One of the things many responsible parents are doing today is saving for college, usually in a 529 plan. Not saving for college and expecting a student loan bailout in the future is bad planning. The same goes for not saving for retirement and hoping the government will take care of you once you can no longer work.
Do you really want to take that chance? I don't think so. In fact, I have a guide for how to become a millionaire by 20 just to pay for college tuition!
Given college tuition is rising by roughly 6% annually a year, by the year 2033, the cost for one year's worth of public or private school tuition may approach $54,070 and $121,078, respectively.
Add on expenses for room, board, travel and miscellaneous stuff and the annual cost of college could easily be 50% – 100% higher.
Meanwhile, according to the National Center for Education Statistics, just 41% of first-time full-time college students earn a bachelor’s degree in four years, and only 59% earn a bachelor’s in six years.
Need to Save A Lot For College Today
Therefore, it is only logical that all of todays' new and future parents should try to save about $1 million for each child's college education. If a family has a “trophy kid,” then the family should save $4 million and so forth if college is the desired path. Going into debt to buy a depreciating asset like a car or a college degree is fiscally unsound.
No parent should expect their child to be brilliant and get scholarships. Nor should any parent expect their child to be sensible and attend a public institution to save on costs. High expectations lead to disappointment.
No matter how many articles I write about the depreciation of a college degree, not enough people will listen because the desire for status is too strong. We also all believe that we are more talented and smarter than we really are.
Parents can hope for sensibility, but should still plan to spend the big bucks.
However, to save for our children's college education often means that we are unable to save as much for our own retirements. This, in turn, may cause financial anxiety and unhappiness within the household.
Perhaps the Cancel Student Debt movement is a solution. Probably not.
Cancel Student Debt To The Rescue
Senator Bernie Sanders has proposed canceling all $1.6 trillion of student loan debt currently held by roughly 45 million Americans.
Bernie's proposal is a one-up of Senator Elizabeth Warren's proposal to cancel $640 billion of student loan debt by forgiving up to $50,000 in student debt for those earning under $100,000. Warren's plan would directly benefit about 42 million people.
During a presidential election, it is understandable that candidates need to come up with enticing proposals to gain votes. The more freebies you can promise at a minority's expense, the more votes you will get. Power is a mesmerizing elixir all politicians crave.
I'm personally waiting for the Cancel All Mortgage Debt proposal to one-up Senator Sanders. Not only would homeowners save a ton, demand for real estate would surge, thereby creating even more equity for millions. As a property owner, I've got my fingers crossed.
Canceling Student Debt Helps Wealthier Americans
What's interesting about canceling all student loan debt is that the benefits will go mostly to more well-off Americans. After all, only about 30% of Americans have a Bachelor's degree. Even fewer have a Master's or Doctorate degree.
Senator Sander's plan would help eliminate student loan debt for some of America's highest-earning professionals e.g. doctors, lawyers, bankers, consultants, etc. But at least his plan does not discriminate between student loan holders.
People against canceling student debt also make the point that nobody forced parents or students to take on so much debt. After all, there are plenty of more affordable education options.
Just because AOC could afford to pay $55,000 a year in tuition in today's dollars to attend Boston University doesn't mean we all can. Most of us don't have the financial means and will probably have to attend a state school or community college for two years instead.
I Knew We Weren't Rich
When I was looking at attending college, I chose William & Mary, a public school, because the tuition was only $2,800 a year. Only the rich kids who couldn't get into a top 25 school went to a school like The University of Richmond in Virginia, a good school, where tuition was about $25,000 at the time and $54,690 today.
I was fine with the rich kids who went to the University of Richmond instead of going to a state school like most of us. That's just life. We've got the same scenario playing out in practically every state, e.g., Portland University ($47,500) vs. Portland State ($8,500), University of San Francisco ($49,740) vs. SF State ($7,264), etc.
We just need to make the most of our situation. Hating on the rich is not productive because their privilege does not preclude you from creating your own wealth.
I knew my parents weren't rich given they drove an 8-year old Toyota Camry, I went to a public high school, and we lived in a cozy townhouse. Therefore, it was only logical I should attend a more affordable college. Even if I didn't get a decent paying job after graduation, I knew that with a minimum wage job I could still pay my parents back.
We Can't Always Get What We Want
In high school I really wanted to rumble to class in a 1990 Mustang 5.0 GT. The sound of a 5.0 engine was one of the sweetest ever. My rich classmate was getting a Supra and was willing to sell me his Mustang for $13,000. But I only made $4/hour working at McDonald's. So instead, I had to impress the girls with my bike and sparkling personality.
