Free Money Finance

Student Loans and Earnings

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Today I want to share some of the book's thoughts on student loans and earnings. Let's start with this one:

College costs have been rising at more than two times the rate of inflation, and that cost increase is being financed by student loans. Wages are essentially flat after inflation, and experts believe that the robust economic growth that the United States achieved over the past century is a thing of the past.

These two factors (college costs increasing but incomes remaining flat) are the reasons we're even asking whether or not a college degree is worth the time and cost these days. A couple decades ago it was a "no brainer" -- a college degree was almost always the better choice (over no degree.) But these days the answer is often "it depends". And what does it depend on? Basically it boils down to the costs of what it takes to get the degree and what you can expect to earn with it. The more you can lower the former and increase the latter, the more likely it is that getting a degree is a "good deal."

The book goes on to give some interesting insights into the impact school loans have on students/graduates. Here's the first:

A 2008 Yale study found that for every $10,000 in student loans students graduate with, they accept jobs that pay $2,000 more in annual salary. [It also found that] every $10,000 in student loan debt results in a 5 percent reduction in the chances that a student will become a teacher, work at a nonprofit, or take a similarly low-paying, high-karma job.

I've been saying this a long time, but these numbers bear out that it's happening: if a student takes on a lot of debt, he needs to be sure he is going to get a job that males taking on the debt worth it. (BTW, I've also been saying that if you want to go into a low-paying field you need to make sure your college debt is low to non-existent.) This is where most people that have college debt problems get into trouble -- they take on a huge amount of debt while getting a degree that doesn't allow them to earn much. It's a financial double whammy!

Here's the next finding:

A 2008 Experience Inc. survey found that 40 percent of recent graduates took a job that offered higher pay, but less career satisfaction, in order to help pay off their student loans.

Well, money is a factor in where you want/need to work -- especially if you rack up tons of debt. As such, your best bet is to keep your college costs as low as possible to give yourself (or your student) as many choices as possible.

The book lists several other findings but they boil down to one main thought: debt (in this case from student loans) limits your life in many different ways. As such, you want to limit debt as much as possible. We've known this to be true in other areas of life (think consumer debt) for quite some time, but it appears that people may be starting to get the clue that the same principle applies when it comes to student loan debt as well.

The Student Makes the Difference, Not the College

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I've been sharing a bit of it over the past several days. Today I'll share a bit more. ;-)

In particular, I want to cover the book's line of thinking that says the following: it's not the college that the student attends that determines his ultimate career success, but the student himself (his skills, abilities, work ethic, etc.). What follows from this is:

• The "go to the best college you can get into" adage isn't really a good suggestion.
• A student can go to a less selective/prestigious college, save a boatload of money, and still be as successful as he would have been otherwise.

But I'm getting ahead of myself. Let's get into what the book says specifically and how it comes to this conclusion.

The book cites a study conducted by Princeton economics professor Alan Krueger. He surveyed 519 students who were accepted at both prestigious and less prestigious schools -- some of whom attended the most elite schools in the nation and others who didn't -- and looked at their career performance 20 years after graduation. The summary of his findings:

The results were startling: students who were accepted at schools like Yale and Rutgers but chose to attend Rutgers over Yale (most likely a financial decision) earned, on average, just as much as Yale graduates twenty years into their careers."

BTW, Krueger's article about this study is titled: "Children Smart Enough to Get into Elite Schools May Not Need to Bother." ;-)

The book goes on with a key paragraph the sums up its line of thinking:

Krueger offered this advice to prospective college students: "Don't believe that the only school worth attending is one that would not admit you. That you go to college is more important than where you go. Find a school whose academic strengths match your interests and which devotes resources to instruction in those fields. Recognize that your own motivation, ambition and talents will determine your success more than the college name on your diploma." 

