Tag Archives: Generation Debt

College, Financial Freedom, Financial Independence, Wealth

Why I think college should only be 8 months

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University, Boston, College

“No. I can survive well enough on my own— if given the proper reading material.” ― Sarah J. Maas, Throne of Glass

Where do I begin?

Let’s start here. The cost of college.

College is expensive. According to the College Board, the average cost of a 4-year in-state public university hovers around $9,970, at private colleges $34,740, and $25,620 for out-of-state residents attending public universities.

Many folks don’t just have $10,000-$30,000 sitting around in their bank accounts.

According to numerous reports, many Americans do not even have $400 for an emergency. How the heck are they going to come up with 10 times that amount or more for college?

I, myself, had to become an extremely massive saver in order to stop living paycheck-to-paycheck.

This required me to become very frugal and find ways to earn more, cut spending, or both from my household budget.

Most of my problem was the revolving credit card debt I had. So, I had to come up with a plan to get it paid off. Every time I paid off one debt, I started saving that money.

I went from saving $1 a day to $13,000 a year.

Want to know how I did it?

See my post How Millennial Money inspired me to start saving $13,333.06 a year

What I really noticed about college besides just the price was that many of the things we’re learning came from equally expensive textbooks. Couldn’t I have saved tons of money by just skipping college and reading the textbook instead? Literally, all I would have needed is the syllabus of the course.

I went on Amazon to see books about the cost of college being worth it. It is right? Well, maybe.

Image result for ivy league admissions chart

The point I am trying to make with this article is to examine the following:

  1. Challenge the conventional wisdom that college will solve all your problems
  2. Going to college will make you rich
  3. Prestige is to be pursued at all and any cost

THE COST OF COLLEGE

It has been well-documented that college is coasting more and more every year.

The amount of student loan debt in the United States alone stands a $1.5 trillion.

I cannot even wrap my head around that number. Basically, it means that many people are either going to be paying back their loans for a long time or will not ever be able to repay them. That is a sad fact indeed.

We are mortgaging our young people’s future.

Many are unable to buy homes, start families, get married, and put down roots.

The cost of college is especially hard to manage for those that are of low-income. The issues of poverty do not stop with a college acceptance letter.

We are starting to create a reality in where the poor inherit their parents’ poverty while the rich hoard opportunities for their kids.

That glass floor is real. When poor kids are getting 1200 to 1600 SAT scores and pulling hard A’s but still unable to graduate, while trust fund babies are barely pulling soft C’s is just ridiculous. That means, a rich kid can get a college degree simply because their parents have wealth, income, and resources.

I have heard stories of low-income college students dropping out for owing less than $1,000 to get their degree. Frankly, this saddens and alarms me.

And I am not buying avocado toast at $10, according to one politician, who will remain nameless.

The cost of a Bachelor’s (BA/BS) degree is just too darn expensive. The worst part is that an education is not an equalizer. Just because you went to Harvard doesn’t mean you are going to get the corner office. That fancy C-Suite is the carrot being dangled in front of all those Ivy League hopefuls.

Many do not make it there.

Don’t believe me.

Check this out.

When I looked up books on colleges, admissions, and the Ivy League online, I found the following titles:

  • Excellent Sheep
  • Nudge
  • No Sucker Left Behind
  • Where you go is not who’ll you be
  • The Chosen: The Hidden History of Admission at Harvard, Yale, and Princeton
  • The Price of Privilege
  • Paying for the party
  • Pedigree Elite: How Elite Students Get Elite Jobs
  • The Blessing of the B Minus
  • Academically Adrift
  • Winners Take All
  • Generation Debt: How Our Future Was Sold Out for Student Loans, Bad Jobs, No Benefits, and Tax Cuts for Rich Geezers–And How to Fight Back
  • Equity and Excellence in American Higher Education
  • How to Raise an Adult
  • iGen: Today’s super connected kids are growing up Less Rebellious, More Tolerant, Less Happy – And completely unprepared for Adulthood

I have read a few of the books listed above. Many are eye-opening recounts of their experiences with elitism, the Ivy League, college admissions, debt, student loans, finances, etc. Paying high prices, as much as $100 an hour for instruction, for college, taking on tons of debt and then receiving low starting salaries.

