Free Money Finance

Students Wising Up?

Here's a fact I found in the January issue of Money magazine:

57% of students are considering less prestigious colleges for affordability reasons.

It's an interesting piece of information, though it doesn't tell us if this is an upwards or downwards trend, though I'm assuming it's upwards -- that more and more students are looking harder at the costs of college before they decide where they should go.

And they should. In particular, they need to match the cost of college (and especially the amount of debt they leave with) with their potential salary upon graduating. To do otherwise (like leaving school with $100k in debt and a career that pays $20k a year) is to lock yourself into a long, long, long time of debt repayment.

Personally, I'm not an advocate of going to a "prestigious" school unless that school can deliver. If it gives graduates better jobs/careers, then it could be worth the money. But if it's more expensive than other options and delivers the same (or even not as good) sort of career opportunities, I'd pass on the "prestige" in favor of the "money." ;-)

The Key to Affordable College: Match Costs with Benefits

I've written several times that I think one key to selecting the right college is to match the cost of the education with the income you can expect to earn upon graduation. The more the spread between the cost of college and your lifetime earning potential, the better off you'll be (at least financially.) Of course there are many other factors involved in selecting a college/career, but from a financial standpoint, the cost/benefit issue is a HUGE one (and something that I think very few people consider when selecting a school to attend.)

Recently I found this summary of an education and salary report that highlights these same issues. In particular, here are a few quotes I found interesting along with my thoughts:

Harvard College graduates frequently enter not for profit positions.

Unless you're getting a free ride at Harvard or independently wealthy, it's going to be hard to pay for a large debt load with a not-for-profit career. Can't you go to a more affordable college and still work in this industry?

Major state universities provide exceptional value, with median salaries of graduates in the top five in their states, just behind highly selective national universities and colleges.

No surprise here -- many state universities are very good, relatively inexpensive, and provide great careers/lifetime earning potential. Seems like these should at least be in the consideration set for almost any potential college attendee.

"With great specificity, this report brings home the long term financial impact of the choice of undergraduate school and major. For young people entering college, and contemplating their post-graduate years in the workforce, this is critical information not available anywhere else."

Finally, someone is talking about the cost/benefit issue related to selecting a college and a career/major. Hopefully the fact that more places are talking about this topic will help potential college attendees and their parents consider the financial implications of going to a specific college and selecting a specific major/career. Otherwise, we'll all continue hearing stories of graduates who take out $100,000 in loans and have a $20,000-a-year job.

FYI, if you're interested, you can see how I balanced the college cost/career benefit issue.

How to Save a Boatload on College

Here's a fascinating piece detailing how an 18-year-old young man graduated from college in one year at a cost of $200 total. As the article tells his story, it also highlights many ways he saved on the cost of college -- tips that anyone can use to do the same. Here are the tips (I've summarized them) supported by quotes from the article:

• Get scholarships -- His college education, almost entirely covered by a patchwork of scholarships, cost him about $200. And he sold back textbooks for more than that.

• Cut time spent in college -- He's upending two trends: Most students take longer to graduate than you might think -- about two-thirds of freshmen at four-year colleges in Virginia manage to finish within six years. And tuition gets more expensive every year.

• Go to a less expensive college -- He was helped by the fact that U-Va., as a public school, costs a lot less than most private colleges.

• Get advanced placement credits  -- The university accepted many of his Advanced Placement credits from high school (of the 120 credits required to graduate, he got 72 credits from advanced placement classes).

Of course this is a bit extreme and I know many will wonder about the social parts of college being missed in this case. Still, what he's done does serve as a guideline for other students on some ways to save money while going to college. Specifically:

• If you can take advanced placement classes in high school, you can save a bundle.
• Many times, you can get the same (or even better) education at a much less expensive school. Better yet, maybe you can try the two-year/two-year program.
• Why again do so many take six years to get a four-year degree? Cutting six years to four saves you 1/3 of your total college costs. Cutting college time to three years saves you 50%.

Finally, one over-riding principle to getting the most financially out of college is to match up the cost of college with what you expect to earn upon graduation. If you don't, you could end up with a ton of debt and no reasonable way to repay it quickly.

Make Sure Your College Investment Pays for Itself

This list of the 10 most expensive colleges has me stunned. Can anyone really justify $40,000+ per year in tuition alone (not to mention room and board, books, etc.)? I don't mean it in the "how dare you spend your money in that way?" sort of justification, but in the "do you really expect to find a job that will justify the high costs of these colleges?" sort of justification.

If you really want to get the most financially out of college you'll match up the cost of college with what you expect to earn upon graduation. For instance, if you plan to be a lawyer or doctor, you can justify much higher costs (and usually debts) than if you're going into social work.

I advocate going to the least expensive (or at least a less expensive) university you can that gets you where you want to go. That's what I did -- spending only $5k and turning it into a boatload of money. Of course, that was when dinosaurs roamed the earth and prices have gone up quite a bit, but I also didn't apply most of the ways to save money on college that I now know about. I think I could still go to college today while racking up less than $10k in debt.

What I found interesting about the top ten list is that they didn't include "expected starting salaries" in their list. Having this information would be quite useful and, I'm sure, enlightening.

How to Pay for College

Here's a great comment left on my post titled Help a Reader: How to Get Started. I thought it was worth sharing with you all:

Here's how I paid for college, with only $5,000 in student loans after 6 years at a private college:

1. Got a full-time seasonal job as summer help at a factory (mind-numbing work keeps you wanting to stay in school).

2. Applied for every scholarship I could, even with my Life insurance company (Thrivent).

3. Lived with my parents during all my breaks (I know it's hard to put up with, but how much do you want a college education?)

4. Got a part-time job for during the school year, around 25-30 hours per week. The best job I've ever seen is babysitting at a group home for the mentally challenged for the weekend.

5. Give plasma twice a week. That's $50 per week, and you can study while you sit there being bled.

If you get an associate's degree at a community college, you are automatically exempt from taking your generals at a four-year college. I wish I would have done that because I changed my major a few times so I ended up 6 years instead of 4 at a private college.

I do have to say, though, that college is not always the answer. Neither my husband nor I are using our Bachelor's degrees. I'm an insurance agent and my husband is a mechanic (which is how he put himself through college).

I thought that there were some really good tips in here -- very practical. To see how I paid for college, check out How I Made Millions Off a $5,000 Investment. And for extra insights into how to pay for college, read How to Get the Most Financially Out of College and Go to Law School Without Racking Up Tons of Debt (this is not only applicable to law school, but any sort of schooling.)

