Student loans... worse than we thought

[AZhitman]

Several of you have heard me rant about student loans and the unseen dangers therein...

Here's a great article about how bad it can get: https://www.vocativ.com/money/breadline ... -sentence/

Certainly, the trend is to blame the lending institutions - but I'm not convinced they're actually the cause of this crisis.

Thoughts?

[Rogue One]

Isn't it Bush's fault?

But seriously, I have a hard time feeling sympathy for people that get useless degrees in a niche industry.

[MinisterofDOOM]

Paying money for school is like giving someone your car so they can run you over with it.

[Looneybomber]

Failure to do proper research; Ridiculously expensive school (seriously, do some gen eds online from a community college for $70/hr) and an overly saturated job market.

Piss poor planning on her part, but she followed her heart/passion. I don't blame the lending institutions just like I don't blame the loan sharks. It's a gamble to borrow money and sometimes you get shot in the leg if the gamble goes south.

[AZhitman]

Good points, all.

[Jesda]

$200k for music therapy?

Come on. I mean really, come on.




Lenders have colluded with the government to make student loans a life sentence with no chance of escape. This in turn has disincentivised lenders from being discerning about who receives loans and in what amount. They know that no matter how irresponsible the borrower is, they'll get paid eventually.

Some borrowers have chosen to leave the country. Not a bad plan as the world becomes globalized and you can enjoy first-world living conditions on almost any continent. An American education carries weight in many countries.

[Bubba1]

Certainly, the trend is to blame the lending institutions - but I'm not convinced they're actually the cause of this crisis.

Thoughts?

I agree. I think it's too easy to place blame on the lending institutions or the universities for being expensive. At the end of the day, it's the responsibility of the person who takes out the loan (and/or his/her parent's) who signs it to determine if it's affordable or even worth doing in the first place.

As a parent, if your goal is getting your child a college degree with as little debt as possible, that requires some fiscal discipline (fancy word for saving) for almost 2 decades, and some old fashioned common sense. Problem is too many parents do not make saving/investing for their child's college education a high enough priority and early enough) or even rationally discuss affordable options with their child.

[frapjap]

I have two private loans (consolidated from 5), and I do have to say that the lending institutions were more than happy to give me money when I was beginning my education. They're a b**** to pay back, and I have 3.5 more years before I can do anything particularly significant with my income. I'm not the end all/be all on education debt, but I'm damn sure well versed in it and have a very educated opinion. My experiences aside, education can be damned expensive, though it is what you make of it.

The funny thing about this article is that I don't see anywhere that she took internships, spent extra time with school sponsored groups or functions to network with students and whoever else they're partnered with, became a TA, or how much effort she put into her studies. Why did it take her 5 years to complete a bachelors degree? If I do the math right, she was 23 when she started college- shes is considered an opinionated adult and should have been able to reason fairly logically about the results of her education and intended career path- even if it were mid-education. Its understandable that she struggled to live through school with nights/weekend employment, but there are plenty of folks who did and are doing exactly that today, including myself. This chick also seems as if she was reluctant to move or take a go at making a new start somewhere else to make her ends meet. Following your heart is one thing, but without explaining how much effort she put into following her dream after graduating, we can only assume that she thought she'd just get her job because she had a singing degree from Berkley (at a ripe age of 28, where she should know better, mind you). This is a mistake that many, MANY people make. They assume a degree guarantees you a job and a wonderful salary. s***, you only get what you give. Sack up, get experience any way you possibly can, be willing to make many sacrifices, communicate with the right people and work harder than you've ever worked and be ready to hit it even harder the next day- thats the only way you're getting somewhere.
I'm not even going to start speculating about why shes pregnant, since the article glossed over that fact entirely. Somewhere along the line, she half asseed something.

Point is- YES, education is expensive. YES, very few folks save or plan for it. And YES- you had better be willing to kick your a** to make it happen because nothing worth having comes easy. I feel (bolded because this is my opinion and not a fact) that the folks who say college is a joke, too expensive, b**** about their loans, etc obviously did not work hard enough or engage themselves on the level necessary to make college a fruitful experience for them which would translate into a brighter career. You never hear about the top 20% of the class bitching about how college is a joke, or how they defaulted on their loans, do you?

[elwesso]

I more/less agree with Ray... Jesda is right, since there's no way out of student loans, even though it's technically a bad overall investment, it's really not a bad investment for the banks because they'll get their money back one way or another.

Ray is exactly right that just because you went to college doesn't guarntee you a good paying job. In fact, I'd say very few degrees are useful enough to get you a good paying job right out of college, anything else requires further schooling. IMO, you can do pretty well out of college with anything engineering related, physical science related, business (primarily finance) related, and maybe some others.

