Should You Delay College and Work To Save up Money Instead of Taking Loans?

The Simple Dollar today discusses the question Is a Gap Year Better Financially Than Going Straight to College?

Setting the other reasons for gap years aside, lets look at the finances.    Does it make sense to work a job before college in order to save up the money to pay for tuition so you can avoid taking out student loans?

My reply to that is below :

For the financial decision, it almost always makes more sense to finance college vs working to save up money.
Why? Because going to college gets you a good paying job and by delaying college you're just trading good job wages post college for low wages before college. If you're not banking on making good money after college then I'd ask why you're doing it at all considering that paying for it isn't trivial.

Look at the 5 years in question and the choice really boils down to :

Gap year : 1 gap year working unskilled job and 4 years in college 
vs 
no gap year : 4 years in college and 1 year working after college with a degree and some student loan debt

So you're really trading a year before college working unskilled wages versus a year after college with a degree and the debt.

The average new college graduate makes $50k /yr. Lets take Trents assumption that working pre college is making $20/yr. Really you're trading $50k of income for $20k of income. After tax and minimal expenses you ought to be taking home probably $30k vs $12k. If your first year after college nets you $30k you could pay off the $12k in loans your gap year might avoid and have $18k extra cash.

Now the choice is :

Gap year : work 1 year and net $12k then go to college for 4 years
no gap : go to college and take out $12k extra in loans then work a year and net $30k and pay off that $12k pocket $18k more

Of course the particular numbers will matter. Depends on how much money you can make in the gap year vs your planned post college career.

Gap years can make sense for other reasons. If you're really not ready for college, doubt it will work for you, don't know what you want to do with your life, etc, then those are potentially better reasons to do a gap year.

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Community College is Free

I apologize for the clickbait lie title.     Community college isn't actually "free".     Well not exactly.   The average net tuition for community colleges is actually NEGATIVE.    That means that after paying for tuition and fees on average students end up with extra cash in their pocket. 

The College Board Trends in College Pricing data  shows it :

source : College Board, click image for full size

Right now as of the current 2017-2018 school year the average cost for students for tuition and fees is : -$330.   

In other words community college is free.   On average.

Well OK its more accurate to say that the average financial aid and grant package and tax incentives for community college students exceeds the average cost of tuition and fees.   But who would have clicked on an article with THAT title?   Boring!


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How much Does High School Quality Matter In College? Lots.

I've no doubt that the quality of your high school matters in preparing you for college.   But how much does it typically matter?     I went searching for studies that looked at it and I found : the report Can You Leave High School Behind?  (link to PDF)   It looked at data from University of Texas Austin students.  

In Texas they've had a program where the top 10% of all high schools are admitted to UT automatically.    This means they get a good distribution of students from high schools of varying quality.   And it gives them a lot of data about >25 thousand students who came from varying quality high schools and then went to UT.    Looking at the grades in UT for those kids they can see what the correlation is between high school quality metrics and college performance.

In short:    If you go to a good or bad high school does it reflect in your college GPA?

The answer is YES.   Definitely.

Here's a excerpt from the study that illustrates :

"As an example, we estimate a predicted GPA for a simulated student with high school characteristics from two different campuses – one of the highest-ranked and one of the lowest-ranked high schools in the Houston area. Our simulated student is female, Hispanic, age 18, and has a mother with a high school diploma, family income between $20,000-40,000, and $1,000 in unmet financial need. Graduating from the high-performing high school, this student’s estimated freshman year GPA 3.21. Graduating 23 from the low performing high school, her estimated GPA is only 2.30 – a difference of over 1.6 standard deviations."

So they modeled that an specific student would end up with a 0.9 GPA difference if they'd' gone to a good high school versus a bad high school.  

Thats a pretty big swing.    I'd consider a 3.2 GPA in college a success and a mere 2.3 GPA to be a failure or at least a pretty mediocre performance.

Of course the study is just looking at averages.    A kid from the worst high school could go on to ace college and win a Nobel prize and a kid from the very bestest high school could flunk out of college and end up a homeless drug addict.    But on average... the quality of high school is reflected in the average grades of the students who go on to college.