More Reasons to Go to College

I've noted before that if you go to college, you'll earn more than people who don't go. And for me, a small $5,000 investment in college paid off very nicely. Well, here's a quote from a recent Wall Street Journal piece that says that and a bit more:

Hiring at the senior level is strong even though the overall economy is sour because employers have a continuous need for highly educated, skilled workers, said Mr. Burnison. "For those individuals that attended college or have advanced degrees, their earning power is two to three times those that drop out of high school," he said. "The unemployment rate is equally higher for those who did not get advanced degrees."

So, if you go to college

• Your earning power is two to three times that of those who drop out of high school.
• There is a "continuous need for highly educated, skilled workers."
• Your chance of being unemployed is lower.

Overall, it's a pretty good deal. Not only all the great benefits noted above, but it also kick starts your biggest financial asset. Just be sure you balance your college debt with your potential earning ability. It's when people get these out of balance (with the debt being way too high for what they can hope to earn) that they get into trouble.

Am I a "Poor Dad"?

The other day I was giving my kids a mini-lecture about the importance of doing well in school. My basic reasoning went as follows:

• To earn a decent living these days, you need to get a good job.
• You get a good job by going to college.
• You go to college by doing well in school -- studying, doing your best every day, etc.
• If you don't apply yourself in school, you could miss out on college and end up with a much lower-paying job.

As I was saying this, the thought popped into my head: "Am I a 'poor dad' "?

Not a bad dad, but a "poor dad" as described in Robert Kiyosaki's book Rich Dad, Poor Dad: What the Rich Teach Their Kids About Money--That the Poor and Middle Class Do Not! If you recall, he describes his "poor dad" as having a "go to school, get good grades, get a good job" mentality. Kiyosaki says this is actually the wrong mentality -- that if you really want to do well, you'll work for yourself (here's more info if you're interested.)

Ok, we'll set aside the fact than many people think Kiyosaki is a financial whack job for the moment. Does the "go to school and get a good job" mentality work? It did for me.

There's no doubt that, on average, if you go to college, you'll earn more than people who don't go. For me, a small $5,000 investment in college paid off very well. That said, not everyone needs to go to college to be successful. But for most, IMO, this is the first step towards wealth as it helps you earn a decent income. From there, it's just three simple steps to financial freedom.

So, to answer my own question, I don't think I'm a poor dad. But I'm interested in your thoughts on the importance of college and where it fits into getting wealthy these days.

How Can "Rich" People Afford College for Their Kids?

Here's an interesting question left on my post titled Who Pays for College -- Parents, Kids, or Both? Round 5:

What should so called "rich" parents do about the fact that their income/savings will not allow their children to receive adequate loans to cover their education? If we are going to say that it is the child's responsibility, then why is the government determining who can get loans based on the parent's wealth?

I have a friend whose family didn't pay for any college costs, and even later said they had in fact saved the money to pay but just decided not to do it. While it might have helped build some character, it also resulted working lots of extra hours during school, probably not doing quite as well academically, and not being able to pursue some extra-curricular activities. All of these would have helped the pursuit of an advanced degree. They did fine anyways, but still there is some resentment that they didn't even help at all when they obviously could have eased the burden.

This is an interesting question to me because we're facing the same issue. Our income and net worth will likely mean that our kids will get very little need-based help when it comes to funding college expenses (which is a pretty big source of funds.) And we're not the "we make a million dollars per year" sort of rich either. But our net worth and income places us on the higher end of the scale and thus we're classified as "rich." So what are our alternatives?

Here's how I'm tackling the issue:

1. We'll take whatever steps we can to save as much on college costs as possible. For some suggestions on how to do this, see Five Ways to Reduce College Costs and 10 Ways to Reduce College Costs.

2. We're saving a very good amount in but Coverdell accounts and 529s for each child. If we keep up the rate we're going, we may have enough to pay for all their college costs if we want to.

3. We're going to work with our kids as they approach college prep age and try to get as many academic-based scholarships as possible. One of our baby sitters got a full-ride scholarship to a very nice local college because of her scores on the ACT test. Of course, we can't count on this being a solid option, but we'll do everything we can to make the most of it if any of our children show that sort of promise.

We're Getting Zero Financial Aid for Our Kids

Vanguard details the true costs of college and highlights how the expected family contribution (EFC) is determined (total education costs less EFC is the "additional amount owed" -- the amount you'll have to come up with in some fashion.) Anyway, the EFC is determined by a family's:

• Income
• Savings (not counting retirement)
• Ability to borrow for education
• Family size
• Number of family members already in college

We're dead meat. Our income, savings, and ability to borrow are very high and our family size and members already in college are low -- the worst possible combination I can imagine. As such, I'm counting on zero financial aid from any college our kids might go to and we're saving accordingly. Yep, we're socking away funds in 529s, Coverdells, and regular, taxable accounts to save what we think we'll need to fund college for our kids. (And, in case you're wondering, we're also saving a healthy amount for retirement at the same time.)

We're expecting our kids to contribute half of the cost with their most likely method of doing this being getting scholarship aid. That said, it's going to be a hefty amount they'll have to come up with, so we may have to adjust our plans to only pay 50% of the costs. I don't want our kids leaving school with a bazillion dollars in debt. Time will tell where this all settles out.

Of course, not every kid needs to go to school where tuition is $30,000 a year. We'll take all the steps we can to save on college costs. Here are some for review in case you'd like to do the same:

• A Great College Money Saving Tip

• College for Half-Price

• How to Save on College Textbooks

• Save 50% on Education Expenses

• Save Big Money by Getting Good Grades in College

• Save on College Courses

• Save on College by Studying Abroad

The Hidden Costs of College

Everyone reading Free Money Finance is likely aware that college costs have been going up at a good clip for years and are predicted to continue doing so. But what actually makes up "college costs"? When most people discuss the finances needed to go to college, they are talking about tuition, room and board. But Money Central says there are a ton of "hidden" costs associated with college including:

• Books and supplies: $988
• Electronics (not counting a computer): $445
• Dorm or apartment furnishings: $267
• Insurance: $0 to $1,500 or more
• Transportation: $911 to $1,284
• Extra food: $1,000
• Social life: $500

As you can see, these extras add up to quite a bit. Money Central suggests some ways to save on them, but from my point-of-view there are really two points this article gets across:

1. College is even more expensive than we think it is as there are several expenses other than tuition, room and board that need to be paid for.

2. As such, we all probably need to up the amount we're saving (or we're having our kids save) for college to cover these expenses too.