I firmly believe that other parents or college graduates who are my age (42) or younger understood the cost/benefit analysis of attending college as well. By 16, the concept of only buying what I could afford was very clear because I had to work craptastic jobs for things that I wanted. Further, the internet and all its free information about the dangers of overpaying for college have been readily available for decades now.
Everything is rational. I do not believe the vast majority of Americans who are bright enough to attend college do not understand the risks of spending hundreds of thousands of dollars for an education.
To cancel all student debt would only be rewarding irrational behavior. By rewarding irrational behavior, we may be dooming such folks to a lifetime of hardship.
The Importance Of Personal Responsibility
As honorable citizens, we know that everything is earned and nothing is given. We must earn what we deserve and take responsibility for our actions.
There's something incredibly satisfying about taking out a loan and paying it back in full. Fulfilling your obligation is the best way to cancel your debt.
My wife, a fellow William & Mary alum, graduated with $10,800 in undergraduate debt. She came from a poor family where neither parent went to college. Therefore, she logically attended a state school to save on costs.
Her first job paid her $24,000 a year in expensive San Francisco. Nevertheless, she stayed super frugal and diligently paid off her student loans in five years. When she sent in her last payment we went out to dinner to celebrate. Then it was back to saving and investing aggressively in order to one day get out of the rat race, which she did at 34.
I graduated business school with about $25,000 in student debt because my employer decided to only pay for 70% of the tuition instead of 100% once the global financial crisis hit. I wasn't about to complain after seeing colleagues get blown out left and right. But boy did it feel great to get that monkey off my back through some lockdown savings.
Not Getting Free Money Helped
There is no way we would have achieved financial freedom when we did if everything had been handed to us. Instead, we'd probably still be working and complaining about why everybody else has it better than we do while also being unwilling to do any extra work.
Getting into the mindset of earning what you deserve is incredibly powerful to building greater wealth and happiness. Adopting an entitlement mentality can really ruin your wealth. Please stop thinking you deserve what you have not earned.
The satisfaction of achieving a goal through years of struggle is one of the best things ever. The struggle makes you appreciate more of everything you have.
We shouldn't let politicians pandering for votes legislate away a person's ability to feel satisfaction through their own initiatives. Instead, let's use the $640 billion – $1.6 trillion in new taxes to be raised by these proposals on helping the homeless, underemployed veterans, foster children, and kids with disabilities instead of the top 30%.
Honor Your Debt Obligations
The average person who worked for their success will feel much better than the average person who gets everything handed to them. If you don't believe me, just ask any adult child over 30 still living at home with their parents. Chances are high these folks were given a little too much and lacked the motivation to succeed on their own.
Once the expectations for a handout are ingrained, there's no turning back. We'll end up raising a new generation of entitled Americans who will not fully appreciate the value money. Our economy will unravel because trust will be broken and productivity will decline.
Positive Of Cancelling Student Debt
There is always a silver lining. If the #CancelStudentDebt movement succeeds, then it is rational for all parents to stop contributing to their children's 529 college savings plan and live it up. Perhaps the extra amount of spending will help boost the economy.
What a relief for parents to no longer have to create child millionaires to pay for their children's million dollar educations. I hope folks realize how absurd our education system has become.
We can only hope that society wises up to the fact that paying record amounts of tuition for an antiquated degree will no longer be necessary in the future. But I wouldn't bet on it.
Save aggressively. Work hard. And be responsible. If a bailout comes, you'd be irrational not to accept. But if a bailout never comes, you won't care because you never expected one in the first place.
Loading ...Invest In Real Estate To Grow Your Wealth
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Both platforms are sponsors of Financial Samurai and Financial Samurai is a six-figure investor in Fundrise funds.
Related Post: How To Stop Worrying About Your Children's Future In This Brutally Competitive World
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As a millennial woman who has paid off all of my $40,000 debt with pure grit, working in a blue collar job, after getting an art degree, I am astounded at the people who are trying to escape responsibility for their own choices. It never even occurred to me to try and cry “no fair” to get out of it, and I am prouder and stronger for it. I was the first in my family to go to college, and grew up below the poverty line. College did give me opportunities and education I wouldn’t have gotten otherwise.
I truly see a culture of entitlement: people who drive nicer cars than me, go on expensive foreign vacations that they post on Instagram, and then complain that others should have to pay for the six years that they lived for free while in school (spending that money not just on school, but on shopping sprees, sushi, and beer). These are my friends I’m talking about, A LOT of them. No, we should not pay for them.