Wow. I'm sure this will set someone off in the comments below. ;-)

Here are some thoughts from me:

• I believe that this information is true in general. Yes, there are exceptions. But I think that highly motivated and talented people will succeed no matter where they go to school (within reason, of course -- I think they still need to pick a "good" school, just not an "elite" one.) And unmotivated and skilled people won't be as successful, even if they attend Harvard, Yale, and so on.
• IMO, the key is getting your first job -- that's the primary impact a college has. After that, where you went to school has less and less of an impact on how your career goes (and experience/accomplishments have more and more.) The main difference is that graduates from elite schools may have a bit of a pay advantage to start but my experience shows that talent/skill closes the gap after five years or so.
• So if your college gets you the starting job you want, which would you rather take it with -- $50,000 in student loan debt or $10,000? That can easily be the difference between an elite school and a good school after graduation.
• If you get into an elite school and scholarships pay for you to go free or close to it, go for it if you like. Costs being the same, going to Harvard can't be worse than going to State School, can it? Well, maybe. There is some evidence that going to the latter, you'll probably have higher grades. And higher grades often translate into more interviews, job offers, etc. Something to consider. Again, if the student is motivated and skilled, he'll do well wherever he goes.
• I went to a "good" school (I couldn't get into an elite one) for graduate school (I went to an almost no-name undergraduate school, but I had stellar grades and extracurricular accomplishments) and ended it being a great financial move for me. My career certainly hasn't suffered. ;-)
• When I was hired into my first job, I came in with a "class" of new hires (all of us recent graduates of grad schools and undergrad business schools). In my division were people who went to Harvard, Wharton, Stanford, and the like. A few of us went to State Universities. After a few months, no one cared who went to what school -- we knew who the "winners" were based on their performance. And us State guys were performing just as well as the Ivy guys. The two differences: 1) they earned maybe $5,000 more than us per year to start (the gap was closed over a few years) and 2) they had (usually) $30,000 to $50,000 more in debt that we had. So, which was the better deal? ;-)

As I said, these comments should be taken in light that they generally are true (IMO at least) and there are many exceptions. But if we're looking at which is the best way to go for the most people, I think the thinking above is spot on.

What do you think?

Why a Less-Selective College May Actually Be an Advantage for a College Student

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Today I want to share some of the book's thoughts on one advantage of attending a "lesser" college:

Krueger's study also found, not surprisingly, that students who are accepted to more selective colleges but attend less selective ones tend to graduate with higher GPAs than comparable students who attend more selective colleges. Krueger writes, "The improvement in class rank for students who choose to attend a less-selective college may help explain why those students do not appear to incur lower earnings; employers (and graduate schools) may value their higher class rank by enough to offset any effect of attending a less-selective college on earnings."

Krueger points out rather obviously that "a student who goes to Penn State instead of the University of Pennsylvania is more likely to end up near the top of the class. Employers and graduate schools may not adequately adjust for the competition." Krueger's research found that students who graduate seven percentile ranks higher in their class earn about 3.5 percent higher earnings, "which may largely offset any advantage of attending an elite college on earnings."

The book goes on to suggest that instead of going to "the best college you can get into" that students might be better served by attending a good (though lower ranking) school where they can excel. It's not a bad argument when you look at the facts -- especially when they note (as I've stated in other posts on this book) that the #1 factor to whether or not a student is successful at college (based on ultimate career results) is the student himself. In other words, if Joe is a go-getter, he'll have a great career whether he goes to Penn State or the University of Pennsylvania. So why not go to the one that costs significantly less if the total return is the same?

A couple extra comments:

• Note that we're talking about the difference between a "good" school and a "great" one. It's not like Penn State is some lame school that anyone can get into. It's still a very good university.
• I myself am a product of the less-selective school plan. I went to an obscure undergraduate college, but I finished in the top few percent of my class (plus had tons of high-profile extracurricular activities) and it was good enough to get me into a "good" graduate school (not a top-tier, but certainly a good one -- top 25 for those really interested.) I finished near the top of my class again, got a job with a name-brand company when I graduated, and the rest is history. ;-)

How about you? Anyone else out there attend "only" a "good" school and come out better for it?