I think really what we're seeing now (and part of the reason college is so expensive) is that more people are going to college, when in some instances that may not be the best thing for them... Or, at the very least they may be going to college too soon before they really know what interests them. There's a big push for people to go to college, but there isn't a big push for people to pursue degrees that are worth the effort or at the least helping them determine IF they should go to college or helping them figure out what suits them best.

[hannibal]

First of all, student loans are LOANS, not grants. You have to pay them back. Too often, younger students fail to realize how a loan works. People typically understand a car loan or a mortgage because the item you're borrowing to obtain is tangible. But an education is different because what you're receiving isn't well defined. No one would get a $100,000 car loan to buy a brand new Honda Accord, and no one would take out a $1 million mortgage to buy a double wide. It is obvious that no bank would lend these amounts for these products because the collateral doesn't come close to covering the loan amount.

But people have a hard time valuing education. It is well known that college grads make more money over their lifetime, but it doesn't mean a college degree makes you financially secure. $200,000 is a TON of money, and I would be super hesitant to spend that even on the best schools. While you're likely to get a great return on this loan with an MIT engineering degree or a Stanford MBA, I'd argue that there is no music school in the world where a $200,000 loan makes financially sense.

Perhaps lenders should disclose the salary range of recent grads in the field the borrower is studying. If this lady knew that only 1% of people with her degree made more than $100,000, would she still have borrowed that much money to pay for this program? But it is clearly not the lender's obligation to share this info and student typically don't consider this. As many have pointed out (and I just learned), student loans never go away. So why should they care if you die owing them $50,000? Your estate will inherit the debt and the lender gets paid or simply cycle continues til some dead person has enough assets to pay.

With that said, I would never borrow that much (or let my kids borrow that much) to pay for college. I think an MBA from a top 5 B school, a medical degree, or JD are some of the only advanced degrees where the cost of the loan is mitigated by the prospect of large future salaries.

[MinisterofDOOM]

I feel (bolded because this is my opinion and not a fact) that the folks who say college is a joke, too expensive, b**** about their loans, etc obviously did not work hard enough or engage themselves on the level necessary to make college a fruitful experience for them which would translate into a brighter career. You never hear about the top 20% of the class bitching about how college is a joke, or how they defaulted on their loans, do you?

You sure as Hell do. A huge number of vastly influential, world-changing physicists and other scientists had very little formal education, either from lack of interest or lack of opportunity. Faraday, Einstein, Curie...much smarter than you or me and much less educated. How many billionaire entrepreneurs skipped school to focus on building a business? How many successful business leaders?

I firmly disagree with your assessment. It is NOT simply a matter of "work harder and make it happen." Learning and acquiring knowledge isn't something that happens to you, it's something you actively participate in. And that means that it needs to happen in a compatible way to your mind. This is the core of the problem with education. SCHOOL is ONE SINGLE LIMITED AND STRUCTURED format of learning, but society has adopted it as the only standard of acceptability. This is patently s***. There are so many other ways to learn. There are entire psychological and sociological sciences devoted to the different forms of learning and the different ways we UTILIZE understanding in practical ways. Quite simply: school is perfect for some people, and not at all compatible with others.

I also resent strongly the unfortunate fact that studying in any capacity other than one that is formally recognized as "school" is any less laudable to society. In fact, I would argue that it is more laudable. Those who take initiative to LEARN (not the same as "being educated" in the modern sense if you ask me) are people who have a self-driven initiative to acquire new understanding. That is absolutely NOT a requisite for school, even for earning high marks in school. And that leads to the another of the huge issues with school and "education." Success in school has less to do with a drive to learn, understand, and apply than it does with the willingness to persevere through bureaucracy. The latter is purposeless self-adulatory masturbatlon. "I made it through school" as a point of pride. Good for you. That does not necessarily mean that people who didn't "make it through school" are any less hard-working, dedicated, driven, skilled, or intelligent.

I will confidently and proudly defend myself as AT LEAST AS hard-working, dedicated, driven, intelligentt, and eager to learn as any of your "top 20%" and I didn't even finish a 4 year college. School doesn't mean JACK s***. It says you sat through someone else's idea of a structured plan. That's it. It says NOTHING AT ALL about WHAT HAPPENED TO YOU!

I despise school. I am disgusted by it. I find it to be an intolerable, rote demonstration of modern humanity's need for structure and guidance in order to succeed. And the insinuation that any disagreement with the idea that school Makes One Good is a sign of weakness or lesserness is offensive.

School doesn't make successful people successful. Successful people make THEMSELVES successful, through any and every means available. It just so happens that many successful people tend to be the kind of people who choose to devote themselves to a successful school career. That does NOT, by ANY stretch of logic, mean that school is the only means of becoming successful.

