Free Money Finance

Last-Minute Tax Savings for College Expenses

The following is a guest post from Marotta Wealth Management. It's a bit tailored for Virginia residents, but still offers some useful thoughts for the rest of us as well.

My youngest will be a first-year student at the University of Virginia this fall. My coauthor Matthew's oldest child is almost two years old. So he is just beginning to think about college funding and I'm about to start withdrawing from my final 529 plan.

With a well-designed 529 college savings plan, you can fund a college education at a deep discount. But even if you haven't saved much for college beforehand, simply passing college expenses through a 529 plan can save you $200 to $2,000.

A 529 college savings plan offers three types of tax savings. Virginia residents receive a state tax deduction in 2009 on contributions up to $4,000 per account. Students are permitted to attend a college out of state. If you don't live in Virginia, you can research your own state's tax benefits. In every state you receive both federal and state tax-deferred growth and tax-free distribution when you are ready to use the money. These latter two tax benefits are the most significant. But you must invest early.

The Virginia state tax deduction, in contrast, is available merely for putting money into a 529 plan. You are allowed to make a withdrawal immediately to pay for college expenses. This worthwhile tax deduction can help trim expenses. Consider it Virginia's way of promoting higher education.

Make sure you understand what counts as an educational expense before you begin this process. The withdrawal must be for tuition, fees, books, supplies and equipment required for enrollment or attendance at an eligible educational institution. In a recent change, a personal computer now also qualifies.

If you are paying tuition and fees, have a check sent directly from your 529 account to the college. This direct deposit will simplify bookkeeping and make filing your taxes easy. If your fees are spent elsewhere, keep receipts of all the qualifying expenses.

Consider Paul and Ali Hewson, whose oldest child Jordan will begin college in the fall. The Hewsons haven't saved much, but Paul's career is really taking off. So they now have the money to pay for Jordan's college expenses. As Virginia residents, they are entitled to a $4,000 state tax deduction if they put at least this amount into one of the state's approved 529 plans. At the 5.75% state tax rate, they will net a $230 savings for 2009 after they file taxes in 2010.

Jordan has decided to bypass Virginia's fine in-state institutions and attend a more expensive private college. Consequently, the Paul and Ali now have $40,000 of upcoming qualified educational expenses they can pass through a 529 plan to build a decade worth of carry-forward state deductions. Virginia 529 plans allow for an unlimited carry-forward deduction until the amount of contributions has been deducted. Assuming the tax laws and rates remain the same, the Hewsons will take a $4,000 deduction each year for the next decade. They will accrue a total savings of $2,300 savings over this 10-year period.

Paul and Ali can use any of the three different 529 plans in Virginia to accomplish this savings. We estimate it should take no more than an hour to set up the accounts and an hour to make the disbursements.

The CollegeAmerica program, the state-sponsored plan run by American Funds, must be accessed through a financial advisor. Unless you have a relationship with a fee-only advisor, you will pay a hefty commission to use this plan. If you can access the American Funds without paying a commission, invest your pass-through money in the Money Market Fund, the most liquid and stable investment in the plan. This fund requires a $1,000 minimum deposit for the initial setup. With the American Funds, expect to pay a $10 account setup fee and a $10 annual maintenance fee that kicks in if you hold the account through the end of the year.

Investors can access the state-run Virginia Education Savings Trust (VEST) program directly at www.va529.com to begin online enrollment. The plan charges a $25 annual fee in November and no other setup costs. It also has a money market fund available as part of its nonevolving portfolio investment options. Both the VEST and CollegeAmerica programs have received the highest scores from a recent Wall Street Journal report and other rating groups.

Virginia also has a program administered by the Union Bank & Trust called CollegeWealth. You can open a money market account at a Union Bank branch to receive the state tax deduction. If you are comfortable completing this task online, you may find working with a local bank difficult only because you must go there to complete all your paperwork.

Better than waiting until the last moment to start funding a 529 plan, consider investing now. With a depressed stock market, your funds can expect a healthy return for the next several years until your child is ready for college. If you have grandchildren you can get the same tax deductions by opening accounts for them. If you do not have a lump sum available to invest, start a monthly contribution from your paycheck directly into a college savings account. Although you may have to wait until your children bless you with grandchildren, they will ultimately thank you for it.

How to Make the Most of a College Degree

I've written a lot about the value of a college degree including the following:

• College is Expensive, but Well Worth It Financially (Or: Give Four Years and $40,000 and Get an Extra $1 Million)

• This Year's Graduate's Destined to Earn Millions in Their Lifetimes; Average Graduate Can Earn $25 Million if Career is Managed Correctly

• How I Made Millions Off a $5,000 Investment

• Why Education is So Important to Your Financial Future -- And How You Can Pay for College

• The College Degree is Not Dead

• College Degree Worth an Extra $23,000 per Year

But here's a piece from MSN Money that says a college degree isn't a good deal. To prove their point, they take two friends, Bill and Ernie, and make these assumptions:

• Ernie and Bill are the same age and each saves exactly $16,594 for college.

• Ernie doesn't get accepted to a school he likes. Instead, he starts work at 18 and invests his college savings in a mutual fund that tracks the broad stock market.

• Ernie makes average yearly pay for a high school graduate with no college, starting at $15,901 after taxes and peaking at $32,538. Each month, he adds to his stock fund 5% of his after-tax income, close to the nation's current savings rate. It returns 8% a year, typical for stock investors.

• Bill gets into a public college and after two years transfers to a private one. He spends $49,286 on tuition and required fees, the average for such a track. I'm not counting room and board, since Bill must pay for his keep whether he goes to college or not. Bill gets average-size grants, adjusted for average probabilities of receiving them, and so pays $34,044 for college.

• Bill leaves school with an average-size student loan and a good interest rate: $17,450 at 5%. The $16,594 he has saved for college, you see, is precisely enough to pay what his loans don't cover.

• Bill will have higher pay than Ernie his whole life, starting at $23,505 after taxes and peaking at $56,808. Like Ernie, he sets aside 5%. At that rate, it will take him 12 years to pay off his loan. Debt-free at 34, he starts adding to the same index fund as Ernie, making bigger monthly contributions with his higher pay.

They then detail the results:

But when the two reunite at 65 for a retirement party, Ernie will have grown his savings to nearly $1.3 million. Bill will have less than a third of that.

Why is this? The summary:

College degrees bring higher income, but at today's cost they can't make up the savings they consume and the debt they add early in the life of a typical student. While Ernie was busy earning, Bill got stuck under his bill.

In other words, saving early beats earning more.

This isn't a new concept here. I talked about the same thing awhile ago (though it was about investing) in The Best Way to Maximize Your Investment Return.

The author admits that there are flaws that could be poked in his analysis and that the standard of living of the two men will likely will be different, but the point is made. A college degree isn't the slam dunk financially it once was. Especially when you assume today's "averages" for college students. (He goes on to argue about an alternative system of higher education, but that's beyond the scope of what I'm covering today.)