How to Graduate from College in Three Years

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Today I want to highlight the book's suggestions for graduating from college in three years (and thus avoiding a boatload of costs versus the standard four-year graduation period):

1. Take the maximum course load every single semester.

2. Take community college classes during the summer.

3. Keep very careful track of major requirements, general education requirements, and the number of classes needed to graduate.

In other words, pack as many classes as possible into three years, get your degree, and get on with life.

A few thoughts from me:

• Do most colleges charge by the semester or by the credit hour? If it's the former, then tip #1 will save you on tuition as well as several other costs. If the latter, tip #1 won't save on tuition, but will save on room and board, fees, etc. -- costs that are dependent on being at college every year (you'll save a quarter of these by going from four years to three.)
• I'd add "take community college classes while in high school." You get a head start on your college credits and don't have to push it so much during your college years to graduate in three years.
• Certainly you need to keep track of all degree requirements. Otherwise, you may be taking classes that don't count towards your degree -- not a great money saver, you know. You'll also want to be sure that community college credits will transfer to your main college choice.

I'm not sure if graduating in three years is a realistic goal, but even if it's not, then three and a half years is certainly achievable, don't you think?

Examples of How to Pay for College Without Borrowing

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Today I want to go through an example the author uses to illustrate how to pay for college without accumulating debt.

Let's start with the keys to making this strategy work. They are:

• The student attends a community college (cheaper) for two years before transferring to a more well-known public university.
• The student works and saves his money to pay for his college education.
• The parents make moderate lifestyle changes to save money -- which they contribute to the college costs.

Here's what it looks like year-by-year:

Year 1 -- Community College

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $6,860
• Savings from parents (they spend $15 per week less on bottled water, snacks, etc.): $780
• Earnings from student (30 hours per week -- less during school year -- and saves the equivalent of 20 hours per week at $9 per hour after taxes): $9,360
• Year 1 total income (parents' savings plus student's earnings): $10,140
• Year 1 surplus (after paying for college): $3,280

Year 2 -- Community College

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $6,860
• Savings from parents (they spend $15 per week less on bottled water, snacks, etc.): $780
• Earnings from student (30 hours per week -- less during school year -- and saves the equivalent of 20 hours per week at $9 per hour after taxes): $9,360
• Year 2 total income (parents' savings plus student's earnings): $10,140
• Year 2 surplus (after paying for college): $3,280
• Year 2 accumulated surplus: $6,560

Year 3 -- Public University

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $15,600
• Savings from parents (they spend $15 per week less on bottled water, snacks, etc.): $780
• Earnings from student (30 hours per week -- less during school year -- and saves the equivalent of 20 hours per week at $9 per hour after taxes): $9,360
• Year 3 total income (parents' savings plus student's earnings): $10,140
• Year 3 deficit (after paying for college): -$5,460
• Year 3 accumulated surplus: $1,160

Year 4 -- Public University

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $15,600
• Savings from parents (they spend $15 per week less on bottled water, snacks, etc.): $780
• Earnings from student (30 hours per week -- less during school year -- and saves all earnings at $9 per hour after taxes): $14,040
• Year 4 total income (parents' savings plus student's earnings): $14,820
• Year 4 deficit (after paying for college): -$780
• Year 4 accumulated surplus: $380

It seems like the college costs are too low and the amount the student works is too high (though the author makes a good case why students can and should work during college, I'm not sure 30 or 40 hours per week is reasonable.) That said, this example does illustrate some options/ideas for how to pay for college with little to no debt.

But I think it can be improved upon (and made more realistic). Here's what I'd factor in to pay for college:

• Same community college/college split as above (though higher costs).
• Parents save a good amount in advance.
• Parents help by contributing out of current income.
• Student works (though not as much as the example above).

