Education vs. Asset: The Post-Grad Dilemma

It's almost graduation time and you know what that means! Final exams, graduation parties, moving back home, and finding a job within 6 months to begin paying down the average $45,000.00 price tag attached to your degree. While it sounds almost impossible, and quite frankly insane, for the 44 million college graduates now indebted to the federal government (and several private student loan lenders) it’s a stifling and dreadful reality.

If you’ve followed my blog over the past couple years, it shouldn’t come as any surprise that I am as passionate about the financial future of our students and graduates as I am of my own. And as a mortgage advisor, managing student loan debt for first time homebuyers is a routine part of my job. But what can we as real estate and mortgage professionals do to assure young graduates that by financing another huge purchase, they will be benefiting their bank account and not that of a landlord? After all, being a homeowner is a huge part of the American dream, so why shouldn’t our college graduates have a shot at finding theirs?

According to a study by American Student Assistance, 55% of student loan holders said their debt has caused them to put off home-ownership—and many would-be buyers aren't even TRYING to get pre-qualified out of fear of not staying afloat. It’s also important to understand that homeownership and student debt aren't mutually-exclusive. Meaning you can buy a home, get approved for a mortgage loan, and still make good on your student loans. And despite the justified conservativism used by Millennials in deciding where to spend (given the high levels of student debt currently stifling post-graduates), it’s important that they consider homeownership as a safe and financially savvy investment option. 

Still, many young Americans are unaware of the benefits cultivated from homeownership, such as the ability to turn housing costs into an investment, rather than an expense. And in more ways than one. Think about it:  If you manage to buy a home in an up-and-coming neighborhood for $300,000, and its value quickly climbs to $350,000, you'll have a nice little profit on your hands (which is not something that renters can claim). Owning a home can also provide an alternative source of income, for example, when rented out to peers. And a rent payment is essentially all that a mortgage payment is– a rent payment, but instead of heading straight into someone else’s pocket, it heads towards owning a larger share of your home. And when enough equity is built up, homeowners can take out home equity lines of credit to pay for expenses such as home renovations or education costs.

The next step is choosing the right mortgage professional to can help post-college home buyers understand what they can afford and how buying a home versus renting one may greatly improve their financial situation in the years to come. And as someone, like each of us, who benefits from the innovations, improvement, and success of the great, young minds of this country, I’m happy to help.

I Kinda Ruined My Life By Going To College

“I Kinda Ruined My Life By Going to College”

That statement is on the cover of Consumer Reports’ August issue.  College expense and the debt totals being amassed in student loans is a HUGE hot button for me, so I immediately devoured the magazine.  I’ve shared before, and Consumer Reports backed it up, that we now have 42 million people in our country carrying $1.3 trillion (yeah, that is 11 zero’s behind the 3) in student loan debt. That alone is heartbreaking enough.  But reading the stories of the many individuals who just had no clue what they were getting into with student loan debt, who are now debilitated by the debt load they are carrying, just ticked me off even more. 

But there was some specific instruction given, not just in how to avoid/minimize debt, but also prepping strategically for college, that I thought was very beneficial.  So as opposed to beating a dead horse – hopefully we all agree that that student loan debt is out of control, I want to share some of the insights I found very helpful.  So here goes:

1. Start talking early and often with your kids when they are in their younger high school stage about what they ultimately want to do with their education as it relates to what they will spend their careers doing.  Too many kids are going to college with no clue of what they want to do with their lives, much less what they want to major in.  Only 39% of students graduate in 4 years (thus incurring additional expenses) and the main reason is taking and paying for classes that aren’t relevant to their degree because they don’t know what they want to do when they go to college in the first place.

2. As part of the discussions, be honest and very clear about how much you, as a parent, are going to be able to help from a financial standpoint.  Make sure they understand the funds that are needed and available from your contribution.  If you are planning on sending your child to college for the “experience”, then you should be prepared to pay for it – and not make them borrow to go.  Otherwise, there needs to be clarity on how you are going to help.

3. Analyze the cost of the education versus the payoff in employment compensation down the road.  Make sure the degree, and cost to get it, line up with the pay the student will earn by getting that degree.

4. Get down to the net price of attending any school your child is interested in.  All universities that participate in the federal financial aid system are required to have a net price calculator on their websites that will allow you to get down to the true cost of your specific child’s education.  Know your numbers – don’t be surprised.

5. Gap year!  Have them take a year off between high school and college.  This is particularly effective for those that don’t know what they want to study.  Let them work a real job for 12 months – that should provide some clarity.  And if the concern from a parent is “I’m afraid that if they don’t go straight to college, they’ll never go”, then there is a very good chance that they wouldn’t have survived to earn a degree anyway.  And that’s even worse, because any money spent on an unearned degree is an even bigger waste.

6. Tennessee Promise.  I’m not going to spend much time on this as I dedicated an entire blog to it a few months ago.  But this is another great option and Tennessee is one of the only places you can get a deal like this.  Basically it’s 2 years of community college (almost for free) that allows the classwork to transfer to a 4 year state school when the two years is up.  That alone could cut college costs in half.

7. Make sure you understand all scholarship/grant type options thoroughly.  Many schools will offer more generous options for freshmen as an enticement to get them to enroll, only to reduce or remove those offerings as time goes by or if certain qualifications aren’t met.

8. If borrowing is the only option, make sure your child has a firm grasp on what he/she is doing.  Help them understand the payment that is waiting for them when they are on their own and the impact to their finances.  To me, this alone is the most significant disconnect that we have.  Get real with them.

Other interesting tidbits from a survey (1,500 respondents) that Consumer Reports did in March:

• 45% of people with student loan debt said that college was not worth the cost

• 47% said that if they had it to do over again, they would accept less financial aid (gone to a cheaper school or figured out another way to pay for it)

• 44% said they had to cut back on day-to-day living expenses when they had to start paying back the student loans

• 37% put off saving for retirement

• 28% delayed buying a house