EduCounting – Money Education for kids and their families

EP1124: Biden says Bye-Bye to $1 Billion in School Debt

Is college a good investment with Mak and G

SHOW NOTES

In this episode, Mak and G are looking at the costs and benefits of going to college to see if it really is as good of an investment as it’s made out to be…

 

One of the biggest debt people get into is paying for their college fees and their living expenses while they’re going to school.

 

This is often classed as ‘good debt’ as it’s investing in yourself and should increase your earning potential after you graduate.

 

But with more students than ever leaving college before obtaining their degree is this debt really as good as we think?

 

In this episode, Mak and G look at all the costs and benefits of going to college and work out how to make sure you’re getting the most for your money…

 

“Most people change their jobs over a dozen times and it’s not always the same kind of work.” – G

 

“Half of the students that start college do not finish.” – G

 
Time Stamps:

00:18 – Our market update from this week.

01:59 – The value of going to college.

03:34 – The benefits of starting in a Community College before moving to University.

04:34 – How to evaluate the cost of college vs. the benefits it will bring.

05:34 – How much more it costs to study somewhere like Harvard.

06:29 – The demand there is for Software Developers.

07:27 – The college debt President Biden canceled.

09:16 – How much student debt do people leave college with?

10:32 – The benefits of buying products out of season.

 

Connect with Ben Jones:

 

TRANSCRIPT

DAD: Thanks for being with us, for the week ending March 26th, 2021.  Don’t forget to LIKE, SUBSCRIBE and COMMENT on the podcast. We love to hear from you.  Grant, kick us off for the markets.

GRANT: Stocks are at an all-time high as there was optimism in the air due to the vaccine rollout, which went to over 50 million vaccinated and approximately 92 million receiving at least one shot. So, things are going back to normal and the market has risen because the demand for stocks have risen as people think companies will earn more now, pushing them higher. As we talked about last week, the sun came out, and with the vaccines, it just felt like we were moving in the right direction. 

MAK: However, the Suez canal got tied up with a huge 1,300 feet ship that got blown into one of the banks of the canal and blocked the entire 1,000 feet width and tugboats are on the way. Normally 50 ships pass through it a day, which after 5 days, means over 250 ships haven’t made it.  There’s over 5.5 million barrels of oil a day and 3.3 million TONS of cargo a day. If there is a lower supply of oil, expect prices to go up.  It may also mean the possibility of manufacturing plants shut down. If they don’t get the supplies needed, they won’t just sit there.  So, you may see a car company or others shutdown. Plus, there is a good possibility COVID materials are in there with other stuff.

DAD: But, things are optimistic, the S&P, which is a gauge of the US economy, as we know, hit a record, and the Dow continues to do well.  The NASDAQ has been down the last two weeks, but not to worry. Bitcoin dropped over the last two weeks as well and is around $55k and the day trading account didn’t move since last week. Apple clawed back 1% and ended around 121.

MAK: As we looked at some interesting stuff in the news, we saw President Biden canceled some student loans, which is a great topic.  Why do people go to college? We want an education, but we also want to get a job, where we can have a life that’s full of everything we want, including a house, cars, enough money to do all the fun things we want.  That would include buying video games, vacations and more, right? Plus we want to enjoy and feel a sense of fulfillment.

GRANT: So, college is a HUGE decision.  It really helps us start our life on the right foot, and it doesn’t mean we have to do it forever. Most people change jobs over a dozen times, and its not always in the same type of work.  We CLEARLY talk about saving and investing for the future, and last week we talked about how you have to spend less than you make.  That means, unless you’re crazy wealthy, you have to earn a living.  Sometimes college is absolutely the right thing to do, but it’s not the only thing.  And, we want to make great financial decisions, because when we invest, we look at how much we spend on an asset, and want to make sure we get our money’s worth out of it.  College is no different.

MAK: Many people have to take out debt to go to school, because it’s expensive.  Usually, it’s tens of thousands of dollars each year.  If you’re not sure college is for you, it’s important to seriously consider that the money you borrow, will have to be paid back.  You don’t want to borrow money and invest in yourself if you quit early and don’t reach your goal of a better career.  There are lots of statistics to support that about half of all students who START college don’t FINISH.  

DAD: I often advise people to start at a community college, if uncertain AT ALL.  Usually, you can transfer to a larger university if you’re able to show you’re doing well. Sometimes it’s actually easier to get into the college you want if you start at a community college. It’s less expensive, you get to hear from professors who’ve done the job they’re teaching you.  They call them practitioners, because they’ve practiced those jobs.  Plus, living at home while studying is cheaper than living on campus.  Yes, you may miss out on some stuff early on, but when you transfer to the university and live on campus, you’ll catch up.  The community college is a very viable approach to see if it fits.

GRANT: So, we can make a better financial decision.  But, lots of people get in trouble.  Part of it feels like it’s because as kids, we have to know what we’re going to do by the time we’re 18. I’m not sure I’ll know.  But, YouTube has tons of videos, and you can do research on which career fits you best, and which career will continue to grow or decline.  Dad showed us a list of 30 jobs that are growing, and pay well.  It’s pretty nice to know that a job will be needed in the future and pay well.  The bigger question is trying to evaluate the cost of college and what you get back.