Given these, here's a more workable example (IMO) from me:

Year 1 -- Community College

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $10,000
• Savings from parents (saved during the pre-college years): $30,000
• Parents contribution/savings from current income: $5,500
• Earnings from student (15 hours per week -- less during school year -- and saves the equivalent of 10 hours per week at $9 per hour after taxes): $4,680
• Year 1 total income (parents' savings, parents' income, and student's earnings): $40,180
• Year 1 surplus (after paying for college): $30,180

Year 2 -- Community College

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $10,000
• Parents contribution from current income: $5,500
• Earnings from student (15 hours per week -- less during school year -- and saves the equivalent of 10 hours per week at $9 per hour after taxes): $4,680
• Year 2 total income (parents' savings, parents' income, and student's earnings): $10,180
• Year 2 surplus (after paying for college): $180
• Year 2 accumulated surplus: $30,360

Year 3 -- Public University

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $25,000
• Parents contribution from current income: $5,500
• Earnings from student (15 hours per week -- less during school year -- and saves the equivalent of 10 hours per week at $9 per hour after taxes): $4,680
• Year 3 total income (parents' savings plus student's earnings): $10,180
• Year 3 deficit (after paying for college): -$14,820
• Year 3 accumulated surplus: $15,540

Year 4 -- Public University

• Total cost (tuition, fees, room and board (at home), transportation, etc.): $25,000
• Parents contribution from current income: $5,500
• Earnings from student (15 hours per week -- less during school year -- and saves the equivalent of 10 hours per week at $9 per hour after taxes): $4,680
• Year 4 total income (parents' savings plus student's earnings): $10,180
• Year 4 deficit (after paying for college): -$14,820
• Year 4 accumulated surplus: $720

Of course this example isn't right for everyone either. But it does have me realistic (IMO) college costs and student working requirements.

You can play with the variables however you like. For instance, we've saved more than $30,000, so we'd make that number higher and take less out of current income each year (I still think making the student work is a good idea.) You can adjust your plans based on your preferences to get a plan that works for you and your family.

The key point: if you plan ahead and work at it, your student can graduate from college debt free. Pretty cool, huh?

One Legit Way to "Game" the FAFSA (And One Crazy Suggestion)

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Yesterday we talked about the FAFSA (Free Application for Federal Student Aid) and how it spits out your expected family contribution (EFC) or the amount of money the government believes you should contribute to your kid's college education.

There are two ways to work the system so you minimize the amount you should contribute (and thus maximize the financial aid you may receive.) The first is more realistic while the latter is a bit "out there." Here's the first idea:

To maximize your financial aid eligibility, you can take advantage of the FAFSA rules that disregard home equity when determining EFC. This is a somewhat risky strategy because you might end up house poor. But as a strategy for maximizing financial aid eligibility, it's hard to beat. Here's how it works: take any money that you have in savings accounts or the stock market (outside of retirement accounts, which don't count against you in the financial aid race) and use it to pay down your mortgage.

The thought here is that because savings is counted in the FAFSA formula and home equity is not, by converting savings to equity, you help yourself out. The book shares an example: if you have $100k in savings and use it to pay down your mortgage, this could qualify you for an extra $20,000 in financial aid (5% of the $100k per year -- as "taxed" by the FAFSA -- for four years.) Not bad, huh?

This won't work for me since my mortgage is already paid off. But I could buy a bigger home -- stuff a huge portion of my savings into it (leaving a decent emergency fund, of course) -- and take a boatload of money off the FAFSA radar screen. If I thought now was a good time to by a home because costs are low (which I do) and that home prices would be higher at the end of four years (which I do), this could be a viable strategy. Of course you need to factor in costs and hassles of moving, so this method is not as great of an idea as it seems. It's really best for those who have savings and a mortgage on their current home.

Now, here's the second, far-out idea: have your child get married. Yep, that's it. From the book:

Students who are married file their FAFSAs with their spouses, not with their parents. So two college kids earning close to nothing who are married would likely have an expected family contribution close to zero.