College is a joke. High school is a joke. All public education is a joke. I learned a hundred times as much in my own time, by my own will, than I ever learned in a classroom. None of my teachers or professors or instructors had any interest in imparting a desire to better myself. That came from ME.

There are many, MANY worthwhile things in life that one may choose to devote him- or herself to. School is merely one of those. And school does a very good job of aggressively competing with the other options, which means often people find themselves facing a choice: school or something else. School is not the universal answer to that question.

The fact that school costs asinine amounts of money in addition to all these other items is just icing on the cake.

[lne937s]

BTW, there is a quick way to pay off 1/3 of your student loan debt a year:

The Army will repay 33 1/3 percent of the outstanding principal balance, less taxes of the Soldier's student loans annually or $1,500, whichever is greater, after year of service (up to $65,000, less taxes).

http://myarmybenefits.us.army.mil/Home/ ... l?serv=147

IMO, private loans are a money-losing endeavor. The interest rates are just too high and they lack protections for the borrower. If you add up the cost of the lifetime loan payments and compare that to your incremental income, it is extremely unlikely you will come out ahead. Perkins, Stafford, etc. make a little better argument for themselves, especially with interest deferred while you are in school.

But there is always the option to reduce the number of hours you take a semester and work part time. I minimized my loans to less than $10k and paid them off in a couple of years after leaving school... and have been debt-free ever since.

[AZhitman]

Lenders have colluded with the government to make student loans a life sentence with no chance of escape. This in turn has disincentivised lenders from being discerning about who receives loans and in what amount. They know that no matter how irresponsible the borrower is, they'll get paid eventually.

Brilliantly-and accurately stated.

An American education carries weight in many countries.

Very true. Or, save like crazy for 20 years and retire at 45 to a beach in a "third-world" country with a bunch of other American ex-pats and contribute to THEIR economy.

[Bubba1]

Lenders have colluded with the government to make student loans a life sentence with no chance of escape. This in turn has disincentivised lenders from being discerning about who receives loans and in what amount. They know that no matter how irresponsible the borrower is, they'll get paid eventually.

Brilliantly-and accurately stated.

An American education carries weight in many countries.

Very true. Or, save like crazy for 20 years and retire at 45 to a beach in a "third-world" country with a bunch of other American ex-pats and contribute to THEIR economy.

I humbly disagree with Jesda on the first point and Greg on his last point. Lenders are obviously in it for the money, no argument there. But I don't see evidence of collusion with our government to financially enslave college students for life. At what point do the students become at all responsible for their actions? Where has personal responsibility gone in this country??

And on the point of retiring to a 3rd world country. I don't understand why you imply doing that is in any way wrong or unamerican? I know someone who served his country during WW2, paid all his federal, state, and local taxes for many decades while living in NJ, raised his children in NJ, did volunteer work, and decided to retire to Costa Rica (near the beach not on it) when he felt financially secure. He returned to NJ periodically to visit his family/friends and maintained his US citizenship. He even voted, which a whole lot of citizens who physically live in this country don't bother doing. He was (now deceased) no less an American than you are. After visiting his Costa Rican house, I wouldn't mind retiring there.

[OriginalWheelman]

I don't think it's collusion. I think they straight up convinced the government they were helping kids when all they were doing is instituting a business model.

The big problem as I see it, is the compound interest. They defer payments, but they keep racking up interest on some of them, even while in school. When my wife graduated we obviously were not ready to pay them back, so we took deference. They were more than happy to give it to us. We ended up deferring it a couple years in a row. Sp we had our original balance, and the compound interest from when she was still in school. Now, on the deference they were so happy to give us for two years, they are charging full interest on the balance of all the loans, and that includes all the interest from before. In the end, now that we are paying her loans off, we are paying back 1.9 times what we borrowed.

[Jesda]

Enlarge: http://www.collegescholarships.org/rese ... scheme.jpg

[frapjap]

I feel (bolded because this is my opinion and not a fact) that the folks who say college is a joke, too expensive, b**** about their loans, etc obviously did not work hard enough or engage themselves on the level necessary to make college a fruitful experience for them which would translate into a brighter career. You never hear about the top 20% of the class bitching about how college is a joke, or how they defaulted on their loans, do you?

You sure as Hell do. A huge number of vastly influential, world-changing physicists and other scientists had very little formal education, either from lack of interest or lack of opportunity. Faraday, Einstein, Curie...much smarter than you or me and much less educated. How many billionaire entrepreneurs skipped school to focus on building a business? How many successful business leaders?

I have no statistic as to how many folks have become overwhelmingly successful without formal education. These people exist, and always will, though not in very great numbers. However, he one thing that they have in common is drive. Sam Walton (though most people hate what Wal Mart has become) is my favorite example of what you've mentioned. The guy is simply the man.