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About 2/3 of Student Loan Debt Is Owed By People Over 30 Years Old

I saw an internet meme recently depicting a 20 something woman with a caption basically whining about student loan debt.    I'd expect that the common picture of a student loan debtor is someone who's in their 20's.   But in reality MOST student loan debt is held by people over 30 years old.

Sources are the Federal Reserve Bank of New York page Student loan debt by age group and report Household Debt and Credit: Student Debt.

As of 2012 the share of debt held by age group is as follows:

age group	% of debt
60+	5%
50-59	12%
40-49	17%
30-39	33%
under 30	33%

and graphically :

Of course that data is a few years old now but the trend is for the % of debt held by people under 30 to be dropping.   In 2005 the under 30 group held about 40% of the debt.

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A Lot Of The People Defaulting On Student Loans Dropped Out of College

The National Center for Public Policy and Higher Education published the report
Borrowers Who Drop Out A Neglected Aspect of the College Student Loan Trend in 2005.    Thats a good title.    Its the thing I was looking to find out about.   People will talk about the (alleged) student loan crisis and how so many borrowers are in default.   But rarely does anyone discuss if these borrowers actually finished college or not.   Turns out a lot of those people in default on student loans didn't graduate.   I would argue that the fact that a lot of student loan borrowers are in default isn't evidence that college isn't worth it but instead evidence that dropping out of college you borrowed for is often a financial disaster.

Anyway lets get to the numbers :
In that document, Figure 7 shows that only 2% of borrowers who completed degrees at 4 year schools were in default but 22% of borrowers who dropped out were in default.        Thats a nice graphic representation of how different the default rates are between those who finish and those who don't.

Table 2 in the report has all the data.   From there I get the percent of borrowers who dropped out, are still enrolled, finished with a certificate, got an associates or got a bachelors.   Plus they also give the percent of each of those groups who are in default.

	% of borrowers	in default
dropped	18.5%	21.8%
enrolled	15.8%	7.2%
cert	2.2%	21.3%
assoc	3.2%	3.7%
bachelor	60.3%	2.1%

As a whole 7.02% of the borrowers are in default.    But 57% of those are people who dropped out.   So for this group at the time 57% of the people defaulting on their loans had dropped out of college.

Only 18% of the people in default had finished bachelors degrees within 6 years.    82% of the people in default had not finished the bachelors they set out to get within a 6 year period.

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Net Tuition at Universities 1994 to 2014

We hear a lot about the rising cost of tuition at universities.   But the numbers that are usually reported are the published tuition rates.   Thats kind of deceiving though.   Most people don't pay the full tuition rate at universities due to financial aid and scholarships.    The "net tuition" is the amount that students actually pay after grants and scholarships.    To get a better idea of what college costs are really doing its better to look at the net tuition rates.
I got the data out of the College board trends in college pricing and then looked specifically in figures 12 & 13.   Those figures are reported in 2014 dollars so I adjusted back to current figures using their CPI numbers in table A2.

Here's the trend:

Interestingly you can see that net tuition at private universities is actually down from 2007 to 2014.   Of course nobody is reporting on that.   In that same period published tuition rates are up ~33%.    So while the press can say that tuition is up in the past 7 years the amount that students actually pay is down.

In the past 20 years net tuition at private schools is up 3.2% compounded annually and 4.4% at public schools.

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Where Do Public Community Colleges Get Their Revenue From?

The recent suggestion by the president that the government make community college tuition free to everyone has generated some discussion on community college funding.   Delta cost project has details on revenue sources for colleges at various levels like public, private and community college. 

Figure S2 in the report covers public community college revenue sources for 2000 to 2010.  

Here's a graphic :

As you can see most of the money is from the state/local level and a pretty high percentage is from net tuition.     Of course this is going to vary a lot across the nation.   Some schools have relatively low tuition rates and end up with a higher percent of the money coming from the state or local level.   The chunk of revenue from the axillary category will probably vary tons as well.


