Category Archives: loans/borrowing

Military Aid: Three Critical Questions

Military Aid: Three Critical Questions

An illustration of a cartoon angry boot camp drill sergeant character

Uncle Sam’s Got Your Back

When researching military benefits you will run into enough acronyms, jargon, overlap, inter-branch disparities and bureaucratic stipulations to make you want to curl up in a corner and suck your thumb. Recruiters can help interpret it all, but also have obtained a reputation for intimidation and pressure that keeps many curious students at bay.

So where does one turn? Let’s explore this together, traveling in a linear fashion and picking up the information we need along the way while letting the rest lie untouched. Continue reading Military Aid: Three Critical Questions

Chart: The Increasing Role of Parental Help

Chart: The Increasing Role of Parental Help

Sources of college funding

This chart comes to us as part of a series of data included in Sallie Mae‘s most recent “How America Pays for College” report. Of note this past year was the big increase in family assistance relative to other college funding sources. The average cost-to-student will run $24,164 in 2015, a substantial increase (about $3,300) from last year. To cover this increase, parental help has also ratcheted up, with an average of $10,365 coming from mom and dad to cover the bills (up about $1500 year over year).

In fact, parental resources have now become “… the number one source of funding, surpassing scholarships and grants for the first time since 2010.” According to Sallie Mae parental assets now account for 32% of total funding versus 30% from scholarships and grants. Also interesting to note, student efforts account for a full 27% of the total, split between income, savings, and borrowing.

In other words, with bills running almost $100,000 over a four-year period students and/or their families can expect to cover well over half of that total on average. Thing is, the “average” family I know doesn’t have that kind of money available. Thus I see over and over again students running off to college with everything they can muster financially thrown into the maw, only to return home a year or two later broke, confused, and frustrated at the experience. The nationwide data seems to support this trend.

Families must be vigilant as they plan their help to avoid this fate. For this reason I highly recommend exploring other options for boosting assets and decreasing costs. Also, it becomes extremely prudent to map out not only what students and parents have to offer, but to budget when the proceeds shall be applied to the college experience in order that the student can explore their options knowing the price point they must hit on a per-year basis.

 

 

 

Chart: Clueless About Debt Loads

Chart: Clueless About Debt Loads

student debt estimates

 

This chart comes to us from an article in the Washington Post by Christopher Ingraham, in which he provides breakdown on a fuller report by the Brookings Institute titled “Are College Students Borrowing Blindly?

In summary, yes. Most students seem to have little clue about how much debt they have accumulated, even as they continue to borrow in pursuit of an education. I suppose any of us who have been to college or deal with current college students are probably not surprised by this. We tend to be clueless about the sum or consequences of our loans right up to the point we start paying them… after we graduate.

The most shocking tidbit comes deep into the report when the authors discover that aside from misestimating debt loads, a goodly percentage of those with loans have no clue of this fact. The money quote: “Borrowers who are not aware they have any federal debt are surprisingly common. The NPSAS data indicate that 28 percent of first-year college students with federal debt reported that they did not have any federal debt. This may be partly the result of confusion about federal vs. other kinds of debt. Among students with federal debt, 14 percent reported having no debt at all. In other words, more than one-quarter of students do not understand that they have a loan from the federal government, and about half of these students appear to be genuinely unaware of the fact that they have borrowed for their education at all.” (Emphasis Mine).

Continue reading Chart: Clueless About Debt Loads

Getting Stuck: Of SUVs and Bills

Getting Stuck: Of SUVs and Unpaid Bills

death by gps joint (2)

Recently my family embarked to my cousin’s house a couple hours away. Getting there via paved roads means driving east into the town beyond them, fighting through downtown traffic, and then circling back west to their place at the edge of the woods. It annoys us to no end to take such a circuitous route when the miles driven exceed by a fair amount the miles a crow would fly to get there. So when my cousin discovered a more direct dirt road route two or three highway exits earlier we were excited to try it. He gave us the directions, which I ignored in the moment. No need to pull over to the shoulder and write it all down, after all. When I hit the appropriate exit I fired up the ol’ GPS which definitely seemed to have a good tack on which forest roads to take.