For more thoughts on paying for college, check out these posts:

• Five Ways to Reduce College Costs

• 10 Ways to Reduce College Costs

• How to Get the Most Financially Out of College

Who Pays for College -- Parents, Kids, or Both? Round 5

A couple years ago we batted around the issue of who should pay for college -- parents, kids, or a combination of the two. The Wall Street Journal recently took on this topic. Here are a few of the highlights with my comments interspersed:

Should parents put their future needs above their kids'? Or, should we strive to save every possible dime we can for our kids' education on the theory that we're supposed to give them a head start to a better life than we have?

Personally, I'd recommend cutting spending (or growing income) so you don't have to choose between saving for college and saving for retirement. This can be done, for sure -- it's what we're doing.

A few years ago, in fact, we agreed that if our children do win scholarships, we would give them all the unused money we had saved for them, once they graduated. We recently told our son about the plan. Though he's clearly not savvy enough to understand the incentive at this age, he will eventually, and he'll see much to gain in striving for a scholarship.

Interesting incentive. Does anyone else think this might work?

Based on the monthly amount we're saving and a modest rate of return, I would expect my [sixth grade] son's account could reach about $19,000 by the time he hits college. That will be a nice bit of change for a kid coming out of college.

What if no scholarship is forthcoming, though? Will the savings cover his costs? In all likelihood, no. With so many variables -- tuition, books, fees, where he attends, where he lives -- it's hard to arrive at a ballpark figure for the total cost. But I fully expect the bills will go substantially higher, even at a state school.

Uh, yeah, I'd say it's a good bet that in seven years a college education will cost more than $19k.

So, given that I already expect a shortfall, should Amy and I strive harder to save even more? Many parents I know say absolutely yes. They are putting away every last dime so that their kids never have to worry about how to pay for college. Amy and I happen to be some of those lucky ones: My dad paid my bills and her parents paid hers, and we both emerged from college debt-free.

Others I know say absolutely not. One friend, in fact, specifically wants his daughter to take out a student loan for part of her college costs so that in working to pay it off after graduation she is forced to learn budgeting. Moreover, he hopes, the strategy means she better appreciates the value of her education and the hard work that goes into affording it.

I don't think it's an either or proposition -- you can do both -- save for retirement AND save for college. But that requires two things: earning a good income and keeping your spending well under what you make so you can save a bundle. Most people aren't willing to make the sacrifices necessary to save for both -- they have to have the "necessities" of life after all. Then, of course, there are people who truly can't afford to do both because they simply do not earn enough. IMO, these people should likely focus on retirement savings for the following reasons:

When I look to the future, the biggest expense I see is the giant costs awaiting Amy and me in retirement. While our kids' college degrees are certainly important, our ability to pay for our life after work is more important. As such, we've opted to funnel a much larger amount of cash into retirement savings than into our kids' educational accounts.

Some will argue that we're short-changing our kids and thinking only of ourselves. I argue, instead, that we're ultimately helping our kids to a far greater degree than we would if we were paying the entire cost of their diploma. By ensuring that Amy and I have an adequate nest egg for our retirement, we're also making sure that our kids will never be in the position of having to help us financially. I can't imagine a more important gift to our kids than making sure we are never a financial burden on them.

At the end of the day, I say parents should pay for their kids' education -- but only after saving for their own future. After all, when you stop working one day, there's no one waiting to hand you a scholarship or grant to retire.

So, I agree with the suggestion of what to save for first. For those who can't do both, save for retirement first, and then college after it (if you want to pay for it -- maybe you don't see any need/good/responsibility of doing so). But I'd challenge those of you who want to do both to look closely at your expenses and try to make more money as well. For many, you can find a way if you really want to.

As far as saving for college costs, our plan is to pay for half and let each child pay for half (through scholarships, grants, savings, loans, etc.) though we might be willing to pay for more to help our kids graduate with little or no debt. We have Coverdells and 529s for each of them and we should be well-saved for college by the time it gets here.

All this said, what do you think should be done (or what are you planning on doing)? Should parents even feel a responsibility to pay for all or part of a child's college education? Or should they focus on retirement only? Or maybe somewhere in between?

The College Degree is Not Dead

Here's a piece from the Wall Street Journal which talks about the declining value of a college degree. But if you read deeper into the article, it notes that there's still a huge advantage to having a college degree. To note:

To be sure, the average American with a college diploma still earns about 75% more than a worker with a high-school diploma and is less likely to be unemployed.

I think they're trying to create a story where none exists.

Ok, maybe a small one exists -- maybe a college degree isn't worth as much as it once was. Maybe and maybe not. Anyway, here's my take on the whole issue of the value of a college degree:

1. Any loss in value of a college degree is likely due to the fact that more and more people are getting degrees than ever before. As such, the supply of college-educated workers has grown while demand has likely seen less growth. And when that happens, prices (in this case salaries) decline. Of course this varies by degree/job type, so selecting your salary is significantly impacted by the selection of your major/occupation.

2. A college degree is still worth the investment. Earning 75% more than a non-degreed worker is a big deal -- and can mean a boatload more money over the course of a working career. For specifics on the payoff, see College Degree Worth an Extra $23,000 per Year and College is Expensive, but Well Worth It Financially (Or: Give Four Years and $40,000 and Get an Extra $1 Million).

3. To be prudent financially, you need to match the cost/debt of college versus the expected payout. In other words, borrowing $100,000 for a job that pays $18,000 a year probably isn't a great financial move. Then again, borrowing $100,000 for a career that pays $500,000 a year probably is. Of course you need to take into account what you'll like doing, but even so, the first numbers likely will doom you to financial hardship even if you love what you're doing. Translation: you better REALLY love it, because it will make much of the rest of your life difficult.

4. No matter what degree you get, you need to actively manage your career once you graduate in order to get the most possible return from the degree. For my specific thoughts on this issue, see This Year's Graduate's Destined to Earn Millions in Their Lifetimes; Average Graduate Can Earn $25 Million if Career is Managed Correctly, Maximizing Your Greatest Asset: Why Your Career is So Important, and Your Most Valuable Asset.

Five Ways to Reduce College Costs

Bankrate has a list of five ways to reduce college costs, but among the five, there is one that really stands out from the rest -- and focuses on how a student can help his/her parents pay for college:

The most effective way to help your parents is to make colleges want you as their student. That means taking on a challenging high school curriculum, achieving high grades, scoring well on standardized tests, such as the SAT and ACT, and becoming a leader outside the classroom in one or more activities for which you demonstrate a passion.

After that, they detail the other four ways to help reduce college costs:

• Consider a public school
• Think about your goals
• Enroll in advanced placement
• Research scholarships

Fairly basic, but still good, advice.

Here's what we're doing to help prepare to pay for our kids' college costs:

1. First of all, we've told them that we'll pay for half of their college education. How can they possibly pay for the other half without racking up tons of debt? By doing what Bankrate suggests -- making colleges want them as students.