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105 Years of Text Book Cost Inflation

(click image for full size)

I found the attached price list for text books in an old textbook from 1909.    That was 105 years ago.   I thought it was interesting.   Textbooks back then were as little as 25¢   The average of the numbers listed there is $1.17.

Textbooks cost a little bit more today.   I found in an article from Kiplinger that the new textbooks were $72 average last year.   I'm not too confident in that number as it seems lowish to me and I don't' see a source cited but I think $72 isn't unbelievable.  

If textbooks were $1.17 in 1909 and $72 today then that equates to a 4% annual increase rate over 105 years.    The inflation data from CPI only seems to go to 1913 but thats fairly close to 1909 for my purposes so I'll call it good enough.     Inflation from 1913 to 2014 was 3.2% per year cumulative.

4% versus 3.2% doesn't seem like a big difference but over 100 years that matters a lot.    If textbooks had only gone up 3.2% over 105 years then they'd be around $32 today but they're more than double that. 

Note : This is mostly anecdotal information for fun.  I only have one list of prices from one publisher and all the books are in the science field. 

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What Percent of College Students Work While in College?

I almost always had a part time job during college and I think most people I knew worked in college as well.   I remember one guy in the dorms who didn't work at all and his parents were paying for his college and giving him an allowance of some sort.   At least one other guy was an athlete on scholarship and he didn't have a job.  In fact I'm not even sure scholarship athletes are allowed to have jobs while on campus but thats beside the point.   One guy had a part time type job as a street musician of all things.   I don't think his roommate worked.    But overall most people I recall seemed to work. 

I found data at the Dept. of Education in their Digest of Education Statistics :
 Table 503.20. Percentage of college students 16 to 24 years old who were employed, by attendance status, hours worked per week, and control and level of institution: Selected years, October 1970 through 2012

As of 2012 : 41% of full time students are employed and 72% of part time students work.

The rates are very similar for 4 year public, 4 year private and 2 year public schools as follows :

	FT	PT
4 year public	41.0%	77.6%
4 year private	40.4%	84.4%
2 year public	41.2%	66.1%

Here's the history over time for all students :

As you can see in the past 10 years theres been a fair drop in the % of students working.   I'm guessing thats a result of the recent recession and the employment environment, but thats just me speculating.

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Cost of College Room and Board over Time - 1971 to 2013

I got the room and board costs off the College Boards site page for published prices at national level.  Specifically the Tuition and Fee and Room and Board Charges over time table 2.

I had to figure the room and board cost by taking the total cost for tuition, fees and room and board and subtracting the cost for just tuition and fees since they didn't have an individual figure for just room and board.

I'm showing the numbers for public four year universities here.   However I looked at private schools and the trend is pretty much the same but private school room and board costs a bit more.


Here's a chart showing the trend for room & board and tuition rates over the past 43 years :

From the chart it looks like the growth rate has been similar, but not really.   Tuition started at $428 a year in 1971 and housing was $977.   Now as of 2013 school year tuition hit $8893 and room and board was $9498.    Tuition is 20 times as much and room & board is not quite 10 times as much. 

Here's the compound annual growth rates for the entire period and the latest 20 years :

	Tuition	Room/board
1971-2013	7.50%	5.60%
1993-2013	6.50%	4.90%

Again that doesn't look hugely different but 7% growth adds up a lot more over the years than 5% does.

Room and board has gone up faster than inflation but not as fast as tuition.


A large portion of the cost of room and board is the real estate.    You might have noticed that housing has gone up in the past few decades and even with the crash a few years ago real estate has grown faster than inflation over the past 40-50 years.    We can look at housing costs two ways, comparing to the cost of rent or the cost of housing.   I got both from the Census for the 1970, 1980, 1990 and 2000 years.   Historical housing cost and rent cost.  Unfortunately the college room and board figures only go back to 1971 so I'm comparing hosing costs from 1970 to room and board from 1971.  Close enough for an idea but not exact.