Stagnant wages and student loans are a dangerous cocktail.

The one book that still haunts me is No Sucker Left Behind. In this book, he describes college as a rip-off as he feels that colleges are involved in price-gauging schemes. Colleges, in his opinion, have become profit-obsessed businesses with an approach that is more reserved for used car salesman.

There are some Ivy Leaguer’s that become Corporate America rock stars. However, the majority go on to careers in the same type of jobs that those that do not go to top tier colleges.

COLLEGE EARNINGS

You think the Ivy League is the only way to go. Well, think again.

You hear all the time that a college degree means higher earnings, like $1 million more in income over a working lifetime. What you do not hear are the tales of people paying $100,000 for that sheepskin and then getting a $35,000 starting salary right out of college.

A blogger by the name of Sam has a website called Financial Samurai. He wrote a very eye-opening article called What If You Go To Harvard And End Up A Nobody?

He looked up profiles of people that went to Elite Schools.

Mostly more of the same from elites: people chasing money.

Surprise, surprise many end up in investment banking and consulting. If places like Harvard are the playgrounds of the rich, then places like investment banks are close behind. The Elite School graduate sandlots.

I have come to believe that you should pursue what is in your heart and your God given talent. Whatever that may be. God does not give anyone anything he doesn’t want them to use. Sacrificing doing any less than your best is to sacrifice the gift. Figure out what you are good at and then pursue that! The money tends to follow.

Some studies have followed, like the one above, people who attended Ivy League schools and others accepted to those schools but who chose lower ranked schools instead.  The result: There wasn’t a difference in lifetime earnings.  In other words, Ivy League caliber people don’t need an Ivy League education to have high earnings.

WHY FOUR YEARS OF COLLEGE?

Remember that $100 an hour for instruction that I previously stated? Due to that, the real cost of college is costing some students $100,000 a year, according to the book No Sucker Left Behind. So, that is what part of the reasoning behind four years is. Collecting the tuition and fees.

The BA/BS degree takes no less than 120 credits to complete.

Why is this?

Should we not question this? I get it. You do not want a doctor that is immature performing surgery on you. However, I value work ethic and experience over age.

Why not have a degree take 48 credits to complete?

How we would do this is to cut out all the unnecessary courses one needs to graduate. Forget the gen eds and endless electives. Stick to what we need to graduate.

A college degree should be done as quickly as possible so that people can get out there and work. Most families do not have 4 years to let junior go off and explore. They need him out there working and bringing home the bacon today!

I read an online forum called college confidential where it asked why is college in America so long. Great question. Here are some of the responses. This is how it went down.

Why is it that it takes so long to get a professional degree in the US?

In order to study Optometry or Medicine or Dentistry etc you need to do 4 years in college first, not even 1 or 2 years but 4 years whereas in the UK the 16-18 education is enough to prepare you for it.

People may want to start/support a family and at the same time pursue their passion but the length of study is off putting.

Answers were the following:

Gen eds.

The US is looking for mature people to be their doctors and lawyers, not a 21 year old whose frontal lobe is not yet fully developed.

If you have many AP/IB credits, you can get your degree in 3 years, too.

I would not want my doctor/dentist to have had only 1 year of formal education.

It’s a business. The more classes one is required to take, the more money the school makes.

What I suggest is that colleges get straight to teaching you all you need to know in your field. This would cut down on the time and expense of school.

And as for those who say people need to mature. Sure, I’m all for that, but how many people know 30 year-olds that are still wet behind the ears? Lots.

If you want people to mature, put them to work. Nothing makes people grow up faster than responsibility and accountability.

If maturity is really an issue, then have people start in at the bottom.

Nothing beats entitlement out of you like taking orders, scrubbing toilets, and fetching coffee.