2. We're saving like fiends for our portion of the college costs -- contributing to both 529s and Coverdells.

3. We're also discussing strategies like having them attend the first two years at a smaller, local school that's affiliated with a larger university. They get the basics out of the way in two years, save a ton of money (as the local schools are much cheaper), and live at home (to save even more money). Then they transfer to a larger school for their last two years and get their degree from that institution.

It's still a long way off for us, so plans could change, but those steps are the main part of our plans so far.

How about you? What are you doing to help prepare your kids to tackle college costs?

What to Do with Leftover 529 Money

According to Bankrate, there are four ways to handle leftover 529 money. They are:

1. You can replace the current beneficiary with another member of the beneficiary's family.

2. Your second option is to withdraw the leftover funds as a nonqualified distribution for your own noneducational use. However, you will owe ordinary federal tax along with an additional 10 percent penalty tax on the earnings portion of the distribution. You'll probably owe state income tax as well.

3. You can direct your 529 plan to make the withdrawal payable to the beneficiary (student).

4. Your final option is to do nothing. No one is forcing you to take action with respect to your 529 account just because your grandchild has graduated from college. You can simply keep the account going, taking further advantage of tax-deferred growth, and choose any of the first three options at any time in the future.

I could only be so lucky to have this problem. We're saving a good amount of money in our 529s (and Coverdells to boot), but with the way college costs are growing and the fact that we'll get zero need-based support, I think we'll need every bit of what we'll have saved and more! Then again, maybe one or both of our kids will get some great aid offer based on ability. Our babysitter just graduated this year and scored so high on her ACT that she got a full-ride scholarship to a local, private college. Not bad at all.

How to Select the Right College

The following is an excerpt from High School Money Book, copyright 2007, 2008 Don Silver and excerpt reprinted with permission.

Once you decide you want to go to college, you face thousands of choices.

Six steps to help find the right college for you:

1. Determine your field of interest.

Ideally, when you enter high school, start thinking about the kind of work you’ll want to do after you complete college. Don’t let the task overwhelm you since you will probably have many different kinds of jobs in several different fields over your work lifetime. However, you have to start somewhere.

If you have many different areas of interest, take a sheet of paper and label one half “pros” and the other “cons.” Then, write down your top three areas of interest and list the pros and cons below them.

Among the factors to consider for each subject area are: (1) your interest/passion in the subject area, (2) how it will benefit society, (3) the likelihood of your being able to graduate in that field and find a job to your liking and (4) the amount of money and security a job in that field offers.

Here’s a word about job security. The work world is constantly undergoing tremendous change. Some companies merge and come together, others reduce their workforce periodically to save money and some go bankrupt as they are unable to meet business challenges.

Your best job security is to always be learning and expanding your knowledge and skills. You may also have an entrepreneurial bent so your initial jobs may turn out to be learning experiences for the time you open your own business.

One way to determine your field of interest is to see it in action and talk to the people working in the field. For example, if you want to be a software programmer, call up software companies and make appointments to talk to or visit in person with programmers. Speak to people who have been working in the field two years, five years and ten years. See what their perspective is on the work, their enjoyment of it and whether they’d recommend that you enter the field in view of your interests and abilities and their experiences.

Every six months during the high school years (and yearly throughout your work career), repeat this process of listing your career choices, writing down the pros and cons and conducting your real-world interviews.

2. Get college counseling and info on colleges.

Just as you should start to determine your field of interest as soon as you enter high school, at the same time you should start thinking about the type of college you’d like to attend.

Start by talking with a college counselor. Review your list of fields of interest and the input you’ve received from talking to people working in these jobs. Then take the counselor’s information and gather your own information through the Internet—three sites to definitely check out are http://nces.ed.gov/ipeds/cool/, www.collegeboard.com and www.collegedirectorynetwork.com. Some states have a wealth of data on their public universities on state board of regents’ websites (e.g., in Ohio, look at http://regents.ohio.gov/colleges_universities.php).

3. Make a list of colleges.

Make your list of colleges with the assistance of a college counselor and your parents. Here’s what to look for:

• the reputation of the college especially in your main field of interest
• the reputation of the college in general
• whether it’s a small, medium or large college
• how close the college is to your home

Don’t use cost as a factor yet. There may be extra financial aid available from more expensive colleges so the cost may not end up being higher (or much higher) than others you are considering.

4. Look at the money issues.

Now is the time to look at the money issues and to give your parents a homework assignment—to read this chapter after you finish it.

Discuss money issues with a counselor and your parents. Work with your parents and use the calculators and information at www.fafsa4caster.ed.gov/, www.finaid.org and www.collegeboard.com to help you through the process, including finding ways to pay for college.

5. Keep the long-term picture in mind.

You may be looking ahead to graduate school, too. Certain undergraduate colleges can help you get into a graduate program in your particular field of interest.

6. Look at the big picture of life.

The process of applying to college can be very stressful. Unfortunately, part of that process is not being accepted everywhere you’d like to be admitted.

Remember this as you go through the application process. You may not get into your “perfect” college. A rejection by a college is not a measure of your self-worth and for every door that closes in life, another one opens. Going to a particular college does not guarantee success in life, nor does it prevent it. Above all, you need to be a great person in life more than you need to graduate from a great college.

How to Pick the Best 529 College Savings Plan for You

Here's a piece from Money magazine that details the steps to picking the best 529 college savings plan for you and your kids. It starts by picking a direct-sold 529 (one that you invest in directly from the state -- not from a planner who's going to charge you several percent to "sell" you the plan):

Personally, I believe that everyone should invest in a direct-sold 529 plan, which most states offer in addition to an adviser-sold plan. Here's how to find the right one:

• Start with your home state. You can find information on tax deductions and fees for every state plan at collegesavings.org.

• Consider costs. Even if you get a state tax break, you may save more over time by going with a lower-cost 529 in another state.

Say you invest $10,000 in a 529 and you can deduct your contribution on your state return. If your local tax rate is 5%, your net tax savings (after 28% federal taxes) is $373.44. In this example, if a plan charges 0.4% less than the one in your home state, the lower fees will eventually outweigh the tax savings in 10 years.

• Select an age-based investing option. In an age-based fund, your stock and bond mix will automatically get more conservative as your child approaches college age.

And remember, any money you aren't using to pay your planner can go toward funding your child's education.

This is exactly what I did a couple years ago when I picked Michigan's 529 plan. I've since contributed the maximum to get the full state tax deduction for each tax year (2006, 2007, and 2008), and I plan on doing so until the kids leave for college. This savings, along with the $2k we put into our Coverdells each year, should set us up to pay for college without too much impact on our other accounts.