	Room/board	Rent	House
1971/70	$977	$1,296	$17,000
1980	$1,747	$2,916	$47,200
1990	$3,166	$5,364	$79,100
2000	$4,931	$7,224	$119,600

With the following growth rates for the 30, 20 and 10 year periods :

	Room/board	Rent	House
70's to 2000	4.2%	4.4%	5.0%
80 to 2000	5.3%	4.6%	4.8%
90 to 2000	4.5%	3.0%	4.2%

Generally the cost of room and board has grown at a similar pace as rent and home values.    Over the longer period from 1970/1971 to 2000 the cost of room and board at 4.2% has not grown as fast as either rent at 4.4% or homes at 5%.    Of course a sizable % of the cost of room and board is in the food served to students.   However I don't know what % of the cost is typically housing and what % is food, so I can't break that apart.


 Bottom Line:    Room and board has certainly gone up over the decades and faster than inflation in general.  However it hasn't gone up as fast as tuition and the growth in room and board has been more on pace with the change in housing costs.


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Distribution of Student Loan Balances

The Federal Reserve Bank of New York published a  Student Debt Overview and on page 10 they have a chart of the distribution of student loan balances.   The numbers are a couple years old now and probably grown a bit since then but not drastically.

Note that the chart includes all borrowers including people who went to grad school and professional school like law school and med school.   So the larger balances are going to be mostly people with professional degrees like lawyers and doctors and there are much fewer people with just a bachelors degree who have 6 figure debts.

Here's a chart :

source : FRBNY Consumer Credit Panel / Equifax

And a table :

Debt balance	%
below $10,000	39.90%
$10,000-$24,999	29.80%
$25,000-$49,999	17.70%
$50,000-$99,999	9.00%
$100,000-$149,999	2.20%
$150,000-$199,000	0.90%
$200,000+	0.60%

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Refinance Student Loans with Sofi.com

If you have student loans then its likely you're paying 6.8% or more in many cases.

Social Finance or  Sofi.com is one option to refinance your student loans.

They advertise variable rates starting at 2.66% and fixed rates starting at 3.625%.    That will beat a lot of peoples current student loan rates.   However the rates are based on your credit and  profile so it could be higher.   They cite maximum rates of 5.285% variable or 7.740% fixed which are still better than a lot of private loans.

But it won't work for everyone.   They only loan to students from certain schools and you do have to have decent credit.   You also must be employed or have a current job offer.   And you must currently reside in one of the eligible states.   Their list is most states but its NOT available in Alabama, Delaware, Idaho, Mississippi, Montana, Nevada, North Dakota.   I have not been able to find specifics of the criteria like credit score or a list of schools on the Sofi website itself. 


Sofi says you must be a graduate of "a selection of Title IV accredited universities or graduate programs".  Thats not specific at all.   I found one reference to them lending to grads of about 100 schools but that was about a year ago and they may have expanded the number.   I found a list of eligible schools at a 3rd party site, but I don't know if its current or accurate.  The list of schools looks legit though but again it may be out of date.   Since Sofi's model has been to deal with schools that have low default rates so you could generalize that only the better schools are likely to be covered    (sorry University of Phoenix grads).   You can look up default rates by school at this site and if your school is very higher then they may not be covered or you may be offered a higher interest loan.

Note I don't have any specific information on how Sofi decides to approve loans or determine rates. 
I'm inferring some from descriptions of their business model mostly.  

The downside to doing a refinance is that you lose access to programs like the government IBR and loan forgiveness.  So thats something to consider.     You might not get great terms from Sofi either.  I've read reports of people with credit scores in the high 700's and good paying jobs getting offers of 6% loans, which isn't all that great.

But if you do have high interest student loans then looking into Sofi.com might be worth your while.

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MOST Students Go To Universities Where Tuition is Under $12,000

It seems typical when a news report is talking about college costs they'll cite one of the most expensive universities in the nation where the full retail sticker price including tuition, fees and room and board is in the ballpark of $60,000.    Then they'll go on to talk about someone who graduated from the overpriced school with a basketweaving degree who has over $200,000 in student loans somehow.   THis clearly isn't the norm.  Its the exception to the norm.    I've already discussed before about how a very small fraction, 0.3%, of undergrads end up with over $100,000 of student loan debt.    But how many students go to those over priced private schools?   Very few.


