Graduate Student Debt

Broke From Go — Why Graduates Today Are Cash Strapped And What To Do To Fix It

There are very few graduates today that would lump themselves in the “average” category.

Average debt, that is.  

According to The Institute For College Affordability and Access student loan debt survey in 2014, the average debt load carried by an undergraduate was just shy of $30,000.  Yet, when seemingly “average” recent graduates were asked, their debt loads were at least 1.5 times that if not more.  (And that’s before taking into consideration the credit card debt many are carrying…)

In essence, they’re Broke From Go.  From the time these young people graduate, they are far more cash strapped than any previous generation.  Couple this situation with a difficult job market, a wildly fluctuating stock market, and a depressed housing economy — it’s no wonder the next generation is bucking the status quo.

I had an intern named Brandon who recently said to me (after I had him investigating some statistics on student loan debt), “Can this be right?  $200 a month payments for 10 years on $10,000 in student loans?”

He went on to discover that he’ll need a salary of $133,000 a year to “afford” his student loan payments once in repayment status.

Know of any companies looking to hire a recent Liberal Arts graduate for 6 figures?

I didn’t think so…

Such is the case with many students who’ve been sold a bill of goods as to the value of their degree.  The fact of the matter is that many two year institutions are graduating 20 year olds with degrees in high demand like nursing, telecommunications, lasers, and welding.  Many of whom are grabbing jobs paying in excess of $50,000 a year.

Which begs the questions:

  • Why are all of these people getting 4-year degrees?
  • What is the point of racking up high 5-figure debt loads?
  • When is our higher education system going to change?
  • Who else is seeing this problem and what are they doing to change it?

So, what are we to do about this cash-strapped generation?

First of all, encourage those who don’t know what they want to do to attend a two-year school and get their general requirements out of the way.  It’s more economical and quite often, the classes are easier to get into than a larger institution. Considering 1 in 3 students will not finish their degree, a community college is the most economical way to get the first couple of years under their belt. It’s a relatively inexpensive way to dip your toe in the water of higher ed, so to speak.

Guide them in gaining experience through internships so they get a sense of what they really enjoy doing.  At that point, see if it makes sense to pursue the four year degree.

More loans are not the answer. 

Our administration thinks that making student loans more accessible is the answer to our problems.  What we need less of right now are cash strapped twenty-somethings. This is one of the most entrepreneurial generations to have ever appeared on the scene and when they’re in debt, they aren’t as prone to start successful businesses.

The single best way to fix the problem is to educate those in the middle of it. It is up to the institutions, the families, and the individuals to seek out every educational opportunity to ensure students make wise and educated decisions when it comes to money.

 

The Changing Economic Realities of College – Adam Carroll at TEDxUWMilwaukee

This talk was given at a local TEDx event, produced independently of the TED Conferences. Adam Carroll, finance expert and financial education enthusiast, calls college “the longest and most expensive party” he’s ever been to. Adam juxtaposes the realities that have changed about obtaining a college education with our perspectives that didn’t. What has college become, and is it still worth it?

Subject To Change

Derek Hendricks is a man on a mission… and he has no idea where that mission will lead him.

There’s a growing movement in America towards simplification. The idea that less is more, that slower actually makes you go faster, that the “stuff” we’ve acquired is not what we own, but rather what owns us.

I met Derek at the Jack Canfield Train The Trainer event held in Los Angeles in February and caught up with him again at the 2nd week in Scottsdale. From February to June, Derek purged nearly everything in his life with the exception of some of his clothes and his Toyota Tundra pickup.  Initially, he attempted to sell everything through an estate auction company and after several disappointing meetings, opted to donate 95% of his property to charity.  He sold his home in Denver, Colorado where he works as a contractor, plunged the profits into his operating account, and set sail.

Derek’s life is Subject To Change, as is the (preliminary) title of his forthcoming book and documentary on the topic of pulling the rip cord on life and gracefully floating to ground doing what he loves. Spend any amount of time with Derek and you’ll notice what everyone else does – that this guy is 100% at peace with not knowing what’s next. He’s following the path that appears before him.

In your life, what are the “things” that are holding you in place and keeping you stuck. Too expensive a home? Huge car payment? Involved in way too many things for you to pursue your passions?

Take a cue from Derek and pull the ripcord. Life is Subject To Change.

Liberating Your Genius… Financially

I spend a good part of my year speaking on college campuses, teaching students the virtue of living below their means, only borrowing what they absolutely need, and going after scholarships like it’s their job. My passion is helping young professionals succeed faster by finding their passion, and having the wherewithal to go after it.