But who's striving to be average? Yikes! Is that the standard we're holding ourselves up to? I know it's not, and it's not what the author intended. And yet, that's what his numbers are based on. So what can/should potential graduates do to make the most of their college degree financially? I'd recommend the following:

1. Make the cost of college as low as possible. Why pay what the "average" person pays? Why not take steps to get your education for as little as possible? For instance, instead of going to a public and private college (as assumed in this example), what about going to a junior college and transferring to a public on after two years? This alone will save a TON of money. For more ways to cut the costs of college, see Five Ways to Reduce College Costs,  10 Ways to Reduce College Costs, and How to Get the Most Financially Out of College.

2. You can also work during college. Assuming your income is zero during this time may be what average people do, but you don't have to follow suit. And not only will working in school help you out financially, but it will also kick-start your career.

3. Only borrow money that makes sense to borrow. What does this mean? It means that you match the cost of college with your potential post-college earnings. A teacher with $100,000 in debt doesn't work out financially while a medical doctor with $100,000 in debt is fine in many cases. See what I mean?

4. Do everything you can to grow your career once you get out of college. Develop a system to regularly over-perform in your job and you'll end up getting promotions and pay increases that the Average Joe doesn't get.

Believe this can't be done? Think again. It's what I did. If you want details, see How I Made Millions Off a $5,000 Investment.

Managing Student Loans: 5 Ways to Make Repayment Less Painful

The following is a guest post from Nicole White, who writes at Web Design Schools Guide.

Whether you went to an Ivy League school or a small state college, school loans can take a heavy toll on your finances post-graduation. While the cost of college is still one of the best investments out there, repaying the loans once you’re out can be tricky, especially for those who’ve never been on their own with financial management. Here are some tips that can help you deal with this debt and give you the skills you’ll need to manage any other big financial decisions to come.

1. Make it a priority. While paying off student loans may be the last thing you want to do with your new paychecks from work, it should be at the top of your list. Carrying around the debt will only cause it to accrue more interest and cost you more in the long run. Work out a payment plan for yourself that ensures you’ll pay off your loans before you’re old and gray.

2. Consolidate. If you have a variety of loans, one way to make your payments more manageable is through loan consolidation. You’ll be able to combine all your loans into one larger loan from a single lender. This can have some advantages in that it’s much simpler and most consolidated loans have a fixed rate, meaning you won’t be hit hard with changes in interest that can happen with many other variable loans. Additionally, these kinds of loans often offer a range of flexible repayment plans that can help to structure how you’ll pay it off.

3. Talk to your lender. If you’re struggling to make ends meet and simply cannot make loan payments, talk to your lender rather than just not making the payments. You may be able to arrange for deferment or forbearance, rather than only accruing more interest and further complicating the situation for yourself personally and financially.

4. Consider automatic deductions.  For those who have the money, automatic monthly deductions from a checking account can be the way to go in repayment. If it’s gone before you even notice, you’re unlikely to miss it and things will get paid off a whole lot sooner.

5. Know your options. You can’t win a battle without knowing the enemy. Learn all you can about the type of loans you have and your options for repayment. Many government loans offer a grace period after graduation where you won’t be earning any new interest or have structured repayment plans that can help you work out how much and for how long you’ll be paying. This can make a big difference over the long haul so do your research and be prepared.

With the average student loan working out to be around $23,000, repayment is never going to be fun. You can, however, make it a process that won’t hurt your credit, cost you insane amounts of interest or leave you more broke than you were while in college.

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My best advice on this subject is to be sure to match college costs with expected post-graduation salary levels.

It's Not Too Late for College Students to Get Some/More Financial Aid

The following is an article from Sallie Mae’s free Education Investment Planner which attempts to help college-bound students and their families build their own customized plan to pay for college, explore various funding options, and, when applicable, estimate monthly payments for student loans. It's kind of promotional in nature, but I thought it contained some good information and it might help someone out there in need of financial aid support, so I'm running it.

College-bound students who have compared their financial aid award packages might find they need more money to cover the full cost of college. Sallie Mae, the nation’s leading saving- and paying-for-college company, reminds students and families there are still options to help pay for higher education.

When grants, scholarships, and federal student loans are not enough, Sallie Mae recommends families explore these additional tips for paying the college bill:

• Don’t assume it’s too late to apply for additional scholarships. While some scholarship deadlines have passed already, there are many with late spring or summer deadlines. Students and parents can quickly identify potential scholarships with upcoming deadlines by using Sallie Mae’s free online Scholarship Search, which includes information about more than 3 million awards worth more than $16 billion in scholarship dollars. The scholarship search is available at www.SallieMae.com/scholarships.

• Let family and friends know that milestones like high school graduation or birthdays are perfect times for giving the gift of education.  Instead of traditional gifts, relatives and friends can add to a student’s 529 college savings plan account through Ugift. Ugift enables account owners in participating 529 college savings plans to invite others to make contributions for a college-bound student.  For more information about Ugift and participating plans, please visit www.529.com/ugift.

• Earn extra money for college through Sallie Mae’s Upromise free rewards service. Members can save money for college while making eligible everyday purchases of participating products and services from groceries to gas, shopping their favorite online stores, dining out or even taking a summer vacation. Upromise members have earned more than $475 million in member rewards since 2001. Rewards accumulate in a member’s Upromise account and can be transferred into a 529 college savings plan account administered by Upromise Investments or used to pay down eligible Sallie Mae-serviced student loans. Visit www.Upromise.com for more information.

• Use an interest-free tuition payment plan to make paying for college more manageable. Available at hundreds of college campuses, Sallie Mae’s TuitionPay plan lets families spread tuition payments over a number of months instead of making a large lump-sum payment at the beginning of the semester. Visit https://tuitionpay.salliemae.com for more information.

• Consider federally guaranteed parent loans to help foot the tuition bill. PLUS Loans are low-cost federal loans for parents of undergraduate students. At fixed interest rates of 8.5%, families can finance up to the full cost of education – not only tuition, room and board, but also books and supplies. Visit www.SallieMae.com for more information.

• Tap private student loans with faster pay-off times. Sallie Mae’s Smart Option Student Loan, new for the 2009-2010 academic year, helps students save money, build good credit, and pay off their student loan debt faster. Featuring interest-only payments while in school, the Smart Option Student Loan enables the typical customer to pay off the balance nine years sooner and save an estimated 60 percent in finance charges compared to most other private student loan alternatives. Sallie Mae recommends private student loans for families who have exhausted their eligibility for free or less-expensive funds such as scholarships, grants and federal student loans. Students are encouraged to apply with a creditworthy cosigner to increase the likelihood of approval and to help access a lower interest rate. Visit www.SallieMae.com/smartoption for more information.

• Talk to the campus financial aid office if family finances have changed. Colleges can adjust their award packages when a family encounters special circumstances, such as if a parent is laid off or takes a salary cut. The Department of Education recently sent a letter to colleges indicating that they may consider likely income over a 12-month period rather than only looking at past income in awarding Pell Grants and other aid. In addition, if parents are turned down for a federal PLUS loan, a student may qualify for higher loan limits through federal Stafford loans.

An Example of What I've Been Talking About

I've talked about the need to match borrowing for college with potential incomes again and again and again. So when a reader sent me this ABC News piece with a real-life example of what I'm saying NOT to do, I had to share it. Here are the highlights:

Percell never dreamed that this is what would happen after she graduated from college. She grew up hearing that education pays. A government study once claimed that a bachelor's degree was worth $1 million over a lifetime. Even political figures like Hillary Clinton were touting the benefits of a college degree.

So Percell borrowed enough money to pay about $24,000 a year to attend Rivier College in Nashua, N.H. She's about $85,000 in debt.

"I was told just to take out the loans and get the degree," she said, "because when you graduate, you're going to be able to get that good job and pay them off, no problem."

But for three years, Percell has struggled to find a job with her degree in human development.

Here's the problem: "$85,000 in debt" and "degree in human development" do not go together.  "$85,000 in debt" and "MBA from Stanford" can work together as can "$15,000 in debt" and "degree in human development". But to borrow that much for a mostly lower-paying career just doesn't make financial sense. How could she have ever hoped to pay this much back based on the degree she received/work she'd be able to get?

So what could she have done differently? The short answer is to match costs and expected earnings. But specifically, she could have:

1. Gone to a less expensive school. Surely there are colleges that offer degrees in human development that would require her borrowing $85,000.

2. Get a different degree. There may be a similar degree that still allows her to do the sorts of things she likes and yet expect a higher level of pay.

3. Save up in advance, get loans, etc. -- do whatever she could do to lessen the costs of college.

To keep our kids from falling into this trap, we'll counsel them on the degree cost/earnings relationship as well as help them with all the steps listed above. We also have 529s and Coverdells that as of now can pay for at least one year of college at a nice school for each child (with our oldest still six years away from going.)

Five Degrees with Great Returns on Investment

I've talked a lot about matching the cost of college with the expected benefit to make sure you're making a good financial investment. Now Yahoo chips in with the same line of thinking in listing five degrees that have great returns on investment. Their list:

1. Master of Business Administration (MBA) - In ROI terms, Business Week's top-ranked MBA program offers an estimated $96,500 post-MBA salary increase and pays for itself in a little over a year and a half. Most MBA students boost their ROI even further by keeping their day job.

2. Bachelor's Degree in Engineering - Engineers top the U.S. Bureau of Labor Statistics' (BLS) list of bachelor degrees with the highest earning power.

3. Associate's or Bachelor's Degree in Nursing- From an ROI standpoint, one of the most promising developments is loan forgiveness programs. The U.S. Department of Health and Human Services offers a Nursing Education Loan Repayment Program (NELRP), which covers 60 percent of educational costs in return for two years employment at a "critical shortage" facility. Meanwhile, the median nursing salary of $62,480, as reported by the BLS, makes it easy to erase the two-year associate's or four-year bachelor's degree tuition from your balance sheet.

4. Bachelor's Degree in Accounting - Accountants experienced a median salary of $63,180 in 2007. CPAs earn considerable more; a 2007 survey found an average salary of $91,608, which represents a 9 percent increase over '06. While the rest of the economy faces pay cuts and layoffs, accountants can expect "an overall salary increase of 3.4 percent in 2009," reports Robert Half International.

5. Associate's Degree in Computer Science - Computer support specialists earned $45,300 in 2007; a step higher up the career ladder, network and computer systems administrators brought home $67,850.

They also give an overall endorsement of college degrees as follows:

Whether or not you choose these high-performing degree paths, your decision to get a college degree will pay deep dividends for years to come. According to the U.S. Department of Education's Education Resources Information Center (ERIC), college degrees of all stripes offer double-digit increases in earning power. An associate's degree delivers a 25 percent increase in expected lifetime earnings. And a bachelor's degree offers a stunning 88 percent salary advantage over a high school diploma. With the bottom line at the forefront of everyone's priorities, these dramatic returns are bound to speak louder than ever.

My thoughts:

1. I agree that getting a college degree is almost always a smart financial move.

2. My MBA was certainly a great investment. Nice to see they are still delivering value a couple decades later.

3. The key to making the most off of any degree is keeping college costs as low as possible while maximizing expected salary levels after graduation. Fortunately, there are many ideas you can use to save on college expenses.

4. Even if you enter a very high-paying field, it's still usually a good idea to minimize the amount of money you need to borrow to finance your education. Sure, maybe you'll make $100k a year, but if you have $100k in debt as well, it's going to take a long time to pay it off.

Be Sure to Evaluate Cost of College After Financial Aid

I've talked before that in order not to be straddled with college debt for years after graduating, students and their parents need to make sure that there's a match between the cost of the college (and the debt incurred) and the salary that the student can earn upon graduating. In other words, a student who leaves a college with $100,000 in debt and expects an annual salary of $20,000 has made a bad economic decision. On the other hand, a student who leaves college with $20,000 in debt and expects an annual salary of $100,000 has probably made a good economic decision. Of course there are other factors that go into selecting a college and occupation, but the finances can't be too out of whack or they will condemn the person to a long period of financial strife/distress.

This piece helps me clarify my point a bit. In the advice above, I'm talking about the NET cost of college (and in particular the amount of debt a student leaves school with). For instance, a college that costs $50,000 a year to attend but that gives $40,000 in financial aid (not loans, but grants) is much cheaper than a school that costs $20,000 a year but that gives zero aid. Here are a couple of examples from the article:

• A single year of college at Harvard can appear to be out of reach for most families. The cost for tuition, room and board is $47,100, Franek said. “But here’s the interesting thing,” he said. “The average grant aid package at Harvard is $35,000. So that really cuts the price tag down.”

• Likewise, a single year of tuition, room and board at Princeton costs $45,600. “But the average grant aid — that’s free money that you don’t have to pay back — is $31,600 a year,” Franek said. “At Princeton, they want to make sure that they remove finances from the equation. They’ll back you … so that they meet 100 percent of your need.”

This is similar to what I did when I went to school. My undergraduate school was rather expensive, but through scholarships and a lucrative work-study program, my schooling was paid for. In graduate school, I worked every weekend night for two years, but my expenses were completely covered (plus $300 a month -- a fortune for a poor student like me.) So in the end, I made a six-year, $5,000 investment and it paid off with millions in return.

The analysis in the piece I linked to is a bit flawed in that it names the best values in education but doesn't take into account what students are earning once they leave these institutions. You must balance both -- the net cost of the college as well as the expected annual income upon graduation. If you know these two, you can make a solid financial decision about which college is right for you or a loved one.

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:

It's important to remember that universities create and market new graduate programs to serve their own needs as much as to add value for prospective students. So anyone who's smart enough to get an advanced degree should be smart enough to limit their expenses to a minimum and choose a program that will widen their options without saddling them with debt.

As I've noted before, there are some things you can do to maximize your overall college investment. If you take these steps, it's likely that your investment of time and money will pay off big. This is what happened for me and if done correctly, the same opportunity is still out there today.

College is Certainly Worth the Cost

Here's a piece from Yahoo that asks if college is worth the cost. Their bottomline:

On average, the answer is yes.

While the earnings of people with bachelor's degrees dropped about 5 percent between 2000 and 2004, they'll still earn an average of about $1.2 million more than high school graduates over a 40-year career. Borrowing for college, as most students do, cuts into the return on education, but not by much.

At the extreme end, say you paid for a private college with private loans -- $133,204 at 9 percent. Over 20 years, you'd pay back almost $300,000 -- still leaving a $900,000 average lifetime earnings premium.

In other words, it's a good investment. You pay in money and time, but you reap a financial windfall.

However, there are some things you can do to maximize your overall college investment. If you take these steps, it's likely that your investment of time and money will pay off big. This is what happened for me and if done correctly, the same opportunity is still out there today.

How to Go to College for Free

Here is a very interesting article from Business Week. It includes the story of the College of the Ozarks in Point Lookout, Mo. and says that every student that goes to college there does so for free. The details:

At the College of the Ozarks, all students' tuition costs are offset by a mandatory work-study program.

I was very surprised to hear that a college like this existed. Then I read further -- there are several colleges like this one:

Tuition-free colleges—also known as full-scholarship colleges—remain one of higher education's best-kept secrets. True to their name, they are institutions that guarantee to cover the entire student-body's tuition. There are only a handful of such schools in the U.S., which is one reason they are often overlooked by students, parents, and high school guidance counselors during the college search, says Sandy Baum, a senior policy analyst at the College Board. "It's not a trend of the future. It's just a certain niche market. These schools have unique situations that allow them to go tuition-free," she said.

And here's the big benefit to those that attend free schools:

Students who attend these schools walk away from college with little to no loans, debt, and financial worries after they graduate. In most cases, the only fee students need to pay is room and board, a cost separate from college tuition. It's a financial situation with almost irresistible appeal for college students with limited means, said Rick Darvis, co-founder of the National Institute of Certified College Planners, an organization founded in 2002 to help families navigate the college loan and financial aid market. "For kids coming out of college today, debt-free is pretty rare," Darvis said. "As far as a kid having a summer job to help pay off college, that's not going to happen anymore."

I have to think that people are killing themselves to get into these schools. But if you do get in, it's worth it. I think of all those people who've barely saved anything for college (and their parents haven't saved much more than that.) A free tuition school seems to be a very good alternative for them.

For those of you interested, here's a list of free colleges.

Go to Law School Without Racking Up Tons of Debt

After writing about one woman's disastrous journey to law school, I had to post on this piece from CareerJournal on how to pick a great law school while avoiding hefty debt. Their tips:
 

• Consider an in-state public law school.

• Be a big fish: If your law-school admissions test score doesn't qualify you for admittance at the top 20 to 30 schools ranked by U.S. News & World Report in its annual law-school rankings and your goal is a high-paying law-firm job after graduation, consider going to the school where you will get the biggest tuition discount and where you will be among the top incoming students.
  
• Ask about on-campus recruiting.

• Look for transfer opportunities: Elite schools are increasingly plucking the best students from lower-ranked schools, administrators say.

• Check alternative law-school rankings.

• Scrutinize schools' data on graduate employment.
  
• Think about location: Unless a school is nationally recognized, it's tough to take its degree to firms on the other side of the country.

Let me just reiterate the feelings I detailed in How to Get the Most Financially Out of College (which applies to grad school, law school and the like as well.) My key points:

1. Try and decide what type of work you'd like to do before you apply to any colleges.
2. Go to the least expensive school (or at least an inexpensive one) that will get you where you want to go.
3. Get as many scholarships and free money as possible.
4. Apply the various ways available to save money on college.

I have already detailed what I did to get two degrees (including an MBA) for only $5,000 but let me add a bit to the picture.

When I went to undergraduate school, I wanted to become a lawyer. My school had done well at getting people into law school, so I was set. Then I took an internship with a lawyer in my junior year, hated it, and shifted my focus (through some counsel as well as a few personal experiences) to business/marketing. Trouble was, NO ONE recruited business/marketing majors from my school. Unless you count the Missouri Department of Game and Fisheries -- that paid a whopping $15,000 a year. Therefore, I knew I needed to go to grad school to get where I wanted to be.

I also knew the kind of employer/industry I wanted to work for. In fact, I knew the exact company I wanted to work for, but I was willing to work for a similar company in the same industry. I knew that if I worked for any of these Fortune 500 companies, my career would be set (at least to some degree). So I started looking for the cheapest school (in terms of tuition as well as what work/aid I could get) that had these companies recruiting on campus. I applied for and got an assistantship (based on my undergraduate success) at one school that fit the bill, I graduated two years later, and left with a job at the company I wanted to work for from the start. From there, my career took off. The degree got me to job #1 and job #1 got me to successively better and better positions.

Ok, enough rambling, what's the point? 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.

How to Get the Most Financially Out of College

Here's a piece from MSN Money that asks if college is worth the cost or not. The author goes out of his way to show that it's not worth it in some cases, especially when:

• The student goes to a very expensive college.
• The student borrows a ton of money to pay for it.
• Upon graduation, the student takes a job that doesn't pay much in relation to the debt he just incurred.

Well, duh. Of course it's a bad deal in this example. But I'd consider this the worst-case scenario.

As you all know by now, I'm a big fan of going to college. Studies show what a great deal it can be for you financially and education's made a huge difference in my finances. That said, you can't simply go to whatever college you like, borrow whatever you like, and take whatever job you like and expect that to be a series of good financial moves.

Here's what I would recommend to those people looking to make the best possible investment out of college:

1. Try and decide what type of work you'd like to do before you apply to any colleges. I know this can be difficult to do -- for a 16-year-old to decide his life's work -- but at least give it some thought. Narrow the list to a few careers and look at colleges that cover most (if not all) of those. And in the first year or two of college, take as many "general" classes as possible. This will give you a bit more time to decide what you really want to do.

2. Go to the least expensive school (or at least an inexpensive one) that will get you where you want to go. For instance, if you want to be an engineer at company XYZ and you know that XYZ recruits from both college 123 and college 456, but college 123 costs $10,000 a year and college 456 costs $15,000 a year, consider the cost difference before picking a college. You may still go with college 456, but really, really, really consider if it's worth the extra $20,000 to attend.

3. Get as many scholarships and free money as possible. Some of this is not dependent on you (such as whether or not you qualify for need-based scholarships) but many do. This is why it's important for you to rack up extracurricular experiences, community service, and good grades starting in 9th grade. The work done here will pay off in all sorts of various scholarships and aid given to those who excel in various activities. For more thoughts on this, see 11 Ways to Get Your Share of College Money.

4. Apply the various ways available to save money on college. Here are just a few I've written about:

• 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

You can find more ideas by going to my college category and reading all the articles.

Now whether or not college is a good deal even if you apply these principles still depends on what you make leaving college versus what you could have made with just a high school degree. But generally, a college educated person will make substantially more over his career than a high school educated person, so as long as the debt load leaving college is reasonable, it's a no-brainer -- college is a better deal by far.

Can you find circumstances where this isn't true? Of course. But in the vast number of cases, a college degree obtained at a reasonable cost (and with reasonable levels of borrowing) is a great deal. The key is to think ahead and plan what you're doing all the way through starting when you/your child starts 9th grade. If you do this and do it correctly, college will not only be a great, life-changing experience, but it will also be a very lucrative decision.

I'm Sick of Hearing About This Topic

Here's one topic I'm really sick of hearing about: how people are leaving college with boatloads of debt that make living their lives difficult. Here's the type of scare-tactic quote I see on this issue over and over:

Many in the next generation of workers will be so debt-burdened they will have to delay home purchases, limit vacations, even eat out less to pay loans off on time, financial experts fear.

Oh my! You mean people will have to sacrifice eating out and other necessities to pay for college? This is criminal!!!!!!

Puh-leaze. Give me a break.

What I especially love about this article is the example they use:

Kristin Cole, 30, who graduated from Michigan State University's law school and lives in Grand Rapids, owes $150,000 in private and government-backed student loans.

Her monthly payment of $660, which consumes a quarter of her take-home pay, is scheduled to jump to $800 in a year or so, confronting her with stark financial choices.

"I could never buy a house. I can't travel; I can't do anything," she said. "I feel like a prisoner."

She commutes now to her Legal Aid job in Kalamazoo, but Cole said she may need to eventually get a job at a law firm to make ends meet.

"I wanted to do something with my life and I went to law school," Cole said. She opted for legal aid work right after graduation in 2005.

"I feel real connected to this work, I really enjoy it and want to stay involved. Unfortunately it's nearly impossible to get ahead. I can pay my bills and that's about it," Cole said.

A native of Saginaw, Cole has bachelor's and master's degrees in Spanish from MSU. But she shouldered most of her student loans -- $100,000 -- to pay for law school. Although her federal student loans have a low interest rate, under 3 percent, the private loans from a bank carry 8 percent interest.

The piece goes on and on about how much college costs, how much people have to borrow, how they don't have a life and can't do the work they want to do, how it's not fair and blah, blah, blah. What a load of junk!

Here's my take on this situation:

1. Yes, college is getting more expensive. As such, we need to take steps to make it more affordable. For instance, parents need to reign in their spending and work on saving more for their kids' college expenses. And kids need to do what they can -- get good grades and be active in high school so they can earn scholarships. In addition, they both need to look for creative ways to pay for college. I happen to have tons of ideas on all these issues. Go to my college category and scroll down the list. There's lots of stuff there to save you a bundle of money.

2. Though college costs a lot, it's worth the investment. Let's say someone would tell you, "give me $40,000 and I'll give you $1 million back." Do you think this is a good deal? I do. And that's what happens when most people go to college -- they end up earning way more than what they would have otherwise and way more than the cost of college.

3. People need to balance the amount they borrow with the amount they can potentially earn with the degree they get. I detail this thinking in How Much College Debt is Too Much? but the simple rule is the more you expect to get out, the more you're able/willing to put in.

4. It is fair, so quit complaining. When people go to college, they know what they're getting (a degree in something), what they're paying for it, and what they'll likely be able to make when they get out with that degree. Where's the unfairness? What really gripes me is that people think they can pay/borrow whatever they want and then take whatever (usually low-paying) job they want to and that should be "fair." Life doesn't work like that, people.

Now for the example above. Let's review what Kristin did and how she could have done better than end up with $150k in debt:

1. She should have thought ahead. Did Kristin really think that she could earn enough working in legal aid to pay back $150k? Nope. I guarantee she didn't think about it at all. For that matter, it looks like her undergrad degree racked up $50k in debt. Seems she didn't think about that in advance either. If she would have considered what she'd be earning before she enrolled in school, she probably would have either decided on a different career or a different school.

2. She paid way too much for school. Where'd she live, a ten-bedroom house? This is Michigan State she went to -- not Harvard. How could someone rack up such large debt going to Michigan State law school? I guarantee you she could have gone to a much cheaper school and gotten the same job she has now with legal aid.

3. She didn't save in advance or (it appears) work during school. Why not? Is it because a law degree demands too much effort? Well, I worked while I got an MBA and I don't think a law degree is that much (if any) harder.

4. She probably used the same lack of decision-making when she got her undergrad degree. (I'm guessing on this one based on what she did (or didn't do) when she got her law degree. There are a lot more opportunities to save money on an undergrad degree and while she would still have a ton of debt from law school, she could have knocked off up to a third of her debt if she'd applied the above principles when she got her first diploma.

Ok, this rant is coming to an end. I know that college costs are getting higher and tougher to pay for. That's all the more reason we need to plan for how to minimize them and pay for them so our kids don't leave with a boatload of debt. I'm all for reading articles with these sorts of ideas. But I really am starting to hate the abundance of these "I made stupid mistakes in borrowing for college and it's not fair" articles.

Help a Reader: Which 529 is Best?

Here's a question I received recently from a reader:

We are trying to decide how to best start a 529 for a newborn. We have plenty of cash we could allocate to a plan, and are trying to decide whether to start the plan with a bigger initial investment or larger annual contributions. Can you provide some info on how you went about starting & maintaining your 529's? Any specifics would be much appreciated!

Here's what I've had to say on the issue:

• 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

Any other thoughts for this reader? What would you advise him to do?

How I Made Millions Off a $5,000 Investment

Ok, so the title's a bit over-the-top on this one. But that's the kind of mood I'm in as I write this, so I'm going with it. :-)

Getting a college education and following it up with an MBA has been one of the best financial decisions I've ever made. The numbers show that if you get the right college degree and maximize the earnings from your career, you can add millions to your income throughout your lifetime. For me, my MBA was a major step in moving my salary up much higher than I ever thought it could go.

And best of all, this great investment didn't cost me that much. Yes, it did take six years of my life, but in terms of financial costs, I left grad school with only $5,000 in debt. Best $5,000 I've ever spent. I thought I'd briefly detail for you how I did it. The steps:

1. I applied myself in high school. Yep, you lay the groundwork for college scholarships/success starting in 9th grade of high school (for more on this line of thinking, see Why Extracurricular, Volunteer, and Community Service Activities in High School are so Important at Getting You into the College of Your Choice and What You (or Your Child) Should be Doing in 9th Grade to Get into the College of Your Choice). I studied hard, was involved in extracurricular activities (including leadership positions), served in the community and held a part-time job. All of these looked great on college applications and helped me get accepted to colleges I was interested in.

2. I went to an undergraduate school that was good (not great) but that was affordable. I did a cost/benefit analysis when I decided what college to attend. Today it seems that many kids simply pick a college they "like" and decide to figure out how to pay for it (or borrow for it) without much regard to how much the college costs and what the expected payout is.

3. I got scholarships based on: 1. Academic accomplishments (see #1 above -- my work in high school paid off here). 2. Leadership/activities. (Again, high school work paid off.) 3. Need. (At that time, I was from a "poor" family).  These added up to a nice chunk of change each year.

4. I applied myself in college. I viewed going to college as my "job" and treated it as such. Sure, I had plenty of time for fun and non-school activities (my fraternity brothers can attest to this), but I also studied hard and was involved in several campus organizations. This led to more scholarships and a lucrative assistantship in my sophomore through senior years.

5. I worked in college. My freshman year I worked in the library for a pittance, but because of my grades and activities I moved up into the assistantship the last three years of school. I also worked every summer and saved like a fiend. Even the summer I couldn't get my job at the grocery store back, I found work "walking beans" (don't ask if you don't know what it is -- you don't want to know.)

6. My success in undergraduate school set up my grad school success as well. I followed the same process -- looked at good but not great schools that were very affordable and used my high school and college results to get into one that fit my criteria. Also based on these results, I got an assistantship that paid my entire tuition for two years. But I worked for it. EVERY Friday and Saturday night for two years I ran a movie theater in the student union. Yeah, it was a pain to go to work when my friends were out partying, but the sacrifice was worth it as I left grad school owing only $5,000 to my grandmother (which I paid back a few years later.)

So, in the end, that $5,000 investment will end up earning me millions more than if I hadn't gone to college and grad school. Seems like a good investment to me! ;-)

BTW, when I went to college, I didn't know about all the other ways people can save when getting their degree. If you want more ideas on how to save on college, check out my college category for tons of ideas.

Avoid Costs When Investing in 529 Plans Too

I've noted that a key part of making the most on your investments is to avoid as many associated costs as possible. The same thoughts hold true when investing your college savings in 529 plans -- the more costs you can avoid, the better your investment will perform.

One major cost with 529s can be brokerage selling costs/fees. I say "can be" because you can usually purchase 529s directly from the state without incurring any broker's fees. Here are the details from Bankrate:

When you purchase a 529 plan through a broker, the broker receives commissions, paid for by you directly through sales charges and/or indirectly through additional expenses attached to the investment. You will avoid these costs by going to a 529 plan and opening your account directly. Each 529 plan has a Web site containing an official program description and other enrollment materials, and most of the "direct-sold" plans allow you to easily enroll online and make contributions via electronic transfer from your bank account. You might also locate 529 plans through the Web sites of the mutual fund firms, including the firms mentioned above, that are hired by the states to manage their 529 plans.

Ok, so if it costs more for the EXACT SAME INVESTMENT, why would anyone EVER buy a 529 from a broker? Thoughts on this:

Should you go the direct route or the broker route? The answer depends on your ability to understand and select 529 plans and other investment vehicles, as well as the amount of time you are willing to spend investigating your options. Many parents, and especially grandparents, decide to involve a financial professional and don't mind paying the extra costs associated with broker-sold 529 plans. You may also wish to consider that broker-sold 529 plans tend to use actively managed mutual funds in their investment options while many of the direct-sold 529 plans use index funds.

A few thoughts on this:

1. The translation of that last sentence is "not only will you likely pay more up front for a broker-sold 529, but the funds you'll get from it will probably be more expensive making your total return even worse."

2. Consider the extra amount you pay a tax on ignorance. Yep, it's easy to learn about personal finances, but if you don't want to take the time and effort to do so, you're probably going to pay more and get less on lots of items.

3. I bought my 529s directly from the state of Michigan. Not only did I save fees by going direct, but I also got one of the best plans in the U.S. as well as a nice state tax deduction.

4. For more thoughts on 529s, see 529s Are the Undisputed Kings of College Savings.

Parents Pay for Most of College

We've debated here at Free Money Finance on who should pay for college -- parents, kids, or both -- but I've never seen any sort of stats on who actually does pay until now. Here's an interesting fact I found in the September issue of Kiplinger's:

More than 60% of parents plan to pay for the bulk of their kids' college costs.

Of course this is short on details so we need to accept it for what it is (and hope it's not misleading), but at the very least it gives us a direction on what people are thinking/doing.

As I've said before, we plan to pay for half of our kids' college costs, but they can earn their half of costs by scholarships and grants, so it's not like they'll need full-time jobs in high school to pay their portion. IN addition, as time goes on, I'm thinking that it's likely we'll end up paying for more than half. I still want them to pay for part and "work" for it (so they're more invested in their own education), but with the price of a college education continuing to skyrocket, I'm not sure they're going to be in a position to save that much.

How about you? What do you plan to do for your kids when it comes to paying for college?

$10k Challenge: Become a College Advisor

As many of you know, I'm trying to raise an additional $10k this year in income -- extra income outside my regular job. (The numbers I ran show that making this amount and socking it away year after year can yield quite a sizeable next egg.) Here's another idea for those of you trying to do the same thing: become a college advisor

Believe it or not, people are paying money (and good money at that) to have their kids receive college-related advice on which schools to apply to, how to apply, how to get in, etc. Here are some details from Kiplinger:

Worried about getting junior into college or graduate school? For $1,000, an admissions consultant can help your child narrow down thousands of options to a dozen or more schools that could be the right fit.

Valerie Broughton, an admissions consultant in Minneapolis, identified schools that complemented Michael's academic and social interests, set deadlines for applications, and coached him on essays and interviews. Broughton charges $2,750 for the total package but will work for an hourly rate of $200.

You'll typically pay more than $1,000 to get the full range of services from an admissions consultant. But the most valuable service is narrowing the list of schools to those likely to admit your student, give financial aid and offer the best educational programs for your child's interests. A grand will buy such a list from a qualified consultant, says Mark Sklarow, executive director of the Independent Educational Consultants Association.

Holy cow!!!!! Are they kidding?????? Is there really a career in this? If so, maybe it's something I should consider as a side business. Surely I could recommend colleges to go to, couldn't I?

Is Going Back to College Worth It? (Are MBAs Worth It?)

In Experience versus Education: Which Counts More in Career Success?, I talked about which of the two made the most difference in a person's career. As we all have discussed this issue through several posts, I think the general consensus is the following:

An education (degree) is often needed to open the door and get a good first job. The degree might also be important for later job opportunities, but generally the importance of the degree becomes less and less as a person's career advances -- and work experience becomes more and more important. In many cases, work experience eventually dwarfs education in importance later on in a person's career.

I realize that the above statement is very general and while it applies to most circumstances (at least in my opinion), there are tons of exceptions.

And here's a piece from Kiplinger that details the case against going back to school -- in this case, he highlights the MBA and how there's little need for it. His rationale:

• Rather than learning what you need, you're buried under mountains of information, most of which you'll never use, and the rest of which you'll probably long have forgotten -- or it will have become obsolete by the time you need it.

• You're often taught in a lecture class (the least effective way to learn,) or in a discussion section, in which you endure more professorial prattle punctuated by student comments often ignorant and/or designed more to impress than to edify.

• Worst of all, most professors are far less qualified than are master practitioners to help you prepare to be competent in your career. After all, they are people who deliberately opted out of the real world so they could study esoteric academic research questions. The more prestigious the institution, the more likely professors are to be hired, promoted, and tenured based on their research productivity, with little regard to whether they confuse or bore the pants off students.

Ha! This guy's singing my song!

I have to agree with him 100% on these. Grad school contained a ton of stuff I haven't used since, was full of meaningless discussions from people who didn't know how the real world worked (including me), and was taught by people who didn't understand the practicalities of American business. It was fairly worthless in preparing me for a career in business except for one thing -- it opened the door for me to get a job I could never have gotten otherwise (and certainly couldn't have gotten at age 24.) After that, my experience took over and my career took off. But I needed the MBA to get it started.

So what does he suggest you do instead of going back to school? He says you should enroll in "You U" -- a self-developed program where you:

• Have a mentor
• Read key articles and books
• Attend conferences
• Do apprenticeships alongside a master practitioner

By the way, I agree that each of these should be part of making the most of your career -- but you should be doing this whether or not you get another degree.

Anyway, the author suggests that you can open the doors that an MBA usually opens for you by writing a specific letter (included in the link above) that convinces employers that you've gone to You U and are a great hire. He claims the letter should be really effective:

I give talks to executives and often ask them, "Imagine you're an employer and you post a want ad that says 'MBA required.' and one applicant wrote this letter." I read the letter above to them. I then say, "Raise your hand if you'd interview him." Invariably, 80% to 90% do.

Ok, now who doesn't understand the real world?

First of all, would the executives even see the letter or would some HR intern weed it out since the guy didn't have an MBA? Second, would 80% to 90% REALLY interview him or are they just saying that in a bogus survey in an artificial environment? Third, an interview is not a job offer. It's far from it.

What do you think? Agree with the author? Agree with me? Something in between?

University Students: Getting Sucked Dry by Credit Cards

The following is provided courtesy of Marotta Asset Management:

Last week we listed the ways university student are enticed into using credit cards. This week we will examine the economical impact of those initially small and convenient monthly payments.

If your credit card minimum payment was $10 and you repaid it every month for 15 1/2 years with an accruing interest of 15.9%, a $1,000 purchase would end up costing $2,250. Every time you use your credit card to pay for something you risk it being marked up two and a half times the normal sales price. Over time, that $10 T-shirt cost you $22.50!

Whenever you use your credit card, image that two and a half times the price of what you are buying will be deducted from your account over the next decade.

Students assume that they can run up a credit card bill because it will be easy to pay it off after they graduate when they get a high paying job. But the larger your debt the longer it takes to pay off that debt using minimum payments. The average student graduates with about $7,000 in credit card debt. They assume that $7,000 will be easily wiped away with their first high paying job.

Being burdened with $7,000 in credit card debt after graduation costs nearly $20,000 and can stretch nearly forty years to erase with minimum payments. Just when you should be saving and investing that $20,000, growing rich or buying your own home you are stuck with unfinished and unneeded college debt.

Whenever you casually reach for your credit card during college, visualize the choice between having the down payment on owning your own home or making that purchase.

Studies have linked accumulating credit card debt to psychological stress that increases the likelihood of dropping out of school and suicide. Students find themselves ill-equipped to handle the anxiety of mounting collection agencies alongside their course of studies.

Studies have also shown that a college degree is worth over a million dollars in increased lifetime earnings. Don't sacrifice the million dollar benefits of an education on the frivolous purchases of a credit card.

Every time you reach for a credit card image that credit card hanging on your wall instead of your diploma. It could cost you a million dollars to frame it.

The years after college and before children are the best time in your life to save. But you lose time and squander your resources if you enter the marketplace with credit card debt.

Your high school and college years are the prime years for funding your Roth IRA. If you use a credit card but don't fully fund your Roth IRA each year you have a credit card problem. Unlike a traditional IRA, you contribute to a Roth IRA after taxes, it grows tax free, and then in retirement you can make tax free withdrawals. Because the money is contributed after taxes, it is best to fund an IRA while you are a poor college student working summers and part time and still in a low tax bracket.

Contributing $2,000 a year to your Roth IRA during high school and college is better than starting to contribute during your first year after college and continuing for the remainder of your life.

Every seven years you wait to fund your Roth IRA you cut in half the standard of living you will have in your retirement. With normal market returns, after seven years of $2,000 a year contributions your Roth IRA will be appreciating at a rate of more than $2,000 a year, without any additional contributions. At normal market rates of return, that $14,000 contribution during high school and college will ultimately grow to more than $2 million dollars by age 67 and more than $4 million dollars by age 73.

Whenever you look at prices in a store or restaurant, imagine taking the decimal out in front of the cents. That is how much tax free income you are losing in retirement by not contributing to your Roth IRA. And by age 85 you could add another zero. The $8.50 lunch costs you $850 at age 63 and $8,500 by age 85.

If you don't think you have any problems with your use of credit cards, but you haven't been saving and fully funding your Roth IRA, you have a problem with your use of credit cards.

Every time you go to use your credit card ask yourself if you've fully funded your Roth IRA for the year. If you haven't, put the credit card right back in your wallet.

All debt is not equal. Credit card debt is bad debt. Student loans are good debt. Good debt is anything that last longer than it does to pay the loan back. Good debt is investing in things that will pay you more money than the debt costs. An education is good debt because it will increase your income, satisfaction in life, and longevity.

Credit card debt is bad debt. Bad debt is anything that you can wear, eat or drink. Always pay cash for these items. If you do, what you wear, eat and drink will be healthier and less expensive. The next time you pull out your credit card for any of these items imagine wearing, eating or drinking $20 dollar bills.

Use these visualization techniques to stem your excessive use of credit. Alternately, just leave your credit card locked in your dorm room. Life's too short to let it get sucked dry by credit cards.

Save Money and Time by Attending College Overseas

Smart Money has a piece that says you can save time and money by attending college overseas. The summary:

International tuition fees at top universities in the U.K. and Canada trim anywhere from a quarter to half the price of tuition at U.S. private universities and come neck-and-neck with tuition paid by out-of-state students. And, in many cases, these undergraduate programs are significantly shorter, saving students both time and money.

Here's one example of a person saving time and money by studying overseas:

Next year, Christopher Schuller, a native of Nashville, Tenn., will complete his law degree at Oxford University, and he'll qualify to take the New York State Bar exam. Assuming he passes, he'll become a practicing attorney at age 22. Schuller didn't skip grades in high school or overload on his college coursework. Instead, he chose to attend college in England where most undergraduate programs — including law school — are three years long and where students begin their major on the very first day of classes.

In addition to skipping four years of traditional undergrad education, Schuller saved big bucks. Tuition for U.S. students at Oxford costs about $20,000 per year — or $60,000 to get a law degree. If Schuller had attended the University of Chicago, which was his first choice in the U.S., he'd pay more than $93,000 for an undergraduate degree, and then have to pay for a three-year J.D. to boot.

Now, of course, college aid, scholarships, etc. play a part in this:

Only a few scholarships are available for international students. Almost all U.S. federal loans can be used to pay for tuition in another country.

So, if you're paying the entire bill yourself or if you're going to an expansive school in the U.S. with little assistance, studying overseas may be an option that can save you a good amount of money.

Anyone tried this?

Why Is College So Expensive?

While I'm on vacation, some great bloggers are helping me out with a few posts per day. The following is from Advanced Personal Finance:

Yesterday I was reviewing the 529 college savings account balances for our daughter and unborn son. I was pleased to see that in four-ish years we've managed to save and invest $13,000 for her college education. Even our son has $1,200 saved.

But it also got me thinking about the high cost of college. Why do we have to save so much to be able to afford college for them?

Why College Costs So Much

For some historical family perspective, my father paid for his 4-year degree by working summers and using the G.I. Bill. He went on to get a masters degree, again without incurring loans. The story is similar for my mom.

Yet I came out of college 13 years ago with approximately $9,000 in student loan debt alone, which is relatively small from what I can tell reading other peoples' stories. And, like my father and mother, worked summers. That wasn't even close to all of my debt when I graduated, by the way.

Here are some hard numbers on college costs:

• The price of public colleges increased 28% in the last five years alone even after adjusting for inflation. Eighty percent of all students are enrolled in public colleges. [Source: American Council on Education]
• Student debt has more than doubled from 1993-2004. [Source: U.S. Public Interest Research Group]

Why the meteoric increase in tuition and fees?

I think there are several reasons why college costs so much. State funding cuts, easy loans, increased demand, and a willingness to spend on education are the primary drivers.

First, in the case of public schools, states have decreased funding for higher education. In the 2002-2003 school year, 21 states either cut higher education funding or held it steady (0% increase). In 2003-2004, support for universities fell nearly 4% nationwide.

Second, the federal government has made loans the method of choice for funding school. By giving Sallie Mae and Fannie Mae the implicit backing of the full faith and credit of the U.S., the federal government has subsidized the loans these firms make. It has shrunk grants and made loans cheaper, trying to provide education on the cheap.

In 2005-06, borrowers (both students and parents) took out $17.3 billion dollars in non-federal loans for college. That's up from about $1 billion ten years ago. Not one of those loans is interest-deferred, so that debt starts compounding immediately.

Student population increase is another reason why higher education is becoming more expensive. There has been a steady increase in demand for a college education since the 80s. Higher education operates somewhat as a supply and demand economy, allowing colleges to charge more especially at the high end.

Finally, families are more willing to spend on education. As the U.S. economy becomes more knowledge-driven, education has an increased effect on income. Part of the reason for the explosion in parental loans for higher education comes from its perceived importance in today's economy.

As the price rapidly outstrips inflation (and income), attending college becomes an increasingly risky proposition. A student who takes on tens of thousands of dollars in loans must be reasonably sure of his or her ability to repay them. But while student debt has more than doubled from 1993-2004, median earnings for 25-34 year old college graduates has fallen 8% since 2002 according to the U.S. Census.

It's worth noting that student loans cannot be discharged in bankruptcy. They are with the borrower until they are paid back or the borrow dies.

So where does this leave us? I think this trend is here to stay. As a result, middle class families will feel even greater financial pressure as the kids reach college age.

The options are few and all are difficult.  Some families will be able to save for their kids' education.  Some students and parents will take on onerous loans to make college a reality.  And unfortunately, a great many young people with the capability to attend college simply won't because it's not affordable.

And that leaves all of us poorer in the long run.

College Students and Credit Cards

The following is courtesy of Marotta Asset Management and gives their thoughts on college students and credit cards:

Every University student knows they should have a credit card. You have to have a second form of ID on many financial transactions. You have to have one to establish good credit. And, the more you use them, the more you will accrue bonus points toward cash, mileage credits and various "free gifts". P.T. Barnum said, "There's a sucker born every minute." But it doesn't have to be you.

About half of first year University students have at least one credit card. By the second year they nearly all do. About 60% of them pay off their balance each month. Even the most responsible of these students is succumbing to developing the worst mental rules of thumb on how to think about their finances.

They need to have rules of thumb that are not influenced by Madison Avenue. They need visual images to help them understand what the use of credit does even if they think they are using their credit card responsibly. They need to understand the credit card company's goal of ensnaring them into perpetual servitude.

In most states, eighteen year-olds are eligible for a credit card without parental consent or personal employment. The next generation can't learn to live within their means if parents keep supplementing their means. We don't do our children any favors by intervening and ruining life's lessons.

Emulate the best frugality in your parents. If your dad was the frugal parent, then whenever you go to use that credit card ask, "Would dad think this is a great idea?" If your mom was the frugal parent, then whenever you go to use that credit card ask, "Would mom think this is a great idea?"

Your parents had to learn the lessons of income, debt and savings in order to send you off to school. Each generation must learn the lessons of life in the same way that the previous generation did - on their own. Students have to develop their own financial compass.

Targeting university students is a strategic decision for credit card companies. They know students are more likely to exceed their credit limit, make minimum payments and remain loyal to the company that issues them their first card.

Credit card companies attract students with loud music, flashy giveaways and free food. The most typical give away is a free T-shirt. There are at least nine ways that T-shirt could cost you thousands of dollars.

True story. A friend's son filled out a credit card application at a booth outside the stadium at one of the University of Virginia's home games. He was promised a T-shirt in the mail for completing a form. Instead they used all of his credit information to steal his identity and have the credit card sent to another address. Thousands of dollars later he was still trying to clear his name.

When you see those T-shirt offers, imagine they read, "I had my identity stolen and all I got was this lousy T-shirt." But you probably won't get the T-shirt.

Studies have shown that when people use a credit card, they are willing to spend twice as much money as when they use cash. Those same studies show that the biggest savings are enjoyed up by a refusal to make small everyday unnecessary purchases. Put those two studies together and you will double your spending and cut your savings in half simply by using a credit card.

That means that you have to imagine that everything you purchase with a credit card costs twice as much simply to be as hesitant to purchase it as you would if you had to pay cash.

Although 60% of college student's pay off their balance each month, that leaves 40% who do not. It is relatively easy for a bill to be lost, misplaced or forgotten in the hectic lifestyle of college activities.

If you lack the money to pay cash the credit card is very convenient. The smaller minimum payments are easier to pay than the accrued balance. As a result, it is very easy to get suckered into the pattern of just paying the minimum each month instead of the balance.

Making the Most of College -- Get a Good Roommate

Follow me on this path for a bit:

• Your career is your most valuable asset.

• College is a key part of making the most of your career.

• To succeed in college, you need to have accomplishments in both academics and extracurricular activities.

• It's hard to have these accomplishments if your roommate is a bozo.

• Hence, having a good college roommate is key to a successful career and your entire financial future!

Ok, I went a bit overboard on that last one, but as I was reading a recent Ben Stein article on some college-related tips he had for his son, I ran into this suggestion:

If you're not happy with your roommate, switch. Having a good roommate makes all the difference in the world. Don't let yourself be sidetracked by having a disturbing person sharing your world. Go to the housing office and make an official switch, or just do it informally. But do it, and keep switching until you find a roommate you get along with.

This got me to thinking how part of my college success could be attributed to having a good roommate.

It started off badly. When I arrived at school, I soon realized my roommate was mentally unstable. I won't go into all the details about why I thought this, but let's just say that looking back I'm surprised I was able to sleep in the same room with him. I'm much more cautious today and I'm sure I'd leave immediately if assigned to room with him now.

Fortunately for me, a cool guy across the hall also had a psycho for a roommate. Within a month or so, we'd all traded around, and I was across the hall with the nice guy while the two Manson boys shacked up. You'd think we would have still had a problem with them -- after all they were just across the hall -- but they were always busy doing something else (torturing bugs, staring into space, listing to old speeches by Hitler, who knows?) so they were little trouble to us.

The new roommate I found that year remained my roommate throughout the rest of college. He and I just clicked and our room was always peaceful and quiet -- a sanctuary compared to most. It was one of the things that helped me do well in school which, in turn, got my career started off on the right foot. Thanks, Bill, for making it so easy.

By the way, when I went to grad school, I roomed alone. :-)

How about you? Any good (or nightmare) college roommate stories out there?

Is College the New High School?

I was talking to a friend the other day when we got into a conversation about how important college is to career development/potential these days. We noted that it used to be that someone with a high school diploma could do "ok", but nowadays it seems like you have to have a college degree even to be considered for the most basic jobs. There's no doubt that having a college degree can help you financially in a big, big way, but now it seems like you need one to do things that really shouldn't require a degree -- tasks that high school grads used to be fine for.

Anyone else feel this way?

We got into the discussion when my friend suggested that maybe one of his kids wouldn't go to college. I was aghast! How would he survive? And why did I think he was "in trouble" if he didn't go to college. Plenty of people have done fine without a college degree. It was strange, got me to thinking, so I wanted to run the concept by all of you.

Can someone please straighten me out here?