The author doesn't recommend this strategy (for obvious reasons) but points it out to "provide an example of just how stupid the financial aid formulas are." Yep, they sound pretty stupid to me. ;-)

The Crazy World of the FAFSA

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Today I want talk about the FAFSA -- what it is and why it's more of a hindrance than a help when it comes to paying for college. Let's start with how the author defines it:

FAFSA stands for Free Application for Federal Student Aid. It's a form provided by the federal government that asks for all kinds of information about your finances and those of your child; how much you, your spouse, and your child earn, and what kind of assets you have. Then it puts all that information into a formula and spits out your expected family contribution (EFC) or the amount of money the government believes you should -- or can afford to -- contribute to your kid's college education.

If you want to calculate your EFC, you can go here to do so.

The author then spends the next several pages detailing why the FAFSA is not by any stretch of the imagination an accurate estimate of what anyone can pay to help their child go to college. Here are some highlights:

1. The FAFSA form determines your EFC based on a formula that has nothing to do with how much families will actually contribute. One example: if your income was higher last year than this year, too bad. Your contribution is based on the higher number.

2. The FAFSA does not take into account retirement savings when determining the expected family contribution. To understand how nuts this is, take a look at this example: The parents in family A have a combined income of $90,000 per year, with $12,000 in retirement assets. The parents in family B have a combined income of $90,000 per year, but also $4.2 million in retirement savings. All the parents are fifty-eight years old. Under the FAFSA formula, both families are expected to contribute the same amount toward college expenses.

3. You must be careful about methods of paying for college that will artificially inflate your income for the purpose of the FAFSA form (like selling stock with large capital gains.)

4. If your child works hard and saves a lot of money, he will be penalized on the FAFSA form (35% of a student's savings is deducted from the financial aid eligibility on top of half of his after-tax income over $3,000 per year.)

5. The FAFSA formula does not take credit card debt into account when calculating the EFC. What this means is that two families with identical finances -- except that one has $100,000 in credit card debt and the other has no credit card debt -- will have the same expected family contributions, even though their capacity for paying tuition bills is extremely different.

My take on these:

1. Does it surprise you that a government form is not 100% based in reality? Or that you can "game" it a bit to help yourself out?

2. Personally, I'm glad that retirement savings aren't counted -- I have a huge amount of my net worth socked away in IRAs and a 401k.

3. Another land mine. Ugh.

4. Interesting how the kid working and saving -- two things it seems like you'd want to encourage -- actually hurts his chances for aid.

5. Another reason why credit card debt is so bad. It seems like this is the sort of debt that just keeps on killing your finances.

I'm a few years out from having to complete an FAFSA, but I need to start planning for it now. Great -- another financial hurdle to jump.

How about some comments from real-life experiences? Do any of you have interactions with the FAFSA that you'd like to share? I sure would be interested in hearing them.

Nine Myths of College

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. Today I want to share what the author says are the nine myths of college:

1. It's important for parents to do what they can to help pay for their kid's educational expenses, even if that means taking out a loan.

2. Scholarships and financial aid will alleviate the burden of spiraling college costs.

3. It's unreasonable to expect students to be major sources of financing for their educational expenses while they are in college.

4. Student loans are a good form of debt: leverage. My child will be able to pay them off out of his future earnings. Student loans are unfortunate, but they won't have a serious negative impact on his life.

5. The name of the school on my child's diploma will have a strong impact on her career and life prospects. The better the college she goes to, the more doors she'll have open to her.

6. "Thrifty" approaches to education like community college will have an adverse effect on my child's life. You get what you pay for.

7. The most important thing when it comes to selecting a college is finding a good fit.

8. Guidance counselors, admissions officers, campus tours, and anecdotes from former students are great sources of advice and wisdom on the college application and financing process.

9. The quality of the education my child receives will be largely a factor of the college he attends. Guides like US News and World Report's "America's Best Colleges" are valuable resources in evaluating possibilities.