Make people work their way up. After college, they could apprentice and work while learning their jobs. Get paid to train and work instead of paying for more training. It is just that simple.

I think college should allow student s to do an intensive 8 months and 48 credits

You would take 4 three-credit classes every 8 weeks. This would mean doing 4 eight-week semesters instead of 8 three-month ones. You would earn 12 credits every 2 months.

A college schedule could be like this:

Year One. English, Economics, major, major.

Year Two. Economics, Science, major, major.

Year Three. History, Math, major, major.

Year Four. Economics, major, major, major.

You see what I did there. I focused on the major and getting people out of college. That should be the point of college, right?

Why the focus on finance? Other than the fact Greenbacks Magnet is a financial blog, it just makes sense to teach people about money as they have to manage it for their whole lives.  

After 8 months, you earn 48 credits and graduate. That took less than one year. It also saves you heaps of money. If four years costs you $40,000, then 8 months should run you $6,667. That is huge savings!

I was gobsmacked to hear of doctors owing $300,000 to $1 million in student loan debt. Do you know what type of interest you pay on that kind of debt? It’s immoral.

Interest of 5% on $1,000,000 is $50k a year. That means after income taxes you have to pay $50,000 just to pay the interest on this debt. To service this type of debt, you would have to pay more than $50,000 a year just to touch the principal.  

I remember reading one lawyer say that he expected to have that student loan bill tacked to his coffin.

Just utterly insane!

 PRESTIGE AND CLASS

I read a book called Class Matters by the New York Times and Bill Keller. The book discusses how people chase money and prestige. Class determines everything about you: where you live, who you marry, what you do to earn a living, where you shop, and who your friends are.

The zip code you grow up in can ultimately make or break you.

In the book, it discusses how Americans have long thought of themselves as unburdened by class distinctions. There is no hereditary aristocracy or landed gentry, and even the poorest among us feel that they can become rich through education, hard work, or sheer gumption. And yet social class remains a powerful force in American life.

Class―defined as a combination of income, education, wealth, and occupation―influences destiny in a society that likes to think of itself as a land of opportunity.

What was jaw-dropping was this part of the book: And we see how class disparities manifest themselves at the doctor’s office and at the marriage altar.

For anyone concerned about the future of the American dream, Class Matters is truly essential reading. I agree with that assessment given to the book.

THE CREDENTIAL RACE

Grades are important. Sort of. Those getting straight A’s have to conform. Visionaries are not conformists. A New York Times (NYT) article quoted Dr. Karen Arnold as saying, “Valedictorians aren’t likely to be the future’s visionaries.”

The NYT article also noted the following:

This might explain why Steve Jobs finished high school with a 2.65 G.P.A., J.K. Rowling graduated from the University of Exeter with roughly a C average, and the Rev. Dr. Martin Luther King Jr. got only one A in his four years at Morehouse.

THE REAL GRADUATION RATE

Did you know that the average graduation rate is 6 years?

Roughly 57% of students graduate in 6 years. Only 20% of American students graduate in 4 years.

Most students are not even graduating in the already exceedingly long period of 4 years’ time.

According to Complete College America, for a non-flagship public university, only 19% of students graduate on time and even at flagship research public universities, the on-time graduation rate is only 36%. Only 50 of the more than 580 public four-year institutions have graduation rates above 50%.

According to 2013 data from the University of Texas at Austin, students who graduate on time will spend 40% less than those who graduate in six years.

That means more time out of the work force and more debt.

According to Forbes, staying out of debt and saving are the best ways to build wealth.

WHY SHOULD COLLEGE BE 8 MONTHS?

Why can’t you do your 10-year plan in 6 months? – Peter Thiel, angel investor of Facebook

I whittle it down to this one reason: No student loans or a lesser amount of them.

Building wealth requires you staying away from and out of debt.

They say student loans are good debt.

I say that all debt is debt. You must repay it. Not having to pay back $20,000 or more of debt with interest is life changing.

If you want to be wealthy, stay away from debt. Save every penny. Learn to turn every dollar into two.

Good Luck!