I firmly disagree with your assessment. It is NOT simply a matter of "work harder and make it happen." Learning and acquiring knowledge isn't something that happens to you, it's something you actively participate in. And that means that it needs to happen in a compatible way to your mind. This is the core of the problem with education. SCHOOL is ONE SINGLE LIMITED AND STRUCTURED format of learning, but society has adopted it as the only standard of acceptability. This is patently bullsh*t. There are so many other ways to learn. There are entire psychological and sociological sciences devoted to the different forms of learning and the different ways we UTILIZE understanding in practical ways. Quite simply: school is perfect for some people, and not at all compatible with others.

I agree with you, school is not the only way to learn, and we all learn differently. It isn't for everyone, and it sure isn't the end all-be all to being successful. I don't believe that people who didn't go to get a formal education are dumb or lesser than myself or others, that would be pretty ignorant, I'm more interested in surrounding myself with those are are hard working and don't give up. That isn't to say that there are folks who feel the complete opposite, but I made no concessions for them and don't associate myself when them either. My argument for the gal in question in the article who is all "woes me" was that she may not have applied herself.

I also resent strongly the unfortunate fact that studying in any capacity other than one that is formally recognized as "school" is any less laudable to society. In fact, I would argue that it is more laudable. Those who take initiative to LEARN (not the same as "being educated" in the modern sense if you ask me) are people who have a self-driven initiative to acquire new understanding. That is absolutely NOT a requisite for school, even for earning high marks in school. And that leads to the another of the huge issues with school and "education." Success in school has less to do with a drive to learn, understand, and apply than it does with the willingness to persevere through bureaucracy. The latter is purposeless self-adulatory masturbatlon. "I made it through school" as a point of pride. Good for you. That does not necessarily mean that people who didn't "make it through school" are any less hard-working, dedicated, driven, skilled, or intelligent.

I will confidently and proudly defend myself as AT LEAST AS hard-working, dedicated, driven, intelligentt, and eager to learn as any of your "top 20%" and I didn't even finish a 4 year college. School doesn't mean JACK s***. It says you sat through someone else's idea of a structured plan. That's it. It says NOTHING AT ALL about WHAT HAPPENED TO YOU!

I despise school. I am disgusted by it. I find it to be an intolerable, rote demonstration of modern humanity's need for structure and guidance in order to succeed. And the insinuation that any disagreement with the idea that school Makes One Good is a sign of weakness or lesserness is offensive.

School doesn't make successful people successful. Successful people make THEMSELVES successful, through any and every means available. It just so happens that many successful people tend to be the kind of people who choose to devote themselves to a successful school career. That does NOT, by ANY stretch of logic, mean that school is the only means of becoming successful.

College is a joke. High school is a joke. All public education is a joke. I learned a hundred times as much in my own time, by my own will, than I ever learned in a classroom. None of my teachers or professors or instructors had any interest in imparting a desire to better myself. That came from ME.

There are many, MANY worthwhile things in life that one may choose to devote him- or herself to. School is merely one of those. And school does a very good job of aggressively competing with the other options, which means often people find themselves facing a choice: school or something else. School is not the universal answer to that question.

The fact that school costs asinine amounts of money in addition to all these other items is just icing on the cake.

Some people say "I ain't never been to jail," and its a point of pride. What do you want, a cookie? Sorry, had to quote Chris Rock there. Making it through school is one thing, but applying yourself and taking the initiative to learn- like you're saying- is what propels them in the environment they chose. If that drive can't be applied wherever they desire it to, and if it isn't applied in school (or into another function of life whether it be in the work place or learning on their own) the results likely won't help that person make their expectations.

Unfortunately, there is the structure in most work places that require a formal education to get in the door. Sometimes it makes sense (engineers, chemists, advanced health care) other times it doesn't (IT and computers, culinary arts, shipping and receiving). Unfortunately, the country we live in values the formal education system, in all of its shameless, expensive glory as opposed to the natural critical thinker with a desire to learn. The phrase "C's earn Degrees" bothers me like crazy and I'd rather take someone who has the drive to better themselves with practical education over someone who half-assed their way to the bare minimum through formal education. Folks who apply themselves and constantly learn (what I refer to as 'making it happen') are the ones who succeed; formal education or not. Much to your point (though slightly modified) where they choose to apply it shouldn't matter, so long as they are and don't give up. Hard work should be rewarded and revered and is a reflection of the person more than any framed degree or giant internet success. It doesn't make one option better or worse than the other, but merely a path as and end to an individuals means.

[elwesso]

The phrase "C's earn Degrees" bothers me like crazy and I'd rather take someone who has the drive to better themselves with practical education over someone who half-assed their way to the bare minimum through formal education. .