10 Ways to Reduce College Costs

The following is an excerpt from High School Money Book, copyright 2007, 2008 Don Silver and excerpt reprinted with permission.

Here are 10 ways to reduce costs:

1. Take advance placement classes in high school that qualify for college credits.

2. Take courses at a community college while you’re in high school (during the summer and possibly during the school year) to get a head start on college credits.

These first two steps can reduce how long you need to pay for a college education, give you a college experience in advance and give you the option to reduce your college workload.

3. Use military service education benefits.

4. Take advantage of nonmilitary service programs such as AmeriCorps to obtain college assistance.

5. Get all available grants and scholarships since you don’t have to repay them (as compared to loans). Pell Grants are a federal financial aid program based on need. Scholarship sites include:

• www.collegeanswer.com
• www.collegeboard.com
• www.fastweb.com
• www.finaid.org
• www.scholarships.com
• http://studentaid.ed.gov (click the Tools and Resources tab and  then click the “Go”  button for Scholarship Search)

6. Have you or your parents shop around for the best deal on loans. There are Stafford Loans, PLUS loans, Sallie Mae Signature Student Loans, home equity loans and loans against a 401(k) plan. Loans vary in size, the interest rate, the tax deductibility of interest, the repayment period and how the family income and assets affect the amount available. Try to get federal loans before private loans.

7. As early as possible, use the FAFSA4caster at www.fafsa4caster.ed.gov/ and also become familiar with FAFSA (Free Application for Federal Student Aid at www.fafsa.ed.gov), the federal financial aid application. Be sure you meet application deadlines.

8. Make sure your family is aware of the different financial aid results depending on who owns the assets being invested and saved for your college education.

9. Make sure your family is aware of available tax benefits connected with funding a college education.

10. Have your parents negotiate grants, costs and aid with the colleges.

Five Recommendations on Funding College Costs

I was recently sent a press release from Voyant that listed some of their thoughts on balancing college costs with general family finances. I asked if I could reprint some of these and they gave me the ok. So let's start with what they call five recommendations to help parents strike a balance between funding their children's education(s) and preserving their family's financial health:

• Cost of Attendance - Understand your school's total cost of attendance, which includes tuition, fees, room, board, books and miscellaneous expenses. These expenses can range from travel costs and furnishing a dorm room to purchasing a new wardrobe if your student is changing climates.

• 529 Plans - Actively manage your 529 plan investments - don't set them and forget them. If your plan is performing below average or has high expense ratios, look for greater growth and lower expense alternatives. Contrary to other types of investments, most 529 fund choices are fairly conservative. Keeping your portfolio diversified can lead to excellent returns all the way through college. 

• Loans - Shop wisely when considering a loan, as the right terms or interest rate can save thousands of dollars over the course of repayment. Home equity loans or lines of credit may offer lower rates and fees than federally-guaranteed Stafford loans (currently at 6.8 percent), but parents should carefully consider this option's impact on retirement and other financial goals. Families should also consider the total loan cost over time. Most education loans are deferred until six months post-graduation; however, interest starts accruing the day the loan originates. Borrowing $50,000 at 6.8 percent on a 20-year repayment schedule works out to a monthly payment of $381.67 - and adds $41,600.68 in interest over the full term of the note. In addition, some federally-guaranteed student loans have origination fees as high as 2.5 percent. 

• Get a Better Financial Aid Package - Consider your college acceptance letter a "bid" for your child's commitment - and an opportunity to negotiate for as much financial aid as possible.  Most colleges distribute financial aid packages that include grants, scholarships, work study and loan offers.
  If your child is offered $5,000 a year in assistance from College A, but only $2,000 from College B, find out if College B will match College A's offer. This strategy works especially well when negotiating with two comparable colleges.

• Explore Creative Alternatives - One option is to qualify for in-state tuition. If you are in the U.S. military, many colleges and universities will offer you and your dependents non-resident (out-of-state) tuition waivers. Another option is to work toward an earlier graduation date. Most colleges accept credits from advanced placement, community college, and summer courses taken during high school or academic breaks. Starting college as a sophomore could reduce undergraduate costs by 25 percent.

They also made the following comment which I thought was very interesting:

"At the rate things are going, parents of today's infants will shell out nearly $60,000 (including room and board) for a four-year public education and more than $140,000 for a private college diploma," said David Kaufman, founder and CEO of Voyant, Inc.

Frankly, this sounded a little low to me. Perhaps they're thinking that the parents will pay $60k and the kids will need to pay/take out loans for another $60k or so?

If You Don't Like Your College Financial Aid Award, Appeal It

Here's a suggestion I received via email from The College Blog. It's a bit promotional, but has some worthwhile tips so I decided to run it.

Unappealing financial aid award letters can be appealed - if you know how.

It’s that time of year again when colleges are sending out their offers, and this year seems to have the tone of doom and gloom.  With the traditional May 1st deadline, there appears to be very little a family can do except grin and bear it. 

“Virtually any offer can be appealed,” says Reecy Aresty, a 29 year veteran of financial aid trench warfare.  He’s been cranking out appeal letters for the past few weeks, and so far his batting average this year is 1.000!  Author of, How To Pay For College Without Going Broke, Aresty insists that colleges will not withdraw any aid even after an appeal letter arrives.  “If it’s politely written, the worst the school will do is deny any additional aid.”  He did mention that a few years ago a southeastern college that added additional aid in one category removed some at the same time.  The next letter asked for the aid to be returned, and the error was promptly corrected.

Some schools get away with murder, and Aresty stated, “This year one of the Ivy League schools reneged on their promise of asking a family to only pay 10% when they had virtually no assets and their income was less than $145,000.  They wound up being overcharged $800 and were petrified at the prospect of telling the school it had made a mistake!”  Don’t let this happen to you!

Aresty gave his prescription for appeals:

• Never call the school - it’s too easy for them to say, “We’re sorry, but we have no more aid to offer.”
• Students who live in the South and go North should ask for a winter clothing allowance - available at the Ivy’s
• The student always writes the appeal, as they received the award
• Ask for “help” not money
• Never bluff and tell a school you received more elsewhere when you didn’t
• Always ask for maximum loans and a Federal Work-Study Award - you did request them, didn’t you?
• Even if your EFC is more than the cost to attend, aid can be available
• Consider Professional Judgment for unusual circumstances

Aresty also mentioned that very often unsubsidized Stafford Loans can be subsidized, and that alone can save a student $1,000’s in interest over time.  Here are some of his successes from this year and in the past: $18,030 of aid when the semester bill was only $15,252; $2,000 grant increase plus a free laptop; $33,000 in year two, when there was no aid in year one; $12,500 of need-based aid when the EFC was $95,226, and the list goes on.