The collegeboard has the data in a nice chart on their site showing the distribution of students who attend schools by the published tuition & fees rates :
Distribution of Full-Time Undergraduates by Tuition and Fees


Full time undergrads go to universities with a median published tuition & fee rate of $11,093.



Pubic schools median is $9,011 and private nonprofit is  $31,290.     Most students go to public schools so the overall median is much closer to the public school rate than the higher private school cost.


About 2/3 of students go to schools with rates below $18,000 and 81.9% are at schools charging under $30,000.



88% of public university students are at schools that cost UNDER $18,000.    84% of students are in private schools that cost OVER $18,000

The vast majority of public universities charge under $18,000 and the vast majority of private universities charge over $18,000.


Keep in mind that these are the published tuition and fee rates and that most students also receive financial aid of some form so the actual net cost to students is less.

 While the average tuition at public schools is $8,890 in  the '13-'14 school year the NET paid amount is just $3,120.    For profit schools the average was $30,090 and the net was $12,460.   You can find the net pricing in the college board trends in college pricing data.   Specifically see Fig. 10 and Fig. 11 in the XLS data.

In 2012 the average student aid in grants was about $7,200 and tax benefits averaged $1200.   See college board info on trends in student aid.
Of course this figure is an average while the other figure is a median.  And aid will be weighted at the lower income group.   So the two figures don't really match.

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Is the Washington State GET Pre-paid Tuition a Good Deal?

UPDATE :   Washington state passed a law that reduced tuition for their public universities.   This impacted how GET works and the program has made some changes to adapt.    Currently though they are freezing new enrollments for a period "up to two years".    See the GET site for more information.    Because of these changes the information in the article below is not currently accurate.

I've been working on a series of articles discussing the prepaid tuition programs offered by several states.  Today I'll take a closer look at Washington state's prepaid plan called GET.

How does the plan function?
Washington state's prepaid college tuition plan is called Guaranteed Education Tuition GET.   The basic deal is that you pay now to buy a "unit" of education and then when your child attends college they get 1 unit worth of tuition.   A unit is worth 1% of a full years tuition at the most expensive public school in Washington, (which is currently University of Washington).   100 units would equal a full year of tuition.   You can use the equivalent amount of money at any university in Washington or out of state.   Right now it costs $172 to buy a unit and the payout is $117.82.    So basically you pay $172 today to get the value of 1% of a years tuition at U. Washington (or cash equivalent at another school) when your kid hits college age.

Is there a good return on investment?
If your child is fairly young then the plan can be an OK investment.   It does greatly depend on how fast tuition goes up in the future.   If you expect tuition to go up 2-3% faster than  other investment returns then the plan would work out for you.   Say for example if you expect tuition to go up 7% annually then you'd have to get better than 4-5% returns on your own to beat the prepaid plan.  Beating 5% isn't hard but it takes some risky investments whereas the GET plan is guaranteed.     So in this measure its an OK investment.   Nothing great but OK.

If your child is in their teens then it is unlikely that the plan would pay off.   For example if your child was 17 years old you'd be paying $17,200 for one years worth of tuition which currently costs $11,782.   Unless you think that U. of Washington tuition will go up over 46% next year then this is not a good buy.   In fact its unlikely that a child within 4 or 5 years of college would benefit financially.
 Bottom line :  It may be an OK investment for young children but for older children it does not pay out well versus investing on your own. 


Are there any state tax benefits?
Washington state has no income tax and there are no state level tax benefits for the plan.   Investment growth is not taxed at the federal level.

Can you use the funds anywhere?
Yes the plan money us usable at other schools.   From the GET FAQs :
You can use your GET units at nearly any public or private college, university or vocational school in the United States and at selected colleges in other countries. A college is eligible if it participates in federal financial aid programs through the U.S. Department of Education. For a list of participating schools, visit the Free Application for Federal Student Aid (FAFSA) Web site.

Is there a state guarantee?
Yes the plan funds are guaranteed by Washington state law.