We then continued to simply follow the turn by turn instructions and shortly thereafter found ourselves in quite the jam. Our last turn off of the mountain required every ounce of our SUV’s capacity as we slowly picked and slid our way down a rocky, washed out hillside until we could go no further. Backing up merely meant spinning out and to go forward would slam us in a rut so deep and jutted I feared debilitating personal and vehicular damages. Night enveloped us, the kids panicked, and my wife had had enough. We gathered our luggage, walked the rest of the way down the rocky crags to dirt road intersection by flashlight, and called in a ride. After having read about the proverbial “death by GPS” I became its latest victim.

Eventually I got the rig back to town in one piece but not until after a lot of time spent clearing the way with hand tools, damage to my undercarriage, and several harrowing moments at the wheel careening around between rocks and hard places.

What does this have to do with college affordability? Plenty.
Continue reading Getting Stuck: Of SUVs and Bills

The Particular Dangers of School Loans

The Particular Dangers of School Loans

warning

Are student loans, in fact, particularly dangerous? Let’s start off by acknowledging that all loans are in some way dangerous. The Bible stops short of calling debt sin but discourages their use vehemently. It variously refers to loans as curses, stupidity, and snares among other things. “The borrower is slave to the lender” still rings true in our free society, with “I owe, I owe, it’s off to work I go” being the driving force behind disagreeable careers everywhere. While financial geeks can dither about the differences between “good debt” and “bad debt,” even in instances of so-called good debt such as mortgages and student loans the borrower should heed these warnings and proceed with utmost caution. Especially when lenders structure their loans to set the borrower up for failure.

Continue reading The Particular Dangers of School Loans

School Loans 101 (And a Little Wisdom Thrown In)

School Loans 101 (And a Little Wisdom Thrown In)

overloaded donkey

The Easy Fix 

How are you paying for school? Ask that question to any handful of college students and you will inevitably hear the answer “with loans” from not a few of them. To some degree this makes sense. Said students are broke, college is expensive, and signing a sheet of paper will provide the money to resolve this little dilemma. Scratch, scratch, problem gone. Continue reading School Loans 101 (And a Little Wisdom Thrown In)

Chart: Assessing a More Probable ROI

Chart: Assessing a More Probable ROI

Probability of Entering Financial Distress

 

This information comes to us from an academic research paper titled “Dropouts, Taxes and Risk: The Economic Return to College Under Realistic Assumptions.” The authors, Alan Benson of the University of Minnesota and Raimundo Krishna Esteva and Frank Levy of MIT, sought to pick up on factors that mainstream data crunchers miss.

Specifically, most prevalent calculations dealing with “return on investment” (ROI) payoffs of a degree infer a series of best-case assumptions, specifically 100% student graduation rates, graduations after four years, and equal tax liabilities. But what are the returns according to more modern, realistic assumptions?

Continue reading Chart: Assessing a More Probable ROI

Projecting Payoffs

Projecting Payoffs

The words Pain and Gain on a matrix of choices showing how to minimize pain or sacrifice in order to maximize returns and results

The Last “R”

So far we’ve explored ensuring affordability by running two sets of necessary filters: how to narrow down your college choices by priority so as to not run afoul of opportunity costs (Rank), and how to know how much college you can your income and assets will allow you (Resources). Now we’ll explore a critical third component to affordability/affordology: that of Return. 

This exercise will help you make two critical financial determinations:

For one, you’ll note in the previous discussions we didn’t address a major funding component of college in this day and age: the loan. Before counting loans as a resource, we must know whether that loan will count as “good debt” or “bad debt.”

For two, even if a student has plenty of available cash resources and thus doesn’t need loans, it still helps considerably when choosing colleges to understand the tipping point at which the cost of a college is worth it or not. Continue reading Projecting Payoffs

Plotting Resources

Plotting Resources

Automated grains food packaging machine production line

Previously in these pages we’ve witnessed the high costs of college, the increasing rate at which for student/family contributions cover these expenses, and the all-too-common specter of fund shortage induced dropout levels. So how do we not fall short ourselves? Here’s what I recommend: Continue reading Plotting Resources

Chart: Graduate Debt Loads vs Wage Growth

Chart: Debt vs Wages

what students make vs what they owe

This graphic comes from an article published in the Wall Street Journal almost a year ago but only recently came to my attention. In it, author Phil Izzo cheekily “congratulated” the class of 2014 on being the most indebted ever. But as we’ve discussed in regards to tuition growth, bigger debt isn’t necessarily a bigger problem if incomes have risen as well. So… with that in mind how does this growth of debt look now? Continue reading Chart: Graduate Debt Loads vs Wage Growth