I have been paying on my federal graduate student loan for 18 years–and I haven’t made a dent. I have worked constantly since age 18 (I am now 53) and I picked careers where there is no future and no chance to build wealth. My first career choice didn’t work out, so I went back to school for something which, I learned only later, pays people for crap. If I had known, I wouldn’t have gone for my master’s and I wouldn’t have this grad school debt.
I deserve to have my student loan debt forgiven. I’m sick of just surviving, while other people build nest eggs and feel financially at peace. If it was forgiven, I could more quickly pay down other debt. I owe very little in cc debt; I made the mistake of taking out two unsecured personal bank loans. I pay more than the minimum, but if I could knock that out I could put more toward retirement.
I’ve always played by the rules and done what I (naively) thought I was supposed to do (I even went to a commuter school for undergrad, to save my parents money, so I missed out on the parties and the girls. I was too much of a nerd to realize I was missing out or that it was really important to go away to school–even just for the socialization and becoming emotionally independent of your parents). A lot of good it did me. I couldn’t be more bitter if I tried.
At least you can feel good knowing that you are responsible American citizen who is doing it the right way. Although I must say, missing out on four years of college and all those parties is a shame. That was an amazing time.
I’m totally for this student debt forgiveness plan. This will take money from the boomers and give it to younger generations. True it has issues such as benefiting the rich etc etc and will have some insane knock on effects such as making college even more expensive. However it will be a form.of wealth transfer from the worst generation of all time that squandered away every advantage they had and will be perhaps the last beneficiary of social security benefits.
Additionally it will make college meaningless which is a good social benefit also.
I agree. What this article doesn’t pay attention to is that as young adults coming from an unsupportive family many of us listened to financial advisors from colleges making it seem like we’d be able to pay the loans off and then entered a contractor economy (thanks microsoft) where our bachelor degrees didn’t earn us much and left us frequently out of work due to contractor requirements, mergers, companies going bankrupt etc. I have always worked more than one job yet thanks to the instability of the market for my skillset and having only one income I owe MORE in student loan debt than when I graduated due to interest. Education should be FREE as it is in other first world countries. Or for god’s sakes affordable. At the very least there should be no interest and the loans should be subject to bankruptcy like people who rack up credit card debt for going on shopping sprees. Why do they get a get out of debt free card when we are punished for getting an education and not having family support or financial guidance or choosing the right major and predicting it’s market value? It’s not just Millenials either. Senior citizens are getting social security garnished for student loan debt. It’s all of us not just the young that are hobbled by this.
If the money is going to be spent, I would prefer a plan that incentivized payback, like dollar-for-dollar gov’t matching that scales down with income or loan amount.
I went to school with a guy who used his student loans to buy a motorcycle (and other non-school related toys). To think that that debt could be forgiven turns my stomach.
I work with doctors, all of them take vacations to Hawaii and shit on their student loans. When I was in college I went camping. Seriously, these medical students take vacations, live in downtown loft apartments and dont have a job for 8 years then they complain they have to pay back that money.
The whole point of the student debt cancellation is that Twitter & Social media wasn’t really big during the big bailouts of Wall Street and banks. This is a way to recapture that feeling and anger, but with the power of twitter & social media. The Tea Party types at the time were pissed off – they wanted no bailouts whatsoever. Now the progressives are saying why could we afford to bail out Big Banks and claim not to be able to bail out the middle class.
Instead of this ridiculous student loan cancellation proposal, both party’s should focus on grade school instead. Like making public school lunch universally free, regardless of income (almost half of children already get free or reduced lunches already anyway). Even if it becomes a disaster with children learning to be wasteful with food, well at least we’ll bring the country a little closer together since a lot of Trump supporters in the Republican Party would also be presumably for it since they fit the geographic and income profile of those with children on free and reduced lunches. Oh wait, there can’t be bipartisanship in this day and age because there’s no political value to it.
Hey Sam, I graduated W&M in 2018 with no student debt thanks to the school’s extremely generous financial aid package. I essentially got a full ride from federal state and school grants combined since my parents made very little money – we’re immigrants. For me, a college education was a great privilege that I could not take lightly so I worked my butt off. By the time my little brother started attending college, my parents had been working so hard to save enough money for his education and even buying a house. I’m very proud of them and appreciate everything they had done. However, I notice that my little brother thinks of college as an obligation, not a privilege. He’s going to school to please my parents and his indifferent attitude really irks me at times so I agree with you completely when you said handing someone everything will demoralize their work ethic and motivation. I tried to get my lil brother to work a summer job so he knows how hard it is to earn money and appreciate what our parents are doing for him, but both him and my parents do not really like that idea. I wish there’s something I can do to change his mindset.