I'm not sure you can make a blanket statement like that. There were many classes I took in college that a C was a damn good grade. I can tell you that in some of those classes I worked WAY harder to get a C in some of those classes than other folks did to get a B or an A in another class in a different major. In fact, many of those classes that I ended up with C's in I felt like I learned more than in other classes that I got B's or A's in.

School doesn't make successful people successful. Successful people make THEMSELVES successful, through any and every means available. It just so happens that many successful people tend to be the kind of people who choose to devote themselves to a successful school career. That does NOT, by ANY stretch of logic, mean that school is the only means of becoming successful.

College is a joke. High school is a joke. All public education is a joke. I learned a hundred times as much in my own time, by my own will, than I ever learned in a classroom. None of my teachers or professors or instructors had any interest in imparting a desire to better myself. That came from ME.

While I agree that "school doesn't make succcessful people successful", I don't believe that education is a joke. It may not be the best or most relavent for everyone depending on their interests.

At the end of the day, you have to prove to an employer that you possess the knowledge required to do the job. You can gain a lot of knowledge in a short amount of time by going to school, or you can gain knowledge by experience.

[frapjap]

The phrase "C's earn Degrees" bothers me like crazy and I'd rather take someone who has the drive to better themselves with practical education over someone who half-assed their way to the bare minimum through formal education.

I'm not sure you can make a blanket statement like that. There were many classes I took in college that a C was a damn good grade. I can tell you that in some of those classes I worked WAY harder to get a C in some of those classes than other folks did to get a B or an A in another class in a different major. In fact, many of those classes that I ended up with C's in I felt like I learned more than in other classes that I got B's or A's in.

I was thinking more about the person who consistently teeters on a failing grade or a passing grade in every class because they don't do the homework, slack off on group work (man, I hated group work), skip the maximum amount of days per class, etc who don't really end up learning a lot. Completely understand what you're saying though, I got a couple of C's (to hell with Organic Chem and Physics!) that were definitely the result of me trying my damnedest.

[MinisterofDOOM]

[Much to your point (though slightly modified) where they choose to apply it shouldn't matter, so long as they are and don't give up. Hard work should be rewarded and revered and is a reflection of the person more than any framed degree or giant internet success. It doesn't make one option better or worse than the other, but merely a path as and end to an individuals means.

Definitely agreed. We're thinking the same thing...just from different angles.

At the end of the day, school is still too expensive, whether you consider it a worthwhile use of time and effort or not.

[nissangirl74]

School doesn't mean JACK s***. It says you sat through someone else's idea of a structured plan. That's it. It says NOTHING AT ALL about WHAT HAPPENED TO YOU! I despise school. I am disgusted by it. I find it to be an intolerable, rote demonstration of modern humanity's need for structure and guidance in order to succeed.

Jeez, MoD, don't hold back, tell us how you really feel.

As much as you detest it, I love it. Not only am I student, I'm a tutor at the college as well, and one day hope to become a professor. The work I do helps others who are on the same path. I am very devoted to my students and their learning experience. Who knows, after my Type A personality gives me a grabber one day, one of these students that I am teaching, could end up being my nurse. I would appreciate it if they know their stuff when I am lying in ICU recovery.

My academic career will allow me to become a nurse. It is very unrealistic to think I could accomplish this without the guidance and teachings from instructors who have walked the path before me. At the end of my training, I will know 100 ways to help save your life, 100 ways to help you die, and 100 ways to comfort you when your loved ones are taken from you way before their time. You don't get that from self-teaching. You don't learn that on the internet. You don't learn it just from reading a book. You learn that from people, one-on-one instruction, and hands on care.

I get that you hate it and that formal education is not for you. However, just because you hate it, that doesn't mean that anyone who loves it is wrong.

[lne937s]

I will never argue against the value of education. It is necessary for the long-term success of our country. I would argue for more direct spending on universities versus subsidizing for-profit entities. I would prefer free public universities with high standards and trade schools, like they have in Europe... but that is a separate issue.

What it really comes down to is making sure people understand the financial implications of the decisions they are making. This country is seriously lacking in financial education, especially with rising education costs and the death of the pension. A few readily-available online tools can help.