Is it financially solid?
Yes the funding level is currently very good.   The 2013 annual report for GET says that the actuarial report determined the program is 94% currently funded  and on track to be fully funded by 2018.


Summary:   The plan is in good financial shape and guaranteed by state law.  It may be a good idea if your child is young, but the return would be poor if your child is in their teens.
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Is the Florida Prepaid Tuition Plan a Good Deal? (UPDATED)

I'm doing a series of articles looking at the prepaid tuition plans for the individual states that currently offer such 529 programs.   Today I'll look at the Florida Prepaid College Board plan.

[edit updated 8/11 :    When I first wrote this I was unaware of recent law change in FL that makes this plan significantly more affordable.   They've actually cut the cost of buying into the plan by about 30-40%.   That makes the plan much better deal. ]

How does the plan function?
Florida has a few options within their prepaid tuition plan.  You can buy 4 years at a college, 2 years at a college, 4 years at state university or 2+2 with 2 at college and 2 at state.   I'll focus on the 4 year state plan.   Basically for a newborn child you'd be paying current amount of  about $35,000 $53,729 and then get 4 years worth of tuition.   Currently 4 years of tuition at University of Florida runs about $26,400.  You can pay in a lump sum or make equal payments over 5 years.   Also apparently if you move out of state you still qualify for the instate tuition rate in Florida which might be a good benefit for certain people in particular situations for that benefit alone.  Like for example if you are moving to a state without a good public university system or with relatively high instate tuition.

Is there a good return on investment?
Not really.    Lets assume that tuition goes up 7% a year.   To beat the prepaid plan on your own you'd only have to make over 5% 3% on your investments.  Thats not very hard to do really.   You should be able to get 4% on muni bonds for example.    Getting 5% returns guaranteed is not easy so this isn't a bad deal at all.

Are there any state tax benefits? Can you use the funds anywhere?
Florida has no state income tax so there is no tax benefit at the state level.

Is there a state guarantee?
Yes the plan is backed by state law.   If the plan is terminated then anyone within 5 years of college is guaranteed all promised benefits.

Is it financially solid?
Yes the FL plan is pretty solid.   It has an actuarial surplus.  From the last annual report :
"the Trust Fund has 12.1 billion in assets and liabilities of 11.6 billion resulting in an actuarial reserve of $569 million as of June 30,2012"


Summary :   The plan is in good financial shape and backed by the state government but the up front cost is too high and you're better off investing on your own.    With the new cost structure the plan is a fairly good deal financially.   Yes I'd consider enrolling if you want guaranteed paid benefits.


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Is the College Illinois! Prepaid Tuition Plan a Good Deal?

NOTE this article is a few years old now and the details of the program may have changed.  Make sure to investigate the program current status and rules.


I previously discussed  Pre-Paid Tuition 529 Plans in general.  I'm going to start a series of articles looking at the prepaid tuition plans for individual states that offer them.   Each state that does a prepaid plan has different rules and they all work differently so you really have to look at them individually to know if they're worth using or not.

First up I'll look at the College Illinois! prepaid plan.

How does the plan function?
Illinois has a few options to buy semester credits at community college or university level.   You can also combine community college and university.    You can pay with a lump sum, monthly or annual payments.

Is there a good return on investment?

You can use their calculator to figure costs.  For the University Plus plan buying 8 semesters for a newborn would require a lump sum payment of $99,720.   Current tuition rate at University of Illinois is $16,898.   If you assume that tuition goes up by about 7% a year then you'd have to beat 5% a year on your own to out perform the IL prepaid plan.   This is an OK benefit.

Are there any state tax benefits?
Yes you can deduct $10,000 a year ($20,000 for a couple) from your IL taxes.   However you get that same benefit from traditional 529 plans in IL.

Can you use the funds anywhere?
Yes

Is there a state guarantee?
No.   The plan is NOT guaranteed by the state.   They have a rule requiring the state legislature to consider helping with shortfalls but no mandate to do so.

Is it financially solid?
Not really.    The plan is a bit short on its assets.    The last actuarial report said it was 73% funded as of June 2013.   So its about as good as Social Security funding which everyone assumes is doomed.