Congrats on graduating! How did you find my site? I wasn’t reading PF blogs when I was a new college grad! What are you doing now? I love W&M. Need to go back to Paul’s Deli and The Cheese Shop and eat Death By Chocolate! :)
Very interesting insight on your little brother’s attitude. In my neighborhood, I’ve noticed 100% of adult children are men, not women. Check out this post and the comments. Would love to hear your thoughts too.
https://www.financialsamurai.com/real-estate-is-a-hedge-against-many-bad-things-in-life/
Thank you!! Last time I visited, Paul’s still has the best cheese fries and I’d kill for a chicken salad on rye from the Cheese Shop any day. Also, I was in the Bay Area (Livermore specifically) last summer for an internship and currently resides in NYC for my first full time job. I’m a research assistant at Columbia University’s hospital, hoping to get my foot into data science and have been thinking about pursuing a masters degree in this field. My degree was in Physics, but looking back I should have double-majored in CompSci as well. Regardless, post-grad life has been crazy and amazing. All of this could have only happened thanks to WM.
Your blog is the first and only PF one I followed so far. I usually follow tech or machine learning blogs, but I came across your article about the average Asian household income being higher than other races after Googling how Asians fare financially since there are a lot who are doctors/engineers due to parental or cultural pressures. At one point in the article, you mentioned W&M and attending high school in VA and that got my attention. I didn’t know anything about personal finance at the time and realized this area is something I need to know since I was about to start my first job. Basically has been reading your articles ever since.
That’s an interesting observation regarding some men. Maybe my little bro will eventually grow out of his immaturity and I’ll try to help him in as much as I can. For sure he can inherit my parents’ property worst comes to worst, but I truly believe that lifestyle won’t truly make him happy but he’d stay indifferent, maybe even entitled. He won’t be miserable, but I don’t think he will ever be nearly as happy as another theoretical person who earned and saved for the property of the same value by themselves. I just firmly believe that one gotta work for something in order to enjoy it.
I think the article is fairly reasonable with the exception of the one paragraph below. Education is definitely expensive, but it’s hard to foresee $1 million within 15-20 years, and I have no idea why it’d be necessary to quadruple it for a so-called “trophy kid”. Given that education costs are already nearing a breaking point, it’s hard to fathom they’ll continue to grow at 2-3 times the rate of inflation. Additionally, few students actually pay a college’s sticker price.
“Therefore, it is only logical that all of todays’ new and future parents should try to save about $1 million for each child’s college education. If a family has a “trophy kid,” then the family should save $4 million and so forth if college is the desired path.”
A trophy kid is the 4th kid. So if all the kids are still alive, you have to pay for all four, not just one.
Interesting. I had never heard the term used to refer to a specific number child before. Who knew? If you have 4 kids and save a million for each child’s education, I’d say that’s definitely overkill, but I suppose it’s a much better problem to have than having saved too little.
https://www.financialsamurai.com/trophy-husbands-trophy-wives-and-now-trophy-kids-oh-my/
I blame the institutions more than the students. At my old university, they put up so many new buildings in the 20 years since I was there, I hardly recognize the place. Add to that the ratio of non teaching administrators to students and I see where a lot of the money is going. Universities are turning into country clubs instead of bastions of higher education. They need to find ways of cutting costs. That is the only real solution.
Something that does not seem to happen in industries that do not get subsidies (either directly or indirectly)
It’s been 20 odd years since I signed my first promissory notes for undergraduate school but please don’t plead the ignorance card. There is an entrance interview educating you on what you are signing when taking the loans and an exit interview educating you on the sum of your debts and the options for payback. While we are all young and stupid in the 18-21ish year spectrum the student loan program is doing 110% more borrower education than any other type of loan in the system.
Capping the total loan amount allowed for a individual student borrower would be a nanny state solution However it at least would present a challenge to schools to address the unchecked tuition increases.
Switching away from loans to an income sharing agreement model like Purdue or Lambda school has done could be a path toward the future. https://www.cnbc.com/2019/02/08/purdue-university-introduces-first-income-sharing-agreement-for-students-.html
Great post! I think about this quite often, as an MBA grad with a heavy load burden (of my own making). It puts me in a tricky position, because my goal is to be debt-free as soon as possible, but paying it off also risks not receiving this potential benefit.
The issue with student loan forgiveness, in my view, is two-fold:
(1) in effect, it harms those who successfully pay off their loans on their own. Why do those who pay off their loans in a timely manner lose out on this stipend?
(2) it doesn’t get at the root cause: rampant tuition increases year over year.
I do like the idea of a much lower interest rate (2-3%, which is more consistent with inflation) on student loans. More importantly, I’m also in favor of a cap on tuition increases per year, which is tricky legislatively but something needs to be done to keep costs in check.
