The cost of a college education has been climbing three times faster than the rate of inflation and the amount of student loan debt in the U.S. is rising as well, now at $1.5 trillion.
Becoming of age and becoming of age to continue one’s studies happens around the same time, where newly minted adults are faced with some of the biggest decisions they will ever make in their lives at this relatively tender age.
One of the lessons that we tend to learn later in life is the importance of practicality, and we tend to think less practically in our first few years of adulthood in particular, although some really never learn this lesson that well at any point in their lives.
We could all benefit from thinking more practically actually, versus the more whimsical thinking that many of us are guilty of often, although this does contribute to the economy significantly when we overspend and overborrow. This is not the way we should want to start out our formative years though, especially if this involves borrowing more money than we may need to and also having the payments on these loans burden us for many years.
When it comes to choosing a post-secondary institution to attend, the kids may get some advice from others, particularly from their parents, but this advice may not be all that great and it may lead to some expensive mistakes. If we are one of them, or one of those advising them, it certainly pays to at least sit down and think our decisions through so that we won’t end up regretting them.
Many people need to borrow money to attend school after high school, and while there are other important factors that need to be considered, such as matching one’s chosen career with one’s interests or selecting one that may provide the income we desire, how much debt we end up with when our studies are over will be a prime consideration in a great many instances.
1 in 4 adult Americans have student loan debt, with the average payment around $400 a month. We collectively owe about a trillion and a half dollars in student debt, with an average debt load of about $37,000. That’s a lot of money and that’s also a significant payment for many, especially those in the early years of their careers, where earnings are lower. This is also a time where many people start a family, with all the extra costs of that, buy their first home, and get their lives started out generally.
We need to approach borrowing for our education from the perspective of value, and actually treat it like our first real job, managing the business of our life and making decisions that will best further our future prospects.
The Time to Start Thinking is Before You Start Studying
The first step is to come up with a plan, as we don’t want to just be tackling these problems off the cuff, as we often will get our cuffs soiled when we try that. A more considered and deliberate plan is always best, especially with the decisions that we will be making having such a big impact on our lives.
This all starts before we start applying to schools, and we especially need to avoid being too idealistic or too eager here. One school may be a little better than another, but in terms of value, if we’re willing to spend a lot more, we need to make sure that this decision is a sensible one and not just a matter of being able to brag a little more that we went to Expensive University rather than Inexpensive State University.
Sure, Expensive U will be a little better, and may impress our friends and family more, but will they really put that much more money in our pocket after we add in all the extra costs plus all the interest we will need to pay on top of these costs?
It costs about $40,000 in tuition for a 4-year program at a state university on average, which use sharper pencils, compared to the average of $144,000 to go to a private university. That’s over a hundred grand extra and we want to make sure that we get at least that much more back.
Employers generally don’t look at these things all that closely, or even look at your grades that closely either, as having the degree is what gets this box checked off. There are lots of ways that you can help yourself with job applications and interviews, and that’s an area that most of us could benefit a lot from studying, but the name of the school or how much you paid them really isn’t that significant.
You learn this from the real world though, and may not realize that this is such a big deal when you’re looking to pick your school, but this certainly needs to be accounted for. Maybe your parents are wealthy and they will send you to a top school where it may cost you several hundred thousand in tuition alone, but if you have to borrow the money for this, you want to make sure your investment is a sound one.
It Is All About Seeking the Best Value for our Money
A sound investment always requires us to shop around, and people don’t usually take the first deal they see, although sadly many still do. We want to teach our kids how to be wiser though, not to be capricious.
The goal often is to get into the “best” school you can, and usually grab the first offer you can as well, although we can benefit from being more selective and considerate when we make these choices.
After selecting from a number of schools that fit the bill as far as value goes, we don’t want to just jump on the first offer, as exciting as this might be to us. This is especially important if you are looking to get a scholarship, as there might be a better one around the corner, but if you take the first one this means that you have to walk away from this opportunity. Being patient is a virtue generally and this applies here as well.
Attending a school close to home, if possible, is another way that students can really help themselves, preferably at a school which they can commute from home to. It’s exciting to leave the house and venture off on your own but it is also expensive, not only in terms of much higher living expenses but even with the cost of travel back and forth. Schools in your city should be given a big boost in the value department because this is real value added.
Students should also take a value perspective when they choose their programs of study, especially when they are borrowing for this. Earnings potential isn’t the only consideration to be sure, but it is one of them, and the task is to take this and all other factors into account such as one’s abilities and interests when choosing what to study and what sort of degree to pursue.
If you can complete your studies earlier, this will also reduce your costs. Some students complete 4-year programs in just 3 years, knocking off a whole year of tuition from their final bill. Given the size of these bills, this can make a real difference in what you need to pay back.
Some employers offer tuition reimbursement programs, and while we always need to add up total compensation to compare offers, this can be added if we do have student debt. We do need to make sure we read the fine print here as employers may require you to pay back the money if you don’t stay with them for long enough, and we always want to be well aware of all conditions pertaining to an offer like this,
Some schools are also offering income sharing programs, where you share a certain percentage of your future income in exchange for tuition assistance. We need to look even more carefully at these arrangements as they are run for profit and we may end up paying rates several times higher than student loans charge,
The only real advantage to these programs is that they set a certain threshold of income before you’re required to share, and this reduces the normal pressure of needing to hit the ground running and will allow for a more patient and relaxed approach to entering the workforce and climbing the income ladder.
There is more to think about when looking to pursue our education than we may even realize, and by taking our time and thinking things through properly, we can get a real leg up with our finances as well as with our education.