DAD: There are studies that show many people don’t know how to determine whether the amount someone spends on college is really worth all the time, effort and money.  Hey, overseas, people aren’t pushed to go to college.  Many take tests, and your score determines whether you get to go to college or you should go to a trade school like a plumber, electrician or other trade.  It’s very different. In the 15 minutes, I took to Google return on investment for college, there are tons of tools.  I found:

  1. College scorecards/Affordability and Transparency Information all from the Department of Education to help anyone see the different costs at each school.

There were many other tools to help make a better decision.  Use them.

MAK: Harvard costs more than a community college.  Harvard is over $50,000 per year, and Columbia is over $60,000.  That’s without the expenses to live, like your apartment or dorm and food, books and other stuff you’ll need to pay.  I want to have a little fun too!  Plus, it might be fun to come home and if I’m at a school far away, I might need to take a flight, and that is extra as well.  May not be the most fun thing to be the only person staying at school over the holidays when everyone else has gone home.

GRANT: So, understanding the cost of school and what you’ll get out of a school is important.  Hey, if you go to Harvard like our uncle, he has gotten some really cool jobs.  He says it’s helped him, and he lives in a really nice house.  He probably got a good return on his investment, even though he spent a lot of money.  He had to borrow a lot of money at first.  That’s good debt, if you’re investing in something that will grow and bring you many returns.  The Bureau of Labor and Statistics shows that software developers are in high demand, and earn over $100,000.  There are going to be lots of new positions, and as you know I love computers.  So, maybe I can help develop some new games.

DAD: Just like any investment, you have to do a couple things.  First, ask yourself which asset you want to buy.  In this case, it’s a college education.  When evaluating an investment, you ask yourself how much it costs to buy it?  This is where you do your research.  What type of degree you’re looking for.  When I went back to get my MBA, I could easily rank each school by cost. I could also see the average salary coming out of those schools.  I eliminated a large number, as I was already making significantly more than the average.  I had other considerations, but that’s one of the main reasons I went to the University of Chicago.  The time, money and effort was the best.

MAK: President Biden canceled some college debt a couple weeks ago.  He didn’t simply cancel everyone’s debt, but he did do it for 72,000 people.  That’s less than ½ of one percent of all people who owed money.  It was around $1 billion or less than 1% of all the debt.  There are actually 45 million people who owe money for school and it’s estimated to total around $1.7 trillion.  A lot of it is guaranteed by the government.  But, for these lucky individuals, they were getting their loans forgiven, because they were deceived about what they were told about the school they were attending.  Some of it was illegal.  They already filed a claim previously, it was approved, but only part of their debt was forgiven previously. I guess some were told they’d make a lot of money, but it just wasn’t true.  In addition, if someone started at a school and it closed suddenly that would be another reason for forgiveness.

GRANT: Some people are happy about it, especially the 72,000 who don’t have to worry about it anymore. But, Biden promised to help, and some people think it’s a big problem that people got into such debt, and have no way to pay it back. It is the second biggest debt category behind home mortgages and ahead of credit cards and auto loans. As discussed, the first 100 days of a presidency sets a tone of what the President will do and wants to get done.  This is part of it.  When debt is forgiven, it’s like free money. It’s usually taxed, but in this case, it isn’t. Many people feel like it’s the beginning of relieving the problem.  Some think he will forgive $50,000 of debt per person, but it sounds like he may be willing to push through $10,000 per person. Others aren’t happy, because they believe they paid their debt, and why should everybody else have to pay for it, because it comes out of tax money.

DAD: Approximately 75% of students who have debt are under $40,000. The largest concentration is in the $20-40k range.  It can add up. I know.  But, I had to help a friend who had over $500k in debt.  Crazy smart, and has a lot of degrees.  We made some big changes, because there are several programs out there. It can get confusing, so get help and get some relief.  The key is to truly do your homework BEFORE picking a school.  We have to take responsibility and guide our children.  My mother was clear about our choices, IU or Purdue, and a doctor, lawyer, nurse, engineer or accountant. All of those would get you a job, and you can get a certification.  In-state tuition was cheaper.  She said she wasn’t there to be my friend, but she had to do her job to make sure I could take care of myself. I’d say she succeeded.  

MAK: School is a huge decision. It’s expensive and has long term consequences.  It should never be taken lightly. I’m sure dad will continue to help guide us through the maze of possibilities, or he may just take grandma’s approach.  But, it’s important to start saving now for it.  The Rule of 72’s is important. We’ve spoken about it before, so google it our go to our YouTube Channel, which is educounting, and you see a two minute video on the subject.

GRANT: When speaking about savings, we learned a good lesson this weekend.  Dad bought a bike.  Due to COVID demand, we know what happens to prices when Demand is high and Supply is low.  Since it was a nice day, there were tons of people buying bikes.  Dad asked the salesperson to throw in a $17 kickstand. First, shouldn’t all bikes have kickstands?   I guess it adds weight and with the new equipment, it’s harder to put on a bike.  Anyway, If you know you are going to make a purchase, especially a big one, there are better times to buy.  OUT OF SEASON.  Dad paid full retail, and it about killed him.  This is the beginning of the bike season here, so no free kickstand, no discount, full price all the way.

MAK: Based on Dad’s experience, don’t forget to buy summer clothes in the winter, and a ski jacket near the fourth of July.  Hey, if you want a boat, think about the winter.  Yes, you may need to store it, but a really low price, or the company may be able to store it.  There are opportunities galore.  Thanks for being here, and please “like”, “comment” and “subscribe”.  We’ll see you next week.

MAK/GRANT/DAD: BYE!!!

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