If the cost of education continues to rise at a rate of 6% a year, eventually its going to eat away the entirety of an individual’s income (and that’s not including the cost of healthcare or housing which have been increasing at equally unsustainable rates). I don’t believe income growth, even for top graduates, is ever going to surpass that rate – imagine the massive amount of inflation that would cause. You could probably even make the opposite argument that nominally people’s incomes are decreasing.
While I agree with the general notion that absolving all debts is a bad thing for confidence in the financial system, something has to be done about our current system. There’s no consumer economy when consumers have no money to consume. My father went to a public T14 Law School in the early 80s for less than $7,000; the same education today would cost well over $150,000. I highly doubt the tuition at W&M is the same today as it was when you attended, adjusted for inflation. Is the economy better off for having a highly educated populace with spending power? Investment in human capital is a significant factor in economic growth and if we disincentivize that type of behavior eventually we’re going to crush our own economy.
There are myriad ways to fix this issue aside from the jubilee. A few spitballs: We could allow students to actually declare bankruptcy on their loans – but that would mean we actually lived in a free market. We could disincentivize the packaging of student loans into ABSs – but that would dry up liquidity in the student loan market and cause failing programs to fail. God forbid we tighten interest rates!
I think personal responsibility is important, especially from the perspective of those looking for financial independence but as a societal issue this is way more complicated than that. At least now the problem is in the political dialogue.
ps. love your site
I do not agree with forgiving student debt, but there is a point where people have been financially crippled long enough for their over borrowing mistakes.
I would support allowing loans to be discharged in bankruptcy after fifteen years, with the lender then being able to go after the school for the lesser of the loan balance or the number of years (up to four) of tuition and fees at the current rate. The schools would then have a vested interest in their students’ success and the faster they raise tuition, the more they are potentially liable for. Capping the years of fees recoverable at four would limit the school’s exposure from students who major hop or don’t have their act together.
Other:
Student loan debt should be forgivable through some sort of bankruptcy. Not sure what the unintended consequences would be, but right now people are allowed to borrow way too much because the lenders (including the gov) know that it can’t be forgiven.
First off. Forget any form of student debt forgiveness unless it is paid for by the schools that helped kids apply for these monstrosities. Then outlaw student loans. Seriously. Getting an education with student loans is like furnishing your house with “rent-to-own.”
Not to worry, prices would drop hugely if the money was no longer there to be skimmed by the schools. They are the biggest part of why they have gotten so high.
Next, not to worry. With AI and the internet and several other trends, both in technology and in society, I think we are about to see a revolution in online education. It will probably manifest in a lot of the bigger name schools offering online degrees for a tiny fraction of the in-residence cost. Which, in turn, is probably going to shutter a lot of smaller colleges that have little to offer besides a sheepskin, and so can’t help produce Sam’s trophy kids.
In the interim, although, in reality, I doubt it would be long enough to get things rolling, add four years to public high school (use a different building if you can). Attendance is not only voluntary, but you have to competitively demonstrate the capability and the motivation to stay for those years. Call it college because it would provide a bare bones college education, no frills, no frat parties, no pottery classes. Vocational school, same way.
A society has to balance the rights of the individual against the needs of society. This is why, even while claiming to be capitalists (and, fortunately, we are, mostly) we have things like public roads, public parks, public law enforcement, and several other things that aren’t privatized and on a pay-as-you-go basis. We could probably do without quite a few of some of the less essential ones, but educating members of society is probably one of the more essential ones.
It would seem to make more sense that the colleges fill out their own students if they can provide the results the students are looking for. Not sure why the bailout is born by other people.
Right. I agreed. No public bailout. That ship has sailed. But, going forward, these student loan programs should be outlawed, same way that these payday check cashing companies and car title loan shops should be.
Student loan programs are insidious and unscrupulous and little different from people trying to sell bad financial instruments to gullible old people (and most college age kids aren’t any better).
At the very least, the government, at any level, should not be involved in providing or collecting on them.
I went through college with the help of ROTC, but it was clearly spelled out that they would give me a job when I graduated, what the salary and conditions of employment would be, and how long it would take before my debt was discharged (four years). Of course, it meant I couldn’t go to an Ivy (none of them had ROTC back then), even though they were actively recruiting me, but they weren’t offering scholarships and no way was I taking out loans for such a thing.
A bit different from guilting (don’t you owe it to your future to get the best education you can manage?) a kid into getting loans to buy an overpriced degree (because the schools know they can get these loans) that may or may not help them get a good job and that they may never be able to pay off, and can’t even get out of through bankruptcy.