529 Plans Help with Estate Planning

The following is a guest post from Marotta Asset Management.

While many parents are struggling to fund their retirements adequately, the size of some grandparents' estates are prompting them to look for ways they can avoid paying excessive taxes. One effective estate-planning technique is using a 529 account both to fund their grandchildren's college and also help them avoid significant tax liabilities.

Families are finding it increasingly difficult to save for college. Four years costs about $55,000 at a public in-state school. With college inflation averaging 6.2% in the past decade, new parents in 2008 can expect the bill to swell to $160,000 by the time their children graduate from high school at age 18. Private schools are about twice as expensive.

Imagine Grandma and Grandpa Smith. Having come of age during the Depression and World War II, they built great wealth through an entrepreneurial can-do spirit. They are reluctant to subsidize their grown children, who already spend more frivolously than they should. But they love their grandchildren and support giving them as much of a debt-free higher education as they can achieve. And, of course, saving on taxes is a welcome benefit as well. So funding a 529 plan for each of their three grandchildren is an easy choice for them.

Investing in a college 529 plan offers several layers of tax savings. Virginia allows residents to deduct $2,000 of contributions from their 2008 state taxes. If Grandma Smith opens an account for each of the three grandchildren and Grandpa Smith opens his own accounts for each one, they can deduct $12,000 (six accounts times $2,000). Any contributions over this limit can be carried forward for deductions in following years. In 2009 the limit goes up to $4,000 a year per account. That year the Smiths can deduct $24,000, saving them $1,380 at Virginia's 5.75% rate. Saving $690 in 2008 and $1,380 per year for 17 years gives them $24,150 in Virginia state tax savings.

The Smiths can also use 529 plans to reduce their large estate. Anyone can gift $12,000 per person without being subject to the gift tax consequences. With a 529 plan, you are allowed to give five years ($60,000) all at once to get the account started by filing tax form 709.

Great benefit accrues to gifting the entire $60,000 in the first year rather than gifting $12,000 a year for five years. By putting the entire gift upfront, all of the growth is compounding completely in the child's estate. Gifting $12,000 each year leaves the remaining $48,000 compounding in the grandparents' account, exacerbating their estate-planning problem.

But gifting the entire $60,000 in the first year puts over $16,000 in extra compounded growth out of the Smiths' estate by the end of the fifth year. This extra contribution will continue to compound in each grandchild's college account for further savings. Because both the Smiths have an account for each of the three grandchildren, the extra estate exclusion by funding them upfront is $96,000. At a 45% estate tax rate, they will avoid $43,000 in estate taxes by the end of the five years.

And the tax-free compounded growth continues to provide estate tax savings. Over the 18 years before the Smiths' grandchildren go to college, the compounded growth is both tax free and out of the Smiths' estate. After 18 years of growth at 10%, their initial $360,000 investment will have removed over $2 million from their taxable estate, for a total estate tax savings of $900,706.

There is also a savings from tax-free compounding. Had the investments remained in the Smiths' accounts, the growth would at least have been subject to a 15% capital gains tax, if not higher. Avoiding this additional tax saved another quarter of a million dollars.

And after 18 years, as if to add the cherry on the top to all of these tax savings, each account will be worth $333,595. Stanford, my alma mater, currently costs more than $60,000 for four years. Growing at 6.2%, after 18 years it should cost about $180,000. With two accounts each, the Smiths' grandchildren should only be limited by their drive and academic achievement.

You might wonder why Grandma and Grandpa Smith are overfunding their 529 plans with more money than their grandchildren will likely spend on college. Any unused money can be allocated for the college expenses of future generations. Beneficiaries can be changed to the children, stepchildren, grandchildren, parents, grandparents, aunts, uncles and first cousins. After the grandchildren have finished college and gone through graduate school, the beneficiary of any existing money can be changed to their own children. The Smiths could be starting an educational dynasty with generations of tax-free growth.

The Smiths retain full control of these assets, even though they have been removed from their estate. Typical estate-planning instruments would require the Smiths to make irrevocable gifts. But with 529 plans, they can switch the beneficiary, change owners or even withdraw money for their own use if they are willing to pay the taxes and the 10% penalty on earnings. They could even make themselves the beneficiaries and enroll in classes themselves. If one of their grandchildren receives an athletic or academic scholarship, the Smiths can receive a tax-free refund up to the amount of the scholarship. And with a grandparent as the owner, a 529 plan is not considered as a resource for financial aid.

Unlike 529 savings plans, we do not recommend prepaid college tuition plans. At best, they match college inflation, and if used at an out-of-state institution, returns may not even keep pace with inflation. Virginia has several different flavors of 529 college savings plans. VEST, the Virginia Education Savings Trust, is marketed directly to the public. Another, CollegeAmerica, is offered through financial advisors. It has different share classes, some of which have loads that make them unattractive. No-load shares are available through fee-only financial advisors. The advantage of CollegeAmerica is that it allows an advisor to create his or her own asset allocation mix from a few dozen different funds.

Consider College Debt Carefully

Here's a good comment left on my post titled Stuck about taking on (and dealing with) substantial college debt:

I just want to comment on the education debt that Sarah and Jesse brought up. For those who are already in that situation, well, yes, I suppose that's one case where both parents would have to work. No argument there.

But for those who are at an earlier stage of their lives, there's a lesson to take from this. To take on that much debt is to make the choice to work--possibly for decades--after school to pay it back no matter what else might come up in your life that would otherwise be more important to you. Now, that's not to say don't get an education, or even to say don't go into debt to get it if that's what you have to do. But do choose your major wisely and think twice about picking that fancy private school. This is particularly true for people whose inclinations lead them to fields that are not reliably well compensated, like the arts or politics to name just a couple.

Sometimes it seems to me that people have lost their minds when it comes to education costs, in much the same way as people who drop 20 grand and up on their weddings.

This is in agreement with what I've written in posts like How to Get the Most Financially Out of College and Go to Law School Without Racking Up Tons of Debt (this isn't just for readers thinking about law school.) In particular, here's what I said on the latter post:

"The point is that you need to look at a college degree (including a law school degree) as an investment. What will it cost and what will you get out of it? Look at the best way to maximize this investment, and you'll be able to find a school that meets your needs and won't leave you in a ton of debt relative to your income. Ignore these factors and select a school based on considerations like campus feel, nearness to home, the popularity of the football team, one great professor, and so on, and you may be setting yourself up for a bad financial decision."