If you run up $100k in loans and pay them off over 20 years at 6.8% (typical for unsubsidized loans), your monthly payments will be $763.34 or $9160/ year.

http://www.bankrate.com/calculators/man ... lator.aspx

If, on the other hand, you started putting the same amount in your 401k for the same 20 year period at 9.72% (the average annualized return of the S&P from 1926-2011 minus the expense ratio of the Vanguard 500 Index fund), you will end up with $547,737.17 after 20 years. Let that ride without adding anything else for the rest of your career (another 25 years) and you end up with $5,833,917. And that isn't even covering any employer matching that you may get or additional earnings you may get while you draw that down.

http://www.moneychimp.com/calculator/co ... ulator.htm
http://financeandinvestments.blogspot.c ... s-500.html

While I have met few people who have been successful working for their money without an education, I have yet to meet anyone who became very wealthy without having their money work for them. While an educated person will likely make more money, few careers will earn ~$6 MM more (divided by 45 years, and it works out to $130k/year). Someone who doesn't run up debt and starts investing early, moderately and wisely (say 500 Index fund) may have their money end up making more than their labor... And that is not to mention someone who maxes out all their tax advantaged investments and invests more aggressively. Max 401k per year ($17,500), $5k in employer match, Vanguard Prime Cap (13.83% annualized since inception) for 45 years= $79,950,141.

Running up six figures of debt is a huge burden for a young person to take on and they likely do not understand the true financial implications. And that burden makes entrepreneurship and risk taking more difficult, undermining the future of the country.

[frapjap]

I will never argue against the value of education. It is necessary for the long-term success of our country. I would argue for more direct spending on universities versus subsidizing for-profit entities. I would prefer free public universities with high standards and trade schools, like they have in Europe... but that is a separate issue.

What it really comes down to is making sure people understand the financial implications of the decisions they are making. This country is seriously lacking in financial education, especially with rising education costs and the death of the pension. A few readily-available online tools can help.

If you run up $100k in loans and pay them off over 20 years at 6.8% (typical for unsubsidized loans), your monthly payments will be $763.34 or $9160/ year.

http://www.bankrate.com/calculators/man ... lator.aspx

If, on the other hand, you started putting the same amount in your 401k for the same 20 year period at 9.72% (the average annualized return of the S&P from 1926-2011 minus the expense ratio of the Vanguard 500 Index fund), you will end up with $547,737.17 after 20 years. Let that ride without adding anything else for the rest of your career (another 25 years) and you end up with $5,833,917. And that isn't even covering any employer matching that you may get or additional earnings you may get while you draw that down.

http://www.moneychimp.com/calculator/co ... ulator.htm
http://financeandinvestments.blogspot.c ... s-500.html

While I have met few people who have been successful working for their money without an education, I have yet to meet anyone who became very wealthy without having their money work for them. While an educated person will likely make more money, few careers will earn ~$6 MM more (divided by 45 years, and it works out to $130k/year). Someone who doesn't run up debt and starts investing early, moderately and wisely (say 500 Index fund) may have their money end up making more than their labor... And that is not to mention someone who maxes out all their tax advantaged investments and invests more aggressively. Max 401k per year ($17,500), $5k in employer match, Vanguard Prime Cap (13.83% annualized since inception) for 45 years= $79,950,141.

Running up six figures of debt is a huge burden for a young person to take on and they likely do not understand the true financial implications. And that burden makes entrepreneurship and risk taking more difficult, undermining the future of the country.

I like what you've written, makes a lot of sense. However, the one thing I have a hard time visualizing is how a lower income worker (IE, most of this country) could come up with 763/month, 9100 annually. The average household income in the country is approximately 51,000. This typically assumes two people working and a child or two. If each of them were to give up a third of their income, they'd be in for some serious lifestyle changes. Granted, most folks have a car payment and a mortgage that probably totally somewhere near or close to that anyway, but they usually need those debts in order to continue making money and a place to raise their families. Going without them isn't much of an option. Families, Kids- theres a huge expense in and of itself. The average cost per year of raising a child is 18,000-22,000. Its really tough to save that 763/mo for retirement. Its a hard line to walk.

Now I'm really off topic...

[elwesso]

I will never argue against the value of education. It is necessary for the long-term success of our country. I would argue for more direct spending on universities versus subsidizing for-profit entities. I would prefer free public universities with high standards and trade schools, like they have in Europe... but that is a separate issue.

What it really comes down to is making sure people understand the financial implications of the decisions they are making. This country is seriously lacking in financial education, especially with rising education costs and the death of the pension. A few readily-available online tools can help.

If you run up $100k in loans and pay them off over 20 years at 6.8% (typical for unsubsidized loans), your monthly payments will be $763.34 or $9160/ year.

http://www.bankrate.com/calculators/man ... lator.aspx

If, on the other hand, you started putting the same amount in your 401k for the same 20 year period at 9.72% (the average annualized return of the S&P from 1926-2011 minus the expense ratio of the Vanguard 500 Index fund), you will end up with $547,737.17 after 20 years. Let that ride without adding anything else for the rest of your career (another 25 years) and you end up with $5,833,917. And that isn't even covering any employer matching that you may get or additional earnings you may get while you draw that down.

http://www.moneychimp.com/calculator/co ... ulator.htm
http://financeandinvestments.blogspot.c ... s-500.html

While I have met few people who have been successful working for their money without an education, I have yet to meet anyone who became very wealthy without having their money work for them. While an educated person will likely make more money, few careers will earn ~$6 MM more (divided by 45 years, and it works out to $130k/year). Someone who doesn't run up debt and starts investing early, moderately and wisely (say 500 Index fund) may have their money end up making more than their labor... And that is not to mention someone who maxes out all their tax advantaged investments and invests more aggressively. Max 401k per year ($17,500), $5k in employer match, Vanguard Prime Cap (13.83% annualized since inception) for 45 years= $79,950,141.

Running up six figures of debt is a huge burden for a young person to take on and they likely do not understand the true financial implications. And that burden makes entrepreneurship and risk taking more difficult, undermining the future of the country.

Brilliant post.

I think the folks I feel the worst for are people that want to get into the medical field. Not only do you have to get your bachelors degree, but then your medical schooling probably can be over $100k for JUST the graduate school, and there's almost no chance of getting scholarships compared to undergraduate work (from what I understand).

It almost sounds like you're advocating the trade school route than a bachelors degree... I don't think you are, but it kind of comes off that way.....

At my company, top pay for an experienced welder (maybe 2-3 years experience) is about $18/hr, and my company offers 2% match. Assuming that you contribute 2% of your earnings and the company matches 2% (so about $1500 contributed yearly) over 40 years at 13% interest rate that's about 1.7mil.

[lne937s]

I like what you've written, makes a lot of sense. However, the one thing I have a hard time visualizing is how a lower income worker (IE, most of this country) could come up with 763/month, 9100 annually. The average household income in the country is approximately 51,000. This typically assumes two people working and a child or two. If each of them were to give up a third of their income, they'd be in for some serious lifestyle changes. Granted, most folks have a car payment and a mortgage that probably totally somewhere near or close to that anyway, but they usually need those debts in order to continue making money and a place to raise their families. Going without them isn't much of an option. Families, Kids- theres a huge expense in and of itself. The average cost per year of raising a child is 18,000-22,000. Its really tough to save that 763/mo for retirement. Its a hard line to walk.

I would argue that there also needs to be a lot of financial education in this country about having children, both on a micro and macro level. I see shows like "16 & Pregnant" and just cringe. The net effect on someone's personal finances can be devastating (especially if it involves quitting school or having to cut back at work). And it requires heavy investment from both parents and the government to ensure good outcomes... If the relatively small cost of birth control is the deciding factor for whether or not someone has a kid, chances are the rest of us are going to end up footing most of the bill for that kid through our taxes. Between tax credits, public education, nutrition programs, etc., the total cost to the taxpayers per kid through 18 can range from a quarter million for a kid in a typical family up to millions for special needs kids on welfare. And without a parent who wants that kid and is willing to invest massive amounts of their time, effort and income to ensure their success, the typical outcomes are not great.

But when it comes down to it, having a kid is your choice. People should be aware of the financial implications of their choices.

[lne937s]

Brilliant post.

I think the folks I feel the worst for are people that want to get into the medical field. Not only do you have to get your bachelors degree, but then your medical schooling probably can be over $100k for JUST the graduate school, and there's almost no chance of getting scholarships compared to undergraduate work (from what I understand).

It almost sounds like you're advocating the trade school route than a bachelors degree... I don't think you are, but it kind of comes off that way.....

At my company, top pay for an experienced welder (maybe 2-3 years experience) is about $18/hr, and my company offers 2% match. Assuming that you contribute 2% of your earnings and the company matches 2% (so about $1500 contributed yearly) over 40 years at 13% interest rate that's about 1.7mil.

Thanks! I think that a lot of people can benefit greatly from a little financial education, regardless of what they do for a living.

I think trade school can be a great thing and should be the default if people do not go to university. An SAE-Certified mechanic can make six figures. German trade school graduates easily outperform the typical American university graduate in math and science. A bachelor's degree should not be a status symbol and there are many ways people can contribute to the economy.

I personally qualified to go to a much more expensive university, but chose a low-cost state school in my state. I worked while I was attending, reduced my course load, didn't take summers off, didn't go on spring break, didn't join a fraternity (which can be expensive), minimized living expenses... and didn't run up massive amounts of debt. Yes, between 12 hrs. many semesters and taking semesters off for internships, it took me 5 years to graduate undergrad. But between 5 years of undergrad and 2 years of grad school, I ended up with more left in savings than I had in loans. The only real reason I took out loans in the first place was because they were interest deferred as long as I was in school and I could earn interest on my savings while I used interest-free money for expenses.

I think a lot of for-profit universities and lenders have created distorted pictures in the minds of naive students who do not understand the financial implications of their decisions. Any incremental benefit these for-profit entities offer in most cases does not justify their cost over more affordable options.