Celebrities and Money, College, Credit Cards, Financial Independence, Retirement, Saving

Meet an orthodontist with $1 million in student loan debt

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Unless you have not been reading headline making news lately, then you have heard of the man who ran up a tab of over a million dollars to become an orthodontist. It was featured in the Wall Street Journal and has attracted a lot of attention. His name is Dr. Mike Meru. He owes approximately $1,060,945.42 as of the reporting of the article in May 2018. There are only 101 people with $1 million in student loan debt. He is one of those people. Here is how this went down.

HOW TO GO FROM DEBT FREE TO OWING $1M IN 13 YEARS

Mr. Meru grew up in California. He has two brothers and is the eldest of the three. His parents said they would help pay for college. He got through undergrad with the help of his parents and by working through school. He graduated in 2005 from Brigham Young debt-free.

From there he decided to go to dental school.

Before we go any further in this story, I want you readers to know that becoming a doctor is incredibly expensive. It is not uncommon to have medical students be in debt for hundreds of thousands of dollars. Anywhere from $200,000-300,000 in medical school debt is their reality.  Dental school is also one of the most expensive programs and can cost upwards of $70,000 or more per year.

Getting back to Mr. Meru, he was informed that going to dental school would cost anywhere from a price tag of $400,000-$450,000 in student loans plus interest.

For me, this is a red flag. Even if you can earn a six-figure salary as a doctor, I am risk-averse and would be turned away by this eye-popping amount. However, if your goal is to be a doctor and be of help and in service to others, then this is what the cost will be.

FROM $0 IN STUDENT LOANS TO $340,000 IN FOUR YEARS

He then chooses one of the most prestigious institutions for dentistry: University of Southern California.  This is what he paid for four years of school from 2005-2009:

Year one at end he owed: $43,000

Year two at end he owed: $115,000

Year three at end he owed: $230,000

Year four at end he owed: $340,000

Dr. Meru has now finished dental school. He owes over a quarter of a million dollars in debt within four years of graduating from college debt-free.

Keep in mind that college tuition goes up every year around the country. USC is no exception. In addition, interest rates have gone up on student loans as well. In the WSJ article, his loans were at various interest rates throughout his time at school. Also, tuition increases at USC would go for about 6%. This is a huge amount of money. For instance, a 6% increase over 3 years would be the equivalent of an 18% increase in tuition by overall from start to finish.

The cost of college is going up faster than the cost of inflation. Generally, inflation goes up by about 3% annually increasing the costs of goods and services. Therefore, if it cost a dollar ($1.00) last year it will now cost $1.03 this year. Imagine paying 6% on $50,000 and then 6% on 53,000 and so on, all the while you are also accruing interest on this borrowed amount.

You are getting hit with a two combo even worse than Mike Tyson could ever do.

First, you get hit with tuition increases of 6% in this case. Second, you pay interest on the loans you take out of approximately $50,000 per year. The compound interest is brutal.

In the article, it states that Dr. Meru found his calling as orthodontics changed his life as a teenager. However, the one caveat he did not take into consideration: inflation. If you want to learn more about inflation, read my article Money Lessons I learned from Scrooge McDuck. The cost of becoming a doctor 20-25 years ago was cheaper then as it is way more expensive now.

This is not the first time I have seen people take bets like this on their education.

If you were to do some research, you will find that 50 plus years ago education was pretty reasonable and in many cases more  affordable. I will provide one such case below.

In the book, Generation Debt by Anya Kamenetz, a Yallie that was born toward the end of the 1970’s, stated in her book that her parents old college professors were in shock at the sticker price of Yale over a seven year time period which had risen- from $30,000 to almost $39,000. Her own father, who attended Yale on a scholarship, had appropriately asked the justification of the tuition increases. This considering when he went there the price was…wait for it…$3,000. That means within one generation tuition has increased $1,000% or to roughly 10 times the cost.