To me, college debt can be "good debt" as long as it's kept under control. And the main way to keep it under control is to compare it to what you'll be earning once you graduate. For instance, consider the following:

• A teacher who will make $30,000 per year who leaves college with $30,000 in debt.
• An engineer who will make $70,000 per year who leaves college with $30,000 in debt.

Any question about who is in better shape to deal with their college debt?

For College Graduates: Learning to Live on Your Own, Part 1

The following is a guest post from Marotta Asset Management.

If you're like most of today's college graduates, you may find yourself ill prepared for the real world of financial responsibility. You never saw how your parents lived when they were first married and struggling. Consequently, you may be basing your after-school expectations on an upper-middle-class lifestyle. Here is my financial advice for those of you learning to live on your own.

My own financial education began when I was very young. My parents shared openly with us about the cost of running the household. I learned our home mortgage was $12,500, or about half the value of the house, and the interest rate on the loan was 4.5%. I knew my father's annual salary ($7,500) and that a week's worth of groceries cost $20 for a family of five.

Although you have to count on spending about 6.58 times more than that today, the principles of proportional living I learned are still the same: You can look like you are rich or you can actually become rich by saving and investing. Wealth is what you save, not what you spend. So be rich. Live frugally, and learn to save and invest.

The people who are struggling financially buy things and clutter their homes with them. The middle class buy liabilities such as boats and vacation homes and must spend money every month to maintain them. The rich, in contrast, buy investments. An investment is anything that pays you money.

Now that you are learning to live on your own, learn to live like the rich. The frugal millionaire enjoys both financial security and peace of mind. Living well within your means is a skill you may not have picked up from your parents or in school. Rather than learning from the so-called school of hard knocks, consider the following suggestions.

Rent is probably your biggest expense, but keep it well under 20% of your take-home pay. To lessen the impact, share your living quarters with roommates. If you learned nothing else in college, you at least found out how to share a room. Later on, when you get married and want your own place, you'll need the money you can save and invest now.

Whoever actually signs the rental agreement or lease and pledges to pay the rent on time each month deserves a better financial deal. That person should be able to charge his or her roommates more and also get first pick of the rooming options.

If you decide to live in a house or apartment and sublet, make sure to factor in the possibility that a roommate may leave without notice, owing you rent. Insist on a sublet agreement that requires the first and last month's rent to lessen the impact.

Your car ranks as your number-two expense. Again, keep total costs well under 18% of your take-home pay. With the salary at your first job after college, you probably can afford to make the payments on a trendy new car. Don't. Expensive cars increase both your insurance and your maintenance costs.

Be practical. Your car is a means of transportation, not a lifestyle. Buy a reliable car that has low maintenance costs. One that is at least a few years old will have already depreciated the most.

Only buy a car you can pay for with cash. Shun easy credit. The only decision that's worse than buying a depreciating asset is buying that depreciating asset on credit. Paying interest on an asset that going down in value may buy you a ticket to the poorhouse. Instead, start saving some of your monthly salary immediately for your next car.

After rent and transportation comes buying food. The average family spends 10% of their take-home pay on food. If you don't eat out, you should spend about 6%. When your earnings increase substantially, perhaps you'll be able to justify saving food preparation time and eating out. But until then, the time you spend cooking is well worth it. The calories you purchase at restaurants are about 2.5 times as expensive as those you prepare at home.

For example, if you brown bag your lunch all week, you can easily save $5.40 a day. Saving $27 each week adds up to $1,458 per year. After factoring in the rising costs of eating out and investing your savings in the stock market where they will grow and multiply, the difference to your net worth is amazing. Investing $27 each week will produce $100,000 in 20 years and $1 million in 40 years. Bring your lunch from home starting at age 20, and you'll have an extra million dollars at age 60!

Eating at home isn't the only way to save money. To extend your savings to the grocery store, here are a few commonsense rules that will lead to uncommon cents savings.

For dinners, master a dozen easy-to-prepare meals. If you can read, you can cook. Keep staples on hand to make these meals. Consider a bread machine and a slow cooker as essential purchases.

Plan your meals when you are hungry, but shop right after you have eaten. Shopping on a full stomach will help you limit impulse purchases. Make a shopping list. Buy staples in bulk at super discount stores.

Avoid convenience packaging and expensive processed foods. Try buying the generic store brand. If you don't like it as well as the leading advertised brand, many stores will refund your money. Actually compare the prices. Most stores make the bulk of their profit from products placed at eye level.

You don't have any extra in your budget for monthly services. You have only about 6% more to spend, and the remainder you should be saving and investing. You may tend to ignore the services that are billed automatically each month, but they will be the most serious drain on your finances. So consider getting the least expensive package of features or doing without entirely. These electronic transfers include phone service options, cable or satellite TV, high-speed Internet, and health club dues.

529 College Savings Accounts: Preferred Way to Save and Could Provide Child's Nest Egg

Here's an article from Kiplinger's that answers several questions about 529 college savings plans. I thought there were a couple pieces of information worth sharing with all of you. Here's the first:

When it comes to calculating college financial aid, it's much better to have assets in the parent's name. Parental assets are taxed at a lower rate (5.6%) than assets owned by a child (20%). By law, 529 accounts are considered parental assets, so they automatically qualify for favorable financial-aid treatment.

I'm not sure "taxed" is the right term, but you get what they mean -- 529s offer an advantage in that they count as parental assets.

Furthermore, 529s can be used as a nest egg if a child decides not to go to college:

Because you're primarily interested in a college fund, a 529 would let you take advantage of a slew of tax breaks: Your contributions may be eligible for a state tax deduction, your savings would grow tax-deferred, and the earnings would escape tax altogether if the money is used for qualified educational expenses, such as tuition, fees, and room and board.

But if your daughter doesn't go to college, you still have some control over the money. You could transfer the funds to another family member and preserve the tax benefits, or withdraw the money and pay income tax plus a 10% penalty on the earnings.

I guess it's the latter suggestion that qualifies as "using it as a nest egg" in Kiplinger's mind.

In the end, 529s are a GREAT way to save for college expenses. For some reasons why (and tips on how to make the most of them), see these links:

• What to Do with 529 Money If Your Child Gets a Scholarship

• 529s Are the Undisputed Kings of College Savings

• Avoid Costs When Investing in 529 Plans Too

• Why 529s Make Sense

• FAQs on 529 College Savings Plans and Why 529s are a Good Deal

How to Determine if Your State's 529 is a Good Plan for You

USA Today gives us some guidelines for deciding whether or not your state's 529 college savings plan is a good deal for you:

Kerry O'Boyle, an analyst at investment research firm Morningstar, says he would never recommend investing in a subpar 529 plan just to receive a state tax deduction. But what should you do if you think that while your state's plan is respectable, another state's is better? Some factors to consider:

• The amount of the deduction.
• Your tax rate.
• The amount you plan to contribute.