Yet, year after year, I see colleges and universities graduate students who have no real clue what they aspire to, and to boot are tens of thousands of dollars in debt. The payments on the debt require many of them to take jobs they wouldn’t otherwise have taken, and within a few years they seem lost in their own reality. Many of them ignoring or at the very least keeping their unique gifts in reserve.

What if we could liberate their genius through their finances?

I maintain that we each possess an “inner knower” that innately knows our God-given talents, our special gifts, and our unique calling. As a speaker I once heard said, “we are on this earth, not to be employed, but to be deployed.” Yet it’s the lucky few who actually realize what their deployment is. The rest of humanity seems to be going to work because it ‘just seems like the thing to do’ and we’ve got bills to pay.

In America, we graduate from high school feeling very proud of ourselves. If we follow the oft-given advice of going to college, we are ascribing to the notion that you need a degree to succeed. In the process of getting a degree, we rack up a large amount of debt – the average of which for most graduates is $29,200 but can be as much as $80-90,000 for some.

Once we land the job (either in our field of major or more often not), we then begin to “lifestyle up”. We acquire stuff to fill homes because in large part it’s expected, and it makes us happier (for awhile). We see our neighbors and family who are buying new things and we legitimize that we should probably be doing the same. And as we follow the heavily beaten path, our debt grows and grows.

It is a firm belief of mine that we have Four Legacies to leave future generations. It starts with financial freedom, which leads to time freedom, which leads to relationship freedom, which leads to service freedom. What our inner-knower knows is that we were put here to be of service to someone or something. However, the debt begins to cloud our ability to see “the genius”. We start working to live instead of living to share our genius with the world. For many, something is missing, but they’re not exactly sure what.

Real freedom comes from doing what you love and being content doing it. Content with your time, with your money, with your relationships, and content with the fact that you are leveraging the service you were put here for. Financial freedom is something most Americans will never achieve, and as a result, may never be able to pursue their passions at the level to which they’d like.

Let’s make a drastic correction with the next generation. My children’s financial education is one of the most important things I can impart on them as a parent. Though we’re allegedly living “better lives” than generations past, I would argue that we’re simply living “better lifestyles”. My grandparents had significantly fewer niceties, but they had enormously more freedom. Isn’t it time we tried trading a bigger lifestyle for a bigger LIFE?

The questions my wife and I are pondering as we look at financing college for our 3 children is will college be worth it? And is college the answer for them? The growth in tuition is skyrocketing, and by the time they are ready to go may cost upwards of $250,000 per child (for a state school no less). That kind of investment could buy an apartment complex that would take care of all of us financially for the rest of forever. And most importantly, allow our children the freedom to pursue their genius.

My challenge to you is teach your children every facet of money you wish your parents would have told you. Liberate their genius from the bondage of debt. Focus on providing them the tools to become more, not the toys that make them want more. And while I have no doubt you’ll get push back, and comments about all the other kids getting this or that, imagine a future society full of liberated geniuses free from financial pressures. Your children will be walking out the God-given gift their inner-knower told them about – the ultimate service freedom.

Hacking Your Student Loans

Every month you make that dreaded student loan payment, a reminder of the fun you had during your “four year break from reality” that was college. It’s the price that millions of graduates (and millions that didn’t graduate) are paying to pursue that prized slip of paper that allegedly is “the ticket to a good life”. Or is it? Spending 15-20 years of your life paying off these debts at a few hundred dollars a month is frustrating and may be distracting you from your true calling.

However, the good life is not that far off if you understand how to hack the student loan system. Each factoid below is followed by one or more hacks that can help you get rid of that student loan debt once and for all!

Factoid: INTEREST IS FRONT-LOADED AND ACCRUES DAILY
HACK: Make advance payments to principal

Most students don’t realize it, but as soon as the money you’ve borrowed is disbursed, the interest begins accruing (on non-subsidized loans). That is why the amount you owe is so much larger than what you remember borrowing – it includes ALL of the interest from while you were in school.

A recent graduate was frustrated that of the $250 payment they sent in, only $90 of it was applied to his principal balance. In reality, less than ½ of all of your payments for the first few years go to pay down principal, the rest goes just to cover interest.

Because the interest accrues daily, lowering your principal balance is paramount to shortening both the length of your loan AND the amount you pay in interest. Interest is calculated based on the following equation:

Interest rate × current principal balance ÷ number of days in the year = daily interest

By sending in additional payments, you lower the current principal balance, thereby lowering the daily interest charged. If you’re in a position to send extra money with your payments, make sure you do the following:

  1. Make absolutely certain that your advance payments are being applied to the principal of your loans AND NOT applied to future payments. Student loan servicers are notorious for doing what is in their best interest, not yours. Therefore, they will apply any extra amount you send in towards offsetting when your next payment will be due. You will more than likely have to call the servicer directly and make sure they apply the payment you send in where you want it. Tell them it is to be applied to principal reduction.
  2. When sending in additional payments, direct the servicer to apply the additional principal to either the loan with the highest interest rate or the loan with the smallest loan balance (just pick one). By paying down the loan with the highest interest rate, you’re automatically charged less in interest because of the above equation. Keep reading to find out why you’d choose the smallest balance.

Factoid: CONSOLIDATION ISN’T ALWAYS A GREAT OPTION
HACK: Payoff smallest balances first & attack each one individually

Consolidation is great if you’re able to lower your interest rate substantially. Lowering the interest rate will obviously lower the overall amount you’re paying over time. However, as the name suggests, when you consolidate, you’re taking all of your separate loans and putting them together into one big loan that can never ever be adjusted again.

By NOT consolidating, you can direct additional payments to one loan at a time and knock them each out sequentially, relatively quickly. Here’s why that’s important:

Let’s say you owe $40,000 total and your payment is $300 a month. You more than likely have some smaller loan balances that are part of the overall payment you’re sending in. If the loan balance on one of the smaller loans is $1,000 for instance, and you’re on a 15 or 20 year payback schedule, the amount of your payment that’s going to principal might only be $8-12 per month (on that loan). But, if you have an additional $200 a month that you’re throwing towards your payment, you could have that one student loan knocked out in 5 months or less.

What would you rather toast a piece of bread with – a flashlight or a laser beam? When you blast away one debt at a time, you’re taking a laser beam to each individual debt. Pay the minimums on every other loan except the one you have your sights on. It creates a tremendous emotional win each time you get to cross one off the list!

Factoid: 17% OF STUDENT LOAN BORROWERS ARE STILL PAYING BACK IN THEIR 50’S
HACK: Use real estate to wipe away debts in your mid-20’s

If buying a home is in your future, consider a strategy that will help you build cash flow, equity, AND knock out your student loans. Here’s how:

Duplexes can be purchased using an FHA loan when the person buying it is also living there as their primary residence. This requires 3.5% down on the purchase. Consider finding a duplex that may require a bit of fix-up work so that you can get it at a great deal. Contact a realtor and let them know that you’re looking for a duplex to buy owner-occupied that’s below market because of it’s condition, knowing that you’re going to put in some elbow grease to fix it up.

If you buy it under market value, you’re walking in with a bit of equity. By renting one side of the duplex and the other room in the side where you reside, you’ll create some cash flow (probably enough to offset the mortgage payment). What you would normally spend in rent/mortgage is freed up to blast away debt!

But it gets better. Assuming you bought the house right and it’s grown in value over the year, you can get the place re-appraised after 9-12 months and borrow from the equity in your home to pay off some of the debt. By using a cash-out refinance, you’ll transfer some of the equity from your duplex into paying off the loans. Because mortgage interest is deductible, is generally at a lower interest rate, and is amortized over 30 years, the result on your finances is positive – lower overall payments, more interest deduction, and less interest paid.

Factoid: STUDENT LOANS ARE NON-BANKRUPTABLE
HACK: Other debt is…

This hack comes with a caveat: it is purely an observation, NOT a recommendation!

After several years of paying back his nearly $300,000 in student loan debt, a dentist applied for every credit card that was available to him and did cash advances on each one pulling out well over $250k. With the money he… you guessed it, paid off his student loan debt and then promptly declared bankruptcy.

In the last decade, the bankruptcy laws changed protecting creditors from borrowers declaring bankruptcy and wiping out student loans. Everything else is still fair game. So, technically, while you can’t bankrupt student loans, there are other loans that could be bankrupted.

Why you shouldn’t do it: It screws up your credit for a solid 7 years. Forget buying a home with a decent interest rate, plan on driving the same car for awhile… and, there’s the moral issue of you DID borrow the money in the first place.

The bottom line is there are ways around, over, and through student loan debt. It requires the borrowers to be pro-active, to live on less, to accept responsibility for taking care of their debt, and a great deal of perseverance!

I’m Not A Plumber

There’s a point in everyone’s life where you realize what you are, and what you are not, capable of doing.

I’m always amazed at the level of skill and knowledge my father and father-in-law have when it comes to so-called “manly” projects.  As a kid, I remember My dad would frame a room, wire it, hang and finish drywall, and never so much as consult a book (let alone YouTube.com!).  My father-in-law thinks nothing of re-roofing his house, taking a patio sliding door completely out and replacing it, or tackling house issues like plumbing and electrical.

Because my wife also sees the many benefits of having men familiar with power tools around, she often assumes that the handy gene was passed down to me.

Alas, it isn’t so. (I do have a screw gun and I’m not afraid to use it!)

It was a leaking tub faucet that finally sealed my fate on making friends with a plumber and relinquishing all ‘handyman’ type issues that may come up.  But I gave it the ole college try just before I threw in the towel.  But not before I turned the nut on a bolt into an egg-shaped nut has-been.

The plumber showed up within a couple of hours, shook his head at me when he saw what I did to the nut, and then set about completing the task of replacing a leaking valve within 30 minutes.  The total bill, including the trip charge, was no more than $115.00.  Factor in me not having some of the right tools, the right parts, or the right attitude after botching the job, this seemed like peanuts to pay.

Without going into too much detail about what kind of money I make, I can tell you that my time is absolutely worth more than $115.00 an hour.  While my ego would like to think that I can summon the collective knowledge of my father and grandfathers who would tackle a plumbing situation with reckless abandon (and successfully complete it), my true self knows that the most important power tool in my garage is the one I never have to use myself.

As a general rule, I rarely fix anything that I could screw up more than it would cost to fix right the first time.  That covers about 85% of what happens in my home.

But it’s not all about the money.  It’s about my frustration, or lack thereof when I don’t have to know how to fix stuff.

This post is about time management, or more specifically, priority management when it comes to tasks.  A very successful author and speaker I saw at a conference once said something that struck me as being profound, and at the time, not realistic.  She said, “Outsource everything you have to do at home.  Cleaning, cooking, maintenance, laundry… all of it.  The time you spend doing that is time that could be spent writing, networking, playing with your children, or pampering yourself.”

Again, at the time, it seemed like the talk of a self-indulged braggart.  Then I experienced what it’s like to be so time-strapped that everyday routines seemed like revenue killers.  I experienced what it was like to not have to clean, and instead have a full Saturday with my children.

This is not a one-size fits all strategy.  But if there are things in your life that are obstructing your ability to pursue what:

a) makes you happy
b) makes you money
c) your true calling,

then maybe it’s time to look at what can be outsourced in your home.

As I told my wife just last night when she asked me to check out the leaking kitchen faucet, “Honey, I have good news and I have bad news.  The bad news is I’m not a plumber.  The good news is I’m a very competent speaker, coach, and consultant, and I know some good plumbers.”

Broke, Busted, and Disgusted

Broke, Busted, and Disgusted

We’re setting out to produce a film called Broke, Busted, and Disgusted. The documentary will examine issues of rising tuition, mounting student debt, and the potential future of higher education at colleges and universities here in the United States. You can get more information and see some occasional updates at the film’s page:  http://bbdthefilm.com/

Over the past 30 years, the United States has seen a consistent increase in the cost of college tuition (four times more than CPI) and a soaring level of student debt (more than $1 trillion as of March 2012). Money well spent considering that the yearly number of graduates considered “academically excellent” has seen a similar up-curve. Yet at the same time, more and more employers are saying that college graduates lack the skills needed to place them in open jobs and are forced to spend time and money training new hires. So what is happening during those four (or five…or six) years?

During college students live the dream of traveling across the globe, eating in gourmet dining centers, exercising in brand new rec facilities, and attending endless student activities. After college, graduates are shocked by a reality of tight job prospects and staggering monthly payments. Yet the problem is not that more and more graduates are in tough financial situations. The problem is that it takes so many of them by surprise, even though it is exactly the situation for which they signed up.

Broke, Busted, and Disgusted will examine the educational system in three broad questions:

  • Is there something wrong with the system?
  • Is there a way to work the system?
  • Is there a way to fix the system?

Broke, Busted, and Disgusted will ask all of these questions, and any more that may lead to a better educational system. We don’t believe we have the answers. We just believe there is a problem which, if fixed, can help lead us back to wealth, health, and happiness.

Again, check out the documentary website here: http://bbdthefilm.com/

or join the conversation on Facebook here:  https://www.facebook.com/bbdthefilm