I am a college grad with 60K-ish in loans. It is alot, but it is not impossible I think. I believe that Ms. Warren’s plan is the most reasonable of the forgiveness options. What I do believe this brings to light is an entirely other discussion. Why did the US spend so much money bailing out business and banks that were going bankrupt but now they refuse to consider the same course of action for students are, I believe, victims of what is a financially predatory system of education?
I think it would be sufficient to cancel all interest on student loans, or reduce the interest to 1%. All interest already paid above that should be re-applied as payments on the principle. If I pay ahead on my loans it does not go to the principle, but to the interest. To be frank, that is bullsh*t as well. To refuse to see that the system is broken and that many people have been taken advantage of is blindness in my opinion, whether you personally agree to full forgiveness of loans or not.
Because if the government didn’t bailout the banks, the economy would have crumbled further and millions more jobs would have been lost.
The gov’t ended up making money on its bailout money. Lots of it.
Your attitude of deserving to get bailed out from your $60K loans is terrible and entitled.
If you didn’t want to pay back $60K, why did you take it out in the first place?
> The gov’t ended up making money on its bailout money. Lots of it.
Huh, I didn’t know that.
I was against the bailouts, and probably still would be even knowing this tidbit, but it makes me feel a little bit better knowing this.
Also, I didn’t take your word for it – I was about to ask for a search but I did a Google search on your exact words (https://www.google.com/search?q=gov’t+ended+up+making+money+on+its+bailout+money) and came across this article:
Quote from said article:
> In total, $623 billion in taxpayer money was dispersed via bailouts and roughly $698 billion has come back via dividend revenue, interest, fees and asset sales. …the bailouts ultimately earned taxpayers more than $75 billion in profit
Do you support Warren’s plan because it’s the one most beneficial to you personally? Like, hey, you borrowed 60k, so let’s forgive the majority of that but not the majority of the loans of people crazy enough to borrow 200k? It’s perfectly rational if that’s why, but please be aware of your own possible biases.
Also, if you obtained a degree that significantly increased your future earnings potential, why should other members of society be on the hook for that cost – particularly among those who opted to a) not go to college or b) go to a cheaper college? Presumably you can make the money back over time and then some.
The comments are a litany of “I want, I want, I want … politicians to make someone else work for me”.
“I want politicians to take money from the companies we all aspire to invest in and give to me for a free education”
“I want the politicians to take money from some taxpayer and give it to my teacher so I can get a free education”
“I want the government to dilute everybody else’s earnings to give me a stipend so I can go to college for free, or do nothing for that matter”
“Oh, I didn’t know that finding a job with the useless degree I chose would be so hard. Some politician please take money from someone else and support me now”
“I want people who lent me money for college to charge me only inflation interest (thereby getting zero reward for their delayed gratification of not using their money) so I can go to college for less“,
“I want politicians to take money from other people and create ‘free’ colleges.”
“I’m interested in studying stuff there’s no demand for so I want be able to sell my skills after I graduate (find a job) so I want someone else to pay so I can pursue my (useless) educational aspirations”
I want, I want. I want”.
Nothing breaks down societal ethics faster than viewing the ballot box as an ATM.
Folks, every penny that the government gives you is taken from someone else. Some anonymous else somewhere in the country. All the funds that you get from government is money that someone else earned according to meritocracy but was then trimmed to give it to you.
I have rarely seen American corporations (well maybe in 10% if cases) that are exposed to both domestic and international competition give out money to someone who does not deserve it. Such corporations are inefficient and are quickly taken over by competitors who make more meritocratic choices. So what are you going to do about the 10% non meritocracy? Punish the remaining 90% to create a more “fair” world where they pay for your education? Will that really make things better? Or will it create a vicious cycle of resentment and redistribution revenge through politics?
Angela, I think the number for “non-meritocracy” is much higher than 10%, unfortunately.
One author wrote: “If you get something for nothing, someone got nothing for something.”
“Folks, every penny that the government gives you is taken from someone else.”, actually it’s a bit worse… government borrows a ton of money and this debt will be passed down to our children, grandchildren, great-grandchildren, et al.
Switch to Land Value Rent for funding all government activity — eliminate the dead-weight loss from the economy: all boats rise.
How about being responsible parents who save enough for our children’s college, so that our offspring don’t have to take out loans?
If we can save x20-x30 earnings in order to FIRE then we can certainly do that.
Wouldn’t this be more ethical than immediately seeking redistribution solutions (taking someone else’s efforts in life) through the political process?
Corporations should take a more active role helping students subsidize their tuition expenses. There is a huge talent war coming with the Smart Machine Age and simple agreements could go a long way here.
Example: We pay 70% of your tuition; you work for us each summer and 2 years post graduation.
The government could find a myriad of ways to incentivize this behavior.
There’s something along these lines I heard in a somewhat recent Planet Money (NPR podcast) episode:
Someone pays 100% of your tuition, and that someone gets a percentage of your paycheck after you graduate for a certain amount of time.
This prevents loan payments from ever being more than you can afford (i.e. more than what you make) but could also be a big payout for the investors.
Someone buys you a house, car, food, education, healthcare, raises your children, according to your need
and
then gets his/her money back according to your ability.
Sounds familiar.
Reading Financial Sumarai enables me to see that America is not the land of milk and honey we make of it. In Nigeria, we don’t have student loans. A few state governments pay stipends but you bear the bulk of your fees. Thankfully, it is not an obscene amount and many students are able to pay these with the help of their extended family members.
Different strokes
Thanks for this incredible post. I am an immigrant and I married a US citizen with a debt of $40.000 4 years ago. Our AGI income roughly reached $24.000. I started to do things my dad taught me when I was a kid. Every single penny counts and always asks everything to your lenders. And I encouraged my husband to ask to his lender about interest rate for his Education and car´s loans. Wells fargo was his car´s lender with a 10% Interest rate when I checked the status of how much money he was paying towards his principal it was only $8 out of $180 monthly payment. And, for his Student Loans (9) he was paying $160month and only $12 were recruiting for his principal. Since then, we started to read more about finances and paying loans asap. I found out my husband is part of USAA through his beloved veteran grandfather and the interest rate for car´s loan was 5.2% almost half from the one wells fargo was charging him. Next day, he transferred his car´s loan to USAA and we paid the amount of $10.000 in debt in 3 years with a monthly payment of $256 and a final payment of $4000. In regards to Navient, I calculated interest rate and see if putting all student´s loan in one account would be beneficial or leaving them separately. I read that if you place all your loans in only one debt it is not beneficial if some of them have an interest rate of 4.4% and others have 6%. Once you joined them, the system will recruit in the highest interest (6%) and I did not want to hit our finances with that. So, we asked for the program named “INCOME DRIVEN PLAN” which has good benefits in you also add AUTO PAY for every month. We pay $550 per month ($300 for the loan with highest interest rate and $250 for the loan with high amount of debt) and since we are in auto-pay there is another 0.3% of decrease in interest per month. I do not encourage to take the “Forbearance” option it will place you in a crash financial crisis, because this recruit high monthly interest even if you are paying $0 per month. If you do not have enough saving per months but still want to pay your loan, there is another way named DEFERMENT. You can pay your loans and the Gov subsidized some of the interest and you can still contribute towards payments. Always start to pay your loans with the high interest during this period, and you will see the saved money in interest. My husband has already paid 2 out of 9 student loans in one year. I feel an extremely happy wife helping my Us citizen husband. I thought when I married him I would be a financial issue for him specially with the paperwork for migration services, but he said I am his “financial diamond saver”. During all of this, I brought him the idea to open our online business through a 3rd company, and it has been profitable and allow us to keep paying his debts. We purchased a new home last year, and opened investment accounts for Roth Iras, ESA in Ameritrade, Money Market and Growth plan with Fidelity. But, all of these have happened because we wanted to save. We do not use our A/C very often, our lights are only “on” if we needed, we only take the chance for a family trip once every 6 months, we use our miles from our credit card company to cover travel expenses, we ALWAYS pay in full amount our credit card monthly statements, only one account in netflix for $7 per month, clean our own cars with rationale amount of water (I hate to spend water if it is not needed), we go to groceries stores with organic food on sale ( ALDIS), we go to a restaurant once per month, only buy clothes if we really need them for our jobs (once per year), we do not like fancy stuff for cleaning dishes (Dollar tree has great options for dishwasher or house supplies), we use dishwasher once or twice per week ( we wash dishes by hand with rationale amount of water). We do not have fancy card, but we have a decent new home. And the best thing, we just turned 30 years old. Americans have great opportunities for making huge investments in this country. I wish I had these opportunities in my poor country, but I had the greatest economist in my life “MY LOVELY DAD, RAFAEL” Good luck!