For me, the decision was pretty easy. Michigan has a pretty good 529 plan, one that's worth considering even if you don't live in the state. But since I do, it made my decision a no-brainer. I get a good plan plus a $400 tax savings. I'll take it!!!

For more thoughts on 529 plans, see these posts:

• 529s Are the Undisputed Kings of College Savings

• Why 529s Make Sense

• FAQs on 529 College Savings Plans and Why 529s are a Good Deal

No Wonder College Costs So Much

Here's an interesting piece on the huge amounts of money spent at Ivy League schools. A few of the numbers I found especially compelling in the piece:

The $5.7 billion in investment gains generated by Harvard's endowment for the year that ended June 30 exceeded the total endowment assets of all but six U.S. universities, five of which were Ivy Plus: Yale, Stanford, Princeton, MIT, and Columbia. Ivy dominance extends to fund-raising. A mere 10 schools accounted for half the growth in donations to all U.S. colleges and universities last year. All of the top five on the list were Ivies, led by Stanford, which set a record for higher education in 2006, collecting $911 million in gifts.

During 2006-07, the Ivy "Big Three" — Harvard, Yale, and Princeton — collectively spent $6.5 billion on operations, up over 100% from a decade ago. This was more than double the 41% average budget increase for all U.S. colleges and universities over this period and quadruple the 26% rise in the consumer price index. The Big Three sank a further $1.2 billion into new construction and other capital spending last year. "Yale is wealthier now, so we can add resources in almost every dimension," says its president, Richard C. Levin.

In other words, they're bringing in a ton of money and they're spending a ton of money. Meanwhile, tuition is climbing...

The Ivies have steadily raised the list price they charge their traditional clientele: the wealthy and the well-born. Tuition, room and board, and fees now run an average of $45,000 a year, which, the schools are quick to point out, covers only one-half to two-thirds of operating costs. But even at those prices, demand, in the form of undergraduate applications, continues to soar. On average, the Ivies rejected about 90% of applicants for the Class of 2011.

But they're also helping out at least some who are less fortunate:

Extraordinary wealth has allowed the Ivy Plus schools to mitigate their extreme exclusivity by offering bigger discounts to more students of modest means — a move that few would object to. Princeton has doubled its budget for grants, loans, and other aid since 2001-02, to $82 million, as the percentage of undergrads receiving financial support has jumped from 44% to 53%. The average award is $32,200, against total charges of $44,950.

Where are they spending all of this money? Yes, some is spent on buildings, but most of it is on staff:

The Ivies' biggest expense category by far is labor. At Harvard, compensation and benefits accounted for 49% of its $3.2 billion in operating expenses in 2006-07. Although salary gains have consistently outpaced inflation, it is the addition of new teaching positions that is chiefly responsible for driving up the cost of instruction. Harvard, the largest of the Ivies, employs 2,164 faculty members, 55% more than in 1997-98. All of the Ivies increasingly are emphasizing small-group learning, independent study, and hands-on experience. "It's a much more personal connection between teacher and student, and a lot less delivering education in large lecture halls with armies of teaching assistants," says Carol L. Folt, a Dartmouth biology professor who doubles as its dean of faculty.

And I had no idea that professors made so much money:

The Ivies' heavy spending to enlarge and upgrade their faculties has contributed to an ever-widening salary gap between private and public universities. The $106,496 average salary earned by full professors at PhD-granting public universities in 2006-07 amounted to just 78% of what their counterparts earned at private universities, according to the American Association of University Professors. This figure was 91% in 1980-81.

The Ivies' superior spending power puts even the finest public universities at a disadvantage in the competition for faculty. One of the many academic areas in which Yale has brought its financial muscle to bear is physics, which until recently was chaired by Ramamurti Shankar. "Yale told us: Let's go after who you want. We will make it happen,'" says Shankar, who is particularly proud of having bested several other top private schools to lure the quantum mechanics expert Steven M. Girvin away from Indiana University, a Big Ten public stalwart. "There was a huge war," Shankar says. "Everybody wanted him." Shankar declines to disclose the price he paid for Girvin in 2002, but says that the going annual rate today for theoreticians of his caliber is $400,000 to $600,000, which includes salary and research support. This is for an assistant professor, the level at which Yale does most of its hiring. The price tag for top experimentalists, who have far more extensive laboratory needs, is $1.5 million to $2 million, according to Shankar, who remains on the Yale faculty.

It goes on to talk about the impact on public universities as well, so if you're interested in this topic, you should read the entire piece. Personally, I found the article fascinating.

But holy cow, who knew top professors made that much?!! That is a bundle of money. Am I just out of it or is this a surprise to anyone else too?

Is Graduate School Worth the Cost?

Here's a piece from Yahoo that asks if graduate school is worth the cost. The answer is -- maybe. Their key thoughts:

Graduate degrees are necessary for some fields, raise earnings on average, and can lead to more enriching careers -- but choose carefully. Compared to college, there's less financial aid available; tuition is higher (averaging over $20,000 for master's programs at public institutions); parents are less likely to foot the bill; and, as an independent adult, you give up income from working in order to attend.

Less than a fifth of all graduate and professional students receive scholarships, fellowships, or assistantships. And some graduate degrees barely increase your earning potential -- and may even lower it.

The bottom line is, besides the out-of-pocket and opportunity costs, graduate school is meant to prepare you for a specific field. If you end up working outside that field, there goes a lot of time and money. That's why I think anyone who enters a graduate program should first spend at least a year getting closely related work experience.

In other words, look at it as an investment. What will it cost you (in tuition, etc. as well as in lost wages) and what will you get out of it (how much more will you earn)? Then you can make a financial decision based on the facts.

Of course, there may be other reasons to proceed even if it's not a good financial deal -- such as allowing you to move from a field you hate to one you like. In this case, you may take a financial hit, but eventually be happier overall. For an example of this, see "From six figures to student loans" from Money magazine.

The Yahoo piece then details various graduate degrees (business, medical, etc.) and gives some thoughts on whether or not they are worth the cost. Here are some that aren't:

From a dollars-and-cents perspective, the worst values in graduate education are those in which tuition is high and average earnings are low or unpredictable: fine arts, creative writing, and cooking come to mind. Popular and exclusive graduate programs in creative and competitive fields can charge high prices because they promise access to an inner circle -- a crucial edge in a line of work that's always going to be a bit of a gamble.

And they end with this good advice: