Avoiding Student Loans

If you think about it, it is truly amazing that so many people “need” student loans to go to college.  I could understand it if one didn’t know about attending college until a few years before, but there are 18 years between the time that a child is born and he/she will be of college age.  Even if the child decides not to attend, it would make sense for any parent who expects to have a college bound student to start putting money away about the time the child is born.  After all, the cost of tuition and room and board approaches the cost of a new home, so starting early is the only way one would have a chance of saving enough.

And yet many (probably most) people get to college with little money saved.  While the average person would tell you that everyone gets college loans, the average person is broke and therefore we should stop listening to him.  The fact is unless one becomes a doctor or a lawyer and can command a very large salary (and keep eating Raman noodles for a few years until the loans are paid off), the burden of college loans will be extremely detrimental to your financial plans. 

This is because time is the most powerful lever when accumulating wealth.  The earlier you start to invest and save, the less you actually need to invest and save.  Someone who puts money away between 20 and 40 will make far more than someone who puts money away between 40 and 60.  But with the modest income most have coming out of college, paying off those student loans will take away any free money that is available.  Just when those loans are paid off, it will be time to take out loans for your kids to go to college.  It is much better if you can avoid getting them in the first place.

Here are some ways to avoid college loans:

1.  Choose a cheaper school.  Yes, Harvard sounds more impressive than Big State University at the bars, but the fact is unless you are trying to become partner is a prestigious law firm, few employers will care about where you went to school.  They will care about what you learned while you were there. 

Your parents’ tax dollars, and later your tax dollars already went to the state universities.  Going to a private school will require you pay for your education twice.  Also note that outside of the ivy league, most of the private schools really don’t even carry that much prestige.  Is it really worth an extra $20,000 per year and $100,000 in student loans when you get out to go to that small Christian college to become a minister and later secure at $30,000 per year job?

2.  Save early and save often.  The Educational IRA, at $2000 per year per child, is really a joke when compared with college costs.  Still at least saving $2000 per year is a start and may result in accounts on the order of $50,000-$70,000 when your children are ready for college – enough for tuition and some room and board at a state school.  Add a summer job and living with a few roommates, and one might be able to make it through.  These living arrangements also provide motivation for finishing quick.

Money can also be given to the child into a UGTM account.  Be careful when doing this, however, since the money becomes the child’s when he/she turns 18.  If he wants to tour the country with his band with the money, that is his choice.  It will also be necessary to file a tax return for the child once the accounts start generating enough income.  An alternative would be to create a separate account in your name just for college savings and put regular payments into it.

3.  Scholarships.  Many people go for the big scholarships that provide a full ride.  There are many small scholarships that are less competitive, say $500-$1000 each.  While this may seem like very little and not worth the effort, spending the summer applying for scholarships can be more profitable than a job at the ice cream shop.  Pull together 50 of these scholarships together with some savings and one can come out with a full ride.

WIth a little hard work, a little sacrifice, and a little planning, it is possible to get through school without being saddled with student loans.

Your investing questions are wanted.  Please send to vtsioriginal@yahoo.com or leave in a comment.

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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing

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