The absolute saddest and funniest part of the book, in my opinion, was at the high school graduation brunch of her younger sister. Her parents also wanted her sister to go to Yale, but cited cost concerns and rightly so. The speaker said of the 180 graduates they would divide $18 million in scholarships- that’ll just about get them to Thanksgiving. That was putting it mildly.

The problem is that education is not an equalizer. Although, there is nothing wrong with getting a good education. And going to a great school with high-quality education is awesome; some people may have to simply understand that it may not be the best option for them individually.

The jury is still out on the value of an education. Sure, they let you know on college brochures and in the media that a college degree can net you more than $1 million more in lifetime income, but in Dr. Meru’s case did it also say that if you flip a coin, it could be the opposite and you could owe $1 million dollars? I don’t think so.

Many employers are paying in wages nowhere near the cost of college.

I have read that some places cannot put a dollar amount on how much to pay their employees for their degree, but colleges have put a price on it as USC cost Dr. Meru over $400k.

FROM $340,000 IN STUDENT LOANS TO $601,506 IN THREE YEARS

You would think by finishing dental school that his education was done and over with. Alas, then there is residency, which is training for doctors. However, for dental specialists this costs too. Many doctors are paid while in residency, but Dr. Meru must continue to pay for training for an additional three years FROM 2009-2012. This would increase his debt to over $600,000.

FROM $601,506 IN STUDENT LOANS TO $1,060,945.42 IN SIX YEARS

Pay close attention here because things move really quickly.

He consolidates after finishing all his education and training. He then owes $724,817 by 2012-2013. This includes in interest and principal as a consolidation not only changes your repayment terms, interest rate, and payment amount but interest can capitalize. Capitalization is what makes student loans such a slippery slope. It makes you owe interest on top of interest making it harder to get it paid off.

From there he continues to accrue interest and owes $882,300 by 2015.

Within 3 years, interest continues and grows the debt to $1,060,945.42 by 2018.

How is this even possible? In 2005, Congress created Grad PLUS loans that removed loan limits and allows student to borrow for every expense from tuition to rent and living expenses. Dangerous.

He is now making monthly payments of $1,589.97. He has two daughters, a wife, a $400,000 mortgage, a $225,000 salary and is accruing $130 per day in interest on his loans, which is $3,900 per month and $47,000 per year.

If not for Income-based repayment, he would have to pay $10,541.91 per month. Instead, he pays about $1,600. This does not pay all the interest that is accruing and does not even touch his principal. Within 20 years he will owe $2 million. If forgiven, he will owe $700,000 in income taxes. Currently, his take-home pay after income taxes is $13,333 per month. That means if he pays the $10k monthly payment, he would have his debt paid off in about 13 years, but bring home less than $3,000 per month.

 WHY SO MUCH DEBT?

Keep in mind that it is mostly graduate students that end up in the most debt. With the cost of graduate school (2-4 years) easily topping $20,000 or more per year, it can dwarf undergraduate costs. Over 20 years ago no undergrad or graduate students owed six-figures of student loan debt. Today, over 2.5 million of graduate students do.

After reading about Dr. Meru’s story, I feel that there is a serious problem with the funding of higher education. I want people to be doing the opposite of owing interest on a $1 million and instead be earning interest on this amount of money.

I want people to have the trifecta of retirement funds- pension or 401(k), savings, social security. Over a 30 year career you want to have a paid for home, 25 times your annual income in a retirement account, and be able to get social security or have at least two forms of income to supplement your savings.

In the article, his wife said there are a few things that are OK to go into debt for: a home, an automobile, an education. I have to disagree. I say if you can avoid all debt, then do it. Pay cash for all your purchases. For a car you need one loan. Same goes for a home. However, her husband needed 50 loans to fund his education.

If you are unsure why or how you will pay cash for all purchases, let the advice of these millionaires be your guide.

Mark Cuban, billionaire owner of the Mavericks, says if you use a credit card, then you do not want to be rich.

Kevin O’Leary, shark tank entrepreneur, says all debt is evil.

David Bach, financial advisor and author of the Automatic Millionaire, says all debt is bad debt.

I rest my case.