Summary:    I would probably avoid this one.   The return is OK for a guaranteed investment however there is no backing by the state and the plan is currently underfunded.

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Private Colleges Have Gotten More Affordable

No, honestly, its true. I learned about this on Planet Money's show The Real Price Of College  

The actual net cost of tuition at private non-profit colleges has gone down over the past 10 years when accounting for inflation.   

The College Board has a nice chart with the data.


In the 2003-2004 school year the net cost of tuition was $13,600 on average and now for 2013-2014 its down to $12,460.   Both those figures are in 2013 dollars.

The published list price has instead gone up from $24,070 to $30,090 over the same period.   Net price and list price are quite different at private schools due to the hefty financial aid and scholarships that are often offered to a majority of students.

Of course this is all inflation adjusted dollars so another way to say it is that private tuition has not gone up as fast as inflation in the past decade.    The nominal cost in 2003 would have been about $10,700 so it has gone up in nominal terms.   But that $10,700 is worth $13,600 today because of 10 years of inflation.   So in today's dollars you're spending less out of pocket on average for tuition than you would have 10 years ago.

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College Affordability is Dead (If you spend too much on college)

I get irritated when I see headlines that make declarations that are general and shocking such as : "The college affordability dream is dead for these students"
on the Yahoo homepage the article was linked under the alternate title "Working way through college barely possible now"

The article doesn't support the title statement at all as far as I'm concerned.   They give an anecdotal example of one student who had problems.   They say how it would take 5 years working at minimum wage to pay off average net tuition cost.   

I skim through the article and I run into this example that starts :
"Lucy Parks, 18, enrolled at New York University in 2012 ..."

OK hold it right there.    New York University?    Lets take a look at the cost to attend NYU.

Tuition & Fees   $45,138
Living Expenses  $24,000
Health Insurance  $3,439
Total $72,577

NYU is an expensive private university which also happens to be in one of the most expensive cities in the nation.   So you decide to spend over $70k a year on college and its not very affordable.   Wow!   I'm shocked!   

This is like saying cars are unaffordable and then talking about how the payments on your Mercedes CLS class are $1600 a month. 

I'll counter that NYU example with the University of West Virginia.    Lets look at their cost of attendance.

University Tuition and Fees $6,968
Room $4,956
Board (15 meal plan) $4,068
Total for the year $15,992

If you want affordable then buy affordable.   There are affordable colleges out there.

Local public colleges are a lot more affordable than private colleges or out of state colleges.   Tuition and room and board do vary of course and many state colleges run $20,000 to $25,000 a year.   But thats still greatly more affordable than going to an expensive  private school like NYU.    If your public colleges total cost is high then you can also live at home with your parents and commute to the local university.    That way you aren't spending room and board and that often cuts your total cost in half.   Of course your parents still have to feed you so its not free but you save on room cost and eating at home should be cheaper.  You can save even more by going to the local community college.

Yes I know that you may not be able to study at the best film school at your local junior college or state university.    But that doesn't mean college is not affordable.   If you set specific requirements on your university studies like limiting it to only schools that fit certain requirements then thats your choice.    You also definitely need to ensure that the career path you are following is going to pay for the college debts you'll incur.   If that film school degree is going to give you a high salary (it probably won't) then it can make sense to spend a lot to go to the best film school program.  

College can be affordable if people make an effort to chose an affordable college.
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Grandparent 529 Accouts Can Hurt Financial Aid

When they figure out your financial aid eligibility for college they consider your income and assets.   529 plans held by the parents or students are counted as assets of the parents and they assume you can spend 2.6-5.6% of the parents assets.    529 plans owned by grandparents are not counted in financial aid.   That sounds great.  However money spent out of 529 plans are then counted as student income in the next year.   So the following year that student income goes up and that does impact financial aid.  They assume that you can use 50% of student income towards college.  

This means that money distributed from a grandparents 529 will cut financial aid in following years by 50% of the amount used.


