Expensive Lessons
Americans today face a real dilemma. Higher education of one kind or another is required for virtually any job better than fast food. At the same time, higher education has become very expensive and incomes have remained stagnant for many years. That means that higher education does not have the financial pay off it once did, yet it is still necessary for many jobs.
Since education costs have increased so much beyond people’s ability to pay, it has become assumed that students will take out loans. The interest on loans increases the cost even more. It currently costs $7,020 a year to attend the average public four year college. The cost went up 6.5% from last year. At that rate it will cost a student enrolling next year $41,980 for four years of college. If that student can do it in 40 months of school and spend only $800 a month on living expenses, he or she will need $73,980. If that student contributes $13,980 from savings or family and borrows the remaining $60,000 at 6.8%, the total cost increases to $96,838. And that is with an aggressive 10 year pay off at $690 per month.
Is a college education worth $97,000? Well, add to that the $18,000 a year the person would
have earned if not in school, and the cost becomes $169,000. To break even, a person would
need to work 40 years and earn an extra $4,225 a year.
Here is The Budget Doctor’s prescription for higher education:
1. Work for credentials/skills that provide an opportunity to earn more.
If you earn $22,000 as a retail clerk and get a degree to earn $25,000 as a social worker you will lose money. Of course you have a right to lose money if it makes you happy.
2. Get education while you are young.
If you get a degree at age 55 it is almost impossible to earn enough to pay for it. The mind works better at 20 than it does at 40 and education increases in cost and gets less affordable every year. Learning is worthwhile at any age but credentials are needed as soon as possible.
3. Exhaust government loans before considering private loans.
Government loans now come directly from the government. If you go to a bank you are probably getting private loans which will have fewer options when times are tough. Government loans have payment caps that insure that you won’t have to spend more than 15% of discretionary income on loan payments.
4. Apply for aid.
Every student’s family needs to prepare the FAFSA or application for aid.
Nearly two-thirds of all students get some financial aid so you must apply.
5. Make sure you are serious about education.
If you borrow $20,000 for education and drop out you still owe $20,000 but now you are not likely to earn more to pay for it. Borrowing money means committing to finish the education program.
Education is not just about money. The intellectual development, the personal growth and the social experience are all valuable. If you can afford higher education, you should grab as much as you can. And don’t be afraid to attend a community college. That is a cost effective alternative for many people.
If you do get the opportunity for higher education be sure to make the most of it. I suggest actually going to class.