national crisis in that case. It's bad choices or mixed up priorities or whatever you want to call it.

    The other problem is that financial aid is determined with the assumption that parents will pay a share unless a student is over 24, married or has dependents. This makes it difficult for traditional students to have access to need based aid that is not from loans if their parents aren't helping.

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    Quote Originally Posted by made_in_canada View Post
    I don't understand the notion that it's the parents that need to pay for education.
    Quote Originally Posted by PDilemma View Post
    The other problem is that financial aid is determined with the assumption that parents will pay a share unless a student is over 24, married or has dependents. This makes it difficult for traditional students to have access to need based aid that is not from loans if their parents aren't helping.
    1. What Pdilemma said. I really think this is something that needs to change. Students who don't have parents helping really get shafted on this. OTOH I think this came about because there were too many taking advantage of aid when they were actually receiving parental help. It's a tough one to monitor.

    2. I expected my parents to pay for college because they expected me to go. I did help out by getting scholarships and limited amounts of student loans. But it all depends on the family.

    My BIL would have loved to have help from his family but they had the attitude that once he became 18 he was on his own. I highly disagree with this on so many levels. His parents are very warped and IMO not very supportive. I kind of put them in a category of people who shouldn't have had kids in the first place.
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    ITA PDilemma, I was speaking more in general terms. Although in your example, if the kid wanted to go then he could definitely be more proactive in paying for it himself.
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    Quote Originally Posted by GarrAarghHrumph View Post
    And apparently, he invested in local real estate (wow). I'm getting a copy of the book from my library so I can see how he managed that last one.
    I don't know if this is what he did, but I see two options that would have been pretty manageable for a youngling with drive. One would be to buy a land lot or two and build a storage facility on it. They are becoming more in demand so there won't be a shortage of renters, aren't too expensive to build and they're pretty low-maintenance. A former co-worker owned some, and he says he pretty much just watches the money roll in, and has very little work associated with it.

    The other option would be to buy a small older house/rental unit and rent it out. There's more work associated with this, but if the building is in good repair, it could be manageable.

    As for me, I can't say I graduated without debt. In fact, I graduated with about $25,000 in debt. But it could have been a lot more had I chosen either of the first 2 schools I got accepted to. My first pick was an expensive private school, and though I got good grades in high school and was ultra involved in activities, I still didn't get any scholarships. Since the tuition was about $20,000 a year, and my parents weren't going to help, it got nixed right away. My decision came down to a good state school in Montana and a good small private college in North Dakota. The tuition for both was roughly the same... about $12,000 a year. And again, I didn't get any scholarships from the state school. But I did from the private school. So I went to the private college in North Dakota, and graduated in 4 years with less debt than I would have if I went to the state school, where it probably would have taken at least 5 years to graduate.

  9. #9
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    Quote Originally Posted by mpal2 View Post
    1. What Pdilemma said. I really think this is something that needs to change. Students who don't have parents helping really get shafted on this. OTOH I think this came about because there were too many taking advantage of aid when they were actually receiving parental help. It's a tough one to monitor.
    So you think the only students who should get financial aid are ones who are shouldering their entire education responsibility themselves?

    2. I expected my parents to pay for college because they expected me to go. I did help out by getting scholarships and limited amounts of student loans. But it all depends on the family.
    So you were one of the students taking financial aid while receiving family support?

    Not trying to be snarky, just trying to understand where you're coming from.
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    Quote Originally Posted by genevieve View Post
    So you think the only students who should get financial aid are ones who are shouldering their entire education responsibility themselves?


    So you were one of the students taking financial aid while receiving family support?

    Not trying to be snarky, just trying to understand where you're coming from.
    I think mpal was saying that for those who aren't getting parental help, it is too difficult to get adequate aid because the system assumes parental help and determines aid based on the parents' financial status. They end up with tons of loans, too often. I don't think the point was that those getting parental help should not qualify for any assistance.

  11. #11

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    I had 80% aid my junior and senior years. Most of it was work study and loans. My mother worked a just above minimum wage job, but they still expected her to be able to pay the 20%. There was no way she could do that, so I was on my own scrounging for book money and other expenses. As I understand it, those rules have changed and folks making less than 400% of the poverty level are not expected to contribute any more.
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  12. #12
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    I came out of college with about $13,000 in debt. I worked through high school and went into college with about $5,000 in savings, and I actually came out of my freshman year with money left over. That changed when I transferred to a larger, more expensive (state) school.

    My parents could have paid for all of my education, but they chose not to. They paid tuition, part of books, and got me a computer and let me use an old car. The problem was, they did not have a realistic plan for me--they thought that I could earn $3,000 a summer if I worked full time. This was not possible (working a regular job and not working the pole), so I went into debt. (I did have a part-time job all through college, but that was so I could pay for rent and food.) I do blame my parents for poor planning, and they still try to say that it was my fault that I went into debt.

    The problem is that the cost of university has gone up exponentially since the late 1960s, and a lot of parents don't plan for that when they set up a college fund.

  13. #13
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    Quote Originally Posted by PDilemma View Post
    I get your point, too. But when the parents are saying that they expected to pay or help pay and can't and, therefore, limit the kids' opportunities while spending a lot of money on things that are not necessary....sorry, I don't get that. And in the upper middle class world I was teaching in, I saw a lot of that. In the example of my cousin's kid, I'm thinking that with the scholarship he was offered, if they cut back on one thing (cell phones with all the bells and whistles for themselves and three kids would be the easiest thing to ditch, I would think) and made their kid pay half of his own expenses--no problem paying for the school he wanted. Instead, they keep their luxuries, he continues to spend his paycheck on luxuries instead of contributing to his own future, and his options for that future get limited. It's not a national crisis in that case. It's bad choices or mixed up priorities or whatever you want to call it.
    I think most of it is getting your priorities straight and doing your research. For some people, it would be cheaper going to a good private school because there are so many now who give aid (even free tuition) to lower-income students. Many people assume that it's automatically $35,000/year when that's not true. You have to get all the packages together and compare them directly.

    And of course you also have to consider your job prospects afterwards. My sister works at a nonprofit doing work on student debt and she noted that the local art school (which is one of the best in the country) graduates students with the highest per-student debt in the state. Most of these kids will have a hard time paying it back, because being a designer or illustrator just doesn't pay very much. If I had unlimited funds, I'd go there in a heartbeat, but I don't have unlimited funds and feeling financially secure is more important to me.

    Quote Originally Posted by PDilemma View Post
    I think mpal was saying that for those who aren't getting parental help, it is too difficult to get adequate aid because the system assumes parental help and determines aid based on the parents' financial status. They end up with tons of loans, too often. I don't think the point was that those getting parental help should not qualify for any assistance.
    Right. The system certainly isn't perfect. Heck, some parents can even game the system if they know how to. My uncle makes A TON of dough (way more what my parents are making) and even he managed to get aid for his kids' private college educations, while my parents couldn't get aid for me. At least until my sister was also going to a private school and they were paying for both of us.

    I suspect it had to do with home prices - we live in CA so our houses are automatically worth 3x what his NJ house did.

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    My way of finishing school debt-free wasn't particularly creative, but I generally think that this solution is not rocket science - keep your expenses to a minimum, work part-time jobs during the year, and full-time during the summer, and keep your GPA high to qualify for scholarships. In my case, I had an academic scholarship that covered tuition, but I also lived with my parents, worked in a variety of jobs while I was in school (TA, coaching gymnastics, Staples), and generally didn't spend a lot of money. I was also fortunate enough to go to a school that had a Co-operative education program, where you could spend the last two years of your degree alternativing work terms in your field of study with school terms, so during my work terms I was making a reasonably decent salary working full-time and getting good work experience and contacts. Some could argue that I had it easy because of the scholarships, but I had to work pretty hard to keep those up and I can feel good that I didn't put my parents out to any expense aside from the incremental cost of living with them (food and a bit of extra electricity).

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    Quote Originally Posted by UMBS Go Blue View Post
    In 2006, Harvard upped the ante among Ivies and top research universities by awarding more financial assistance to undergraduates, so that students from lower-income backgrounds can graduate with little debt, if any:
    My personal experience is that the Ivies definitely are better at helping even middle class students avoid excessive debt than most other private universities. They offered me much more aid than other universities and a much lower % of that aid was in loans. Then, in my junior and senior year, I got an internal scholarship that shifted much of my loans to scholarship (without increasing the total aid provided). My grades were good, but not exceptional, and I never applied for the scholarship, so it seems that the university must have had quite a few of these kinds of scholarships to offer (it was alumni sponsored).
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  16. #16
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    Quote Originally Posted by PDilemma View Post
    I think mpal was saying that for those who aren't getting parental help, it is too difficult to get adequate aid because the system assumes parental help and determines aid based on the parents' financial status. They end up with tons of loans, too often. I don't think the point was that those getting parental help should not qualify for any assistance.
    Thanks, that makes sense.
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    I used a combination of scholarships, work-study programs (I did everything from being a janitor to re-writing a lab book for a professor), and a enrolling in a co-op program. The co-op program alternated semesters of classes with semesters of a modestly-paid internship that gave me cash and good work experience at the same time.

    Even though I alternated work with school starting mid-way through my sophomore year, I graduated with my class in 4 years by taking heavy loads during each class semester. The alternating semester plan helped me with burn-out and the experience was critical when I was looking for a full time job. Came away with ~$4,000 dollars in debt, but it was at a really low interest rate and was quite manageable.

    When I related my story to my sister-in-law, she said that she would never allow her sons to be janitors. Instead, they work at Starbucks -- so much more prestigious, but they need a car to go to/from work. Her boys live in San Diego, where living expenses far outweigh tuition expenses.

    I do think that comparing one's debt level to an expected income level is a good exercise. (Why don't banks do this???) I encourage high school grads to design a budget for how they would like to live at age 25, and I help them to calculate student loan payments for $10K, $20K, and $30K loans, assuming a 10-year payback. We get their expected income level from the Bureau of Labor Statistics. It is eye-opening for many of them, because their budget for travel and entertainment usually goes away completely.

  18. #18

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    A number of schools outside the Ivies now have plans to cap student debt on graduation. My alma mater, Grinnell College, capped the student's loan amount at $2,000 per year (plus some students have to do work study equivalent to another $2,200 per year). So the max amount the students will graduate with is $8,000 in loans. On top of that, it has become tradition for alumni classes celebrating major reunion years to raise funds toward paying off student debt. Even before the debt cap was adopted, those gifts were wiping out the debt of 30-40 students each year, approximately 1/10 of the graduating class. The eventual goal is to have students graduating without any debt.

    Now, I should add that the cap is on "need-based" debt, which is determined by a formula that expects parental contribution for students of a certain age. Schools have to make those assumptions and stick to them because otherwise families that can afford to pay something toward school will claim they cannot, which will further deplete endowments that have suffered significantly from the economic downturn. I definitely understand and sympathize with the students whose parents refuse to pay, but I think those generally are the exception not the rule.

    "Need-based" debt also is used for the cap because it does not want to encourage families to take out extra loans because the school will pay them off.

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    In general, I advise students to take out in student loans only the amount equal to their expected first year of salary. Total. If they take out twice that, as I often see, IMO, they'll face significant amounts of trouble paying it off. If they take out more than twice their expected salary, I tell them I'd not be surprised if they went into default. And defaulting on student loans is extremely serious business.

    I've seen students from private schools like Drexel take out $100,000 in loans. Even a petroleum engineering student would have a hard time paying that off.
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    When I was a senior in high school, I had my heart set on going to a Boston-area university that was quite expensive and moderately selective. I got in, but did not receive enough financial aid.

    I got a full merit scholarship at my safety school, which my parents insisted I take.

    I HATED going to school there, but I got three semesters in for free. I then went to a state school for a semester before moving out of state to join an AmeriCorps program. The year I was there, I established residency in the new state and when the program was over, I applied to the state uni there. The AmeriCorps money paid for most of my junior year and my parents gave me the money for my senior year.

    Really, I made out quite well.

    Now that I have a baby, I'm thinking of college. What do you guys think of those 529 plans where you lock in today's prices? That's the way I'm leaning, but I'd be interested to know if anyone had experiences with them.

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