[OriginalWheelman]

Watch that 'And it requires heavy investment from both parents and the government to ensure good outcomes..' stuff. It's not the government's job to make you succeed in life, it's yours. My parent's were rednecks that made minimum wage, do you think they taught me how to manage my money? Nope. Do you know how I learned? Google. I researched, I looked, I read, I learned. I manage my money better than any person I know, because I took the time. The government can't teach you how to manage your money. They can't even manage your money after they take from you. All they can do is make a plan you have to follow, with a penalty if you don't. That's basically all any government can do. It's all our police can do. The information is already out there. They just need to try and find it. And anything the government would do will definitely cost money, so you can't justify it with hypothetical savings for theoretic delinquents you just made up because it makes your argument sound good.

[lne937s]

Watch that 'And it requires heavy investment from both parents and the government to ensure good outcomes..' stuff. It's not the government's job to make you succeed in life, it's yours. My parent's were rednecks that made minimum wage, do you think they taught me how to manage my money? Nope. Do you know how I learned? Google. I researched, I looked, I read, I learned. I manage my money better than any person I know, because I took the time. The government can't teach you how to manage your money. They can't even manage your money after they take from you. All they can do is make a plan you have to follow, with a penalty if you don't. That's basically all any government can do. It's all our police can do. The information is already out there. They just need to try and find it. And anything the government would do will definitely cost money, so you can't justify it with hypothetical savings for theoretic delinquents you just made up because it makes your argument sound good.

I would think a little broader on the "government investment" in raising kids. Did your parents ever earn income and claim you on their taxes? Did you go to public school or have your parents write off private school? Between the child exemption, child tax credit, child care tax credit, earned income tax credit, tax deductions for things like healthcare and other expenses, state programs, etc., tax benefits accumulated by working people for having a kid can easily total $6500 or more per year. Average public school education costs $11k per year. And that is for people who are working and making a reasonable wage. Low-income people can add on many benefits that they would not otherwise qualify for from housing assistance, to Medicaid, to nutrition programs, to welfare, etc... But regardless of who you are, if you grow up in the US, the government contributes hundreds of thousands of dollars to your upbringing, funded in part by non-child-bearing taxpayers.

And if the taxpayers are going to spend ~$140k on your public education, I expect you to learn about more than just state history and American literature. Financial education (as well as the basic math needed to comprehend it) should be an essential part of public education in its objective to create a productive workforce.

[nissangirl74]

The government can't teach you how to manage your money. They can't even manage your money after they take from you. All they can do is make a plan you have to follow, with a penalty if you don't.

THIS

[OriginalWheelman]

Did your parents ever earn income and claim you on their taxes?

A tax break is NOT a subsidy.

Did you go to public school or have your parents write off private school?

A public school. Schools are funded by property taxes. You pay for schools whether you rent or own because the cost is part of the rent. My parents paid for my school.

Between the child exemption, child tax credit, child care tax credit, earned income tax credit, tax deductions for things like healthcare and other expenses, state programs, etc., tax benefits accumulated by working people for having a kid can easily total $6500 or more per year.

A tax break is not a subsidy.

Average public school education costs $11k per year. And that is for people who are working and making a reasonable wage.

Schools are funded by property taxes. You pay for schools whether you rent or own because the cost is part of the rent. My parents paid for my school.

Low-income people can add on many benefits that they would not otherwise qualify for from housing assistance, to Medicaid, to nutrition programs, to welfare, etc...

Yes, that is called welfare, and not what we were talking about. However, since you bring it up, the government has no responsibility to provide welfare. When I was eligible for these programs, I did not use them because they are a crutch that is very hard to get off of. Instead, I managed my money properly, lived within my means, and made it. The year my wife graduated we made $15k and lived in New York. We made it. It wasn't easy, we didn't have much, but it made us work that much harder.

But regardless of who you are, if you grow up in the US, the government contributes hundreds of thousands of dollars to your upbringing, funded in part by non-child-bearing taxpayers.

Not as much as you seem to think. You still have no numbers that matter, and aside from welfare have proved no tax burden. So since welfare is a per case basis, your argument is still invalid.

And if the taxpayers are going to spend ~$140k on your public education, I expect you to learn about more than just state history and American literature.

They don't and I did.

"Financial education (as well as the basic math needed to comprehend it) should be an essential part of public education in its objective to create a productive workforce.

Or parents could teach their kids. It's not the government's job to parent someone's kids, it's theirs.

And like I said, the information is out there and available for everyone already. Hell, I learned a lot from Hitman and the others here on NICO. If you can't find the information, you're doing it wrong. I would rather have a school that teaches our kids how to learn and not how to think.