The Smith family has two children and the older child is 18 and about to head off to college.    They make $60,000 a year total.   Their FAFSA says that the parents expected financial contribution is $10,000 and the childs contribution is $1000.   For their local state college costing $20,000 that means they have need of $9000.    Lets just say that the school's aid award includes $5,000 in loans and $3,500 in state grants. 

Ok, now lets say that the Smith Grandparents saved a bunch of money and put it into a 529 for their grandkids.   They have $20,000 total for each child.   When Smith Jr goes off to college the 529 is not counted in their aid.   But the grand parents pull $5,500 out of the 529 and pay $5500 worth of the students expenses thus keeping them from having to take out the student loans. 

However in the sophomore year Smith Jr again fills out the FAFSA but this time that $5500 from the grandparents 529 counts as income for the student.   The financial aid calculations assume that 50% of a students income is available for college.   That $5500 from the grandparents will increase the students expected financial contribution by 50% or $2750.    In the sophomore year then the students EFC will go up to $3750 and their need will go down by $2750 to $6250.    In the sophomore year as a result they will qualify for $5500 in loans and only $750 in grants.   The same thing would happen in the Junior and Senior years.   In the end the student would not have to take out student loans but their grants would only add up to $5750.

Its better if the grand parents use their 529 funds in the later years.  In fact its best to delay it all to the senior year if possible.   This way the money will not be counted in following year financial aid calculations and won't undercut financial aid eligibility.

Lets instead look at the above scenario and have the grand parents distribute $10,000 a year in the junior and senior years only.   This would not reduce grant funds for the sophomore and junior years since it would not increase the student expected financial contribution.

Here's how it might look if the grand parents dole out money every year :

	Parents	Student	Grandma	Loan	Grant
Frosh	$10,000	$1,000	$5,500	$0	$3,500
Soph	$10,000	$1,000	$5,500	$2,750	$750
Junior	$10,000	$1,000	$5,500	$2,750	$750
Senior	$10,000	$1,000	$3,500	$4,750	$750
TOTAL	$40,000	$4,000	$20,000	$10,250	$5,750

Now if instead the grand parents hold the money till the last two years it could look like this :

	Parents	Student	Grandma	Loan	Grant
Frosh	$10,000	$1,000	$0	$5,500	$3,500
Soph	$10,000	$1,000	$0	$5,500	$3,500
Junior	$6,500	$0	$10,000	$0	$3,500
Senior	$10,000	$0	$10,000	$0	$0
TOTAL	$36,500	$2,000	$20,000	$11,000	$10,500

The student has to take a little more in loans up front but they also save $2000 out of pocket and the parents save $3500 out of pocket.   If the student and parents took that money to pay off loans right after graduation then the net loan balance would be $5,500.

 Now of course this all hinges on the assumption that the student and their family's financial situation and the school aid program is such that the student could get grant aid.   Thats not a given.   If the family has a higher income or the college isn't very well endowed then grants may not be available at all.   However even if the student can't get grant aid then it may matter to help them retain eligibility for loan aid.    Subsidized loans are a form of financial aid.    If you can qualify for subsidized loans versus private loans then the subsidized loans are definitely better.

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Is it Really That Hard To Get Rid of Student Loan Debt in Bankruptcy?

This is a fairly short article that mostly serves to point you to the article :

Bankrupt? How to get student loan debt erased

We've been told for a while that it is almost impossible to get rid of student loans during bankruptcy.   Thats kind of true.   You can't discharge student loans in a normal bankruptcy and you have to file an "adversarial proceeding" which is a big deal and expensive to do.

But as the article points out  about 2/5 of the people who try this path are successful.

"In one study of 170,000 student loan debtors who filed for bankruptcy protection in 2007, only 51 won full discharges of their debt and 30 received partial discharges.
The author of the study, which was published in the American Bankruptcy Law Journal, found that only 213 of the student loan debtors studied even tried to have their education debt discharged ..."

While virtually nobody succeded, thats moslty beause hardly anyone tried.

If you can get legal help or represent yourself then it seems the chances of getting loans discharged aren't all that awful and certainly not as bad as has been claimed.

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