Thanks for this incredible post. I am an immigrant and I married a US citizen who a debt of $40.000 4 years ago. Our AGI income roughly reached $24.000. I started to do things my dad taught me when I was a kid. Every single penny counts and always asks everything to your lended. And I encouraged my husband to ask to his lender about interest rate for this Education Loan and his car´s loan. Wells fargo was his car´s lender with a 10% Interest rate when I checked the status of how much money he was paying to his principal it was only $8 out of $180 monthly payment. And, for his Student Loan he was paying $160month and only $12 were recruiting for his principal. Since then, we started to read more about finances and paying loans asap. I found out my husband is part of USAA through his beloved veteran grandfather and the interest rate for car´s loan was 5.2% almost half from the one wells fargo was charging him. Next day, he transferred his car´s loan to USAA and we paid the amount of $10.000 in debt in 3 years with a monthly payment of $256. In regards to Navient, I calculated interest rate and see if putting all student´s loan in one account would be beneficial or leaving them separately. I read that if you place all your loans in only one debt it is not beneficial if some of them have an interest rate of 4.4% and others have 6%. Once you joined them, the system will recruit in the highest interest (6%) and I did not want to hit our finances with that. So, we asked for the program named “INCOME DRIVEN PLAN” which has good benefits in you also add AUTO PAY for every month. We pay $550 per month ($300 for the loan with highest interest rate and $250 for the loan with high amount of debt) and since we are in auto-pay there is another 0.3% of decrease in interest per month. I do not encourage to take the Forbearance option it will place you in a crash financial crisis, because this recruit high monthly interest even if you are paying $0 per month. If you do not have enough saving per months but still want to pay your loan, there is another way named DEFERMENT. You can pay your loan and the Gov subsidized some of the interest and you can still contribute payments. Always start to pay your loans with the high interest during this period, and you will see the save money in interest. My husband has already paid 2 out of 9 student loans in one year. I feel an extremely happy wife helping my Us citizen husband. I thought when I married him I would be a financial issue for him specially with the paperwork for migration services, but he said I am his “financial damon saver”. During all of this, I brought him the idea to open our online bussiness through a 3rd company, and it has been profitable and allow us to keep paying his debts. We purchased a new home last year, and open investment account for Roth Iras, ESA in Ameritrade, Money Market and Growth plan with Fidelity. But, all of these have happened because we wanted to save. We do not use our A/C very often, our lights are only “on” if we needed, we only take the chance for a family trip once every 6 months, we use our miles from our credit card company to cover travel expenses, we ALWAYS pay in full amount our credit card monthly statements, only one account in netflix for $7 per month, clean our own cars with rationale amount of water (I hate to spend water if it is not needed), we go to groceries stores with organic food on sale ( ALDIS), we go to a restaurant once per month, only buy clothes if we really need them for our jobs (once per year), we do not like fancy stuff for cleaning dishes (Dollar tree has great options for dishwasher or house supplies), we use dishwasher once or twice per week ( we wash dishes by hand with rationale amount of water). We do not have fancy card, but we have a decent new home. And the best thing, we just turned 30 years old. Americans have great opportunities for making huge investments in this country. I wish I had these opportunities in my poor country, but I had the greatest economist in my life “MY DAD, RAFAEL” Good luck!
Great post – good job Rafael!
Your dad raised a wise daughter!
Sadly, politicians cannot cancel student debt! Thos is why you are told 10 times before you agree…the ONLY way to eliminate student debt is to pay it off or die. Canceling student debt would ruin the great economy we are currently experiencing Now! Not gonna happen.. and is why going to an Ivy league college is no guarantee of success! Open your eyes!!
Yang2020 solution for Freedom dividend of $1000 for every adult citizen. This is a long-term solution that will help students, people who don’t choose college, and every race and class. It makes no sense to focus on a bandaid one off solution like canceling debt – it mirrors the bank bailouts which only benefits one class of persons. The student debts problem originates with Universities who don’t have the right incentives – that is the problem to solve.
The freedom dividend is brilliant because it gets what we talk about here on Financial Samurai and FIRE, about being able to take risks and do what you love. Getting unstuck for students, homeless, people trying to put food on the table. Very interesting to hear about how this can curb crime, since a ex-cons coming back into the world will have security to lean on, and an incentive not to do bad things and go to jail first place.
With AI around the corner, I think this’ll open up a new kind of economy that can help us transition into the future with new professions, gig economy, creative and humanitarian work.
The issue with Yang’s 1000 a month plan is it eliminates Medicare, SNAP, etc, and all of those cover costs a great deal more than a 1000 a month. For instance, you have a family with a working parent, say a teacher with student loans, and they have a child with diabetes. Childcare is difficult to find, affordable and good childcare even harder, insulin prices have skyrocketed while the product hasn’t changed measurably, and so what do you recommend then?
Should we prepare for more jobs being taken over by tech, definitely, but the rest of his plan isn’t humane or functional. We need to fix money in politics, create more affordable childcare solutions and healthcare solutions before this idea is feasible.