My take on these:

1. I would say that it IS important for parents to help their kids get through the entire college process and in our case that means saving in advance to help them pay for the cost of it. I agree that parents do NOT want to take out loans to pay college costs for their children.

2. My plan is to assume my kids will get NOTHING in the form of scholarships and save accordingly. If either one of them (or both!) do get any aid, it will be a bonus.

3. The author says that 1) students have plenty of time to work while in college (he lists studies showing how much time is wasted on various activities), 2) working actually helps the student focus more and thus perform better in school, and 3) paying for school through working helps the student appreciate and value the degree/education more than if it was paid for by someone else.

4. The author hates debt of any sort (me too!) and details how many kids with college loans end up defaulting (it's actually a much higher number than I would have guessed.) As such, he recommends a plan to get through college with no debt at all. Student debt also influences the types of jobs students have to take (limits their occupational choices) in order to pay for the debt.

5. The student herself is the biggest factor in whether or not she'll be successful after college graduation. If she's a go-getter, it's likely that she'll be a success whether she attends Harvard or State University.

6. Going to Community College (for two years -- then transferring to a bigger school) can be a great way to save and has little to no impact on how successful the college grad will be. The most important factor: the student herself (see the preceding point).

7. Fit is over-rated. You'll need to read the book to see why, but the author makes a good case for it not being the end-all be-all that many people make it out to be.

8. Guidance counselors, admissions officers, campus tours, and anecdotes from former students may all be well-intentioned, but they often give you advice that is incorrect, unneeded, and costly.

9. The quality of the education a child receives is based on the child (as noted above.) And the author actually hates (and details why) guides like US News and World Report's "America's Best Colleges".

As you can see, this book has a go-against-the-flow style/contrarian advice -- that's why I LOVE it! It details the conventional wisdom around paying for college and makes a very compelling case for why it's actually incorrect. Stay tuned. There's more coming up over the next several days.

Four Keys to Making the Most of College

I have been reading the best book I've ever read on preparing financially for college. The book is Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents and I'll be sharing a bit of it over the next several days. We'll start with what the author lists (at the end of the book) as four things he wants to convince us all of (which I view as four keys to making the most of college.) They are:

• You shouldn't sacrifice your own financial security to help your child pay for college.
• Your child should take out absolutely no student loans if possible and if he does take out loans, it should be done as a last resort in the last year or two of his education -- and only after all cost-cutting measures have been explored.
• Attending college is far, far more important than attending a certain college. Students who attend a less expensive college will not be at a disadvantage.
• The effort that a student puts into her educational experience is far more important than where she goes to school. A student who's willing to work hard and work smart can do well at any school.

A few thoughts from me:

• We'll be covering many of the issues talked about above more in depth over the next several days. So if something doesn't make sense at this point, it may once I get a chance to really dig into it for you.
• The first point is one we've covered before -- retirement savings (for you) goes before college savings (for your kids.) Reasons: financial institutions don't give loans for retirement, so if you miss the boat here, you have very few options to make up for lost time/money. Also, kids can borrow for college if need be and pay it back over a working lifetime.
• I'll be sharing how the author suggests paying for college without loans. But for now, let's say he's very, very, very much against taking out any sort of loans to fund a college education.
• What he's saying in point #3 is basically: 1) Any college degree is better than no college degree and 2) There's very little difference (in ultimate work/career results) between attending one college and another (hence you don't need to work to get into the "best" school possible -- look more for a decent school that's affordable.)
• Two points are covered in #4 as well: 1) The key in whether or not a student is "successful" at college is most dependent on the student, not the college. A go-getter will be successful (on average) graduating from almost any school while a slacker (or someone without the intelligence and/or will to do well) will not be successful even if he attends the "best" of schools. 2) There are steps students can take (like getting into honors courses, developing independent study classes with a professor, etc.) that can help a student get a "better" education from any school.

I put so many words above in quotes because much of this is very subjective. Just FYI in case you were wondering.

As I said, I'll be covering more of this book so you'll be able to see if it's for you or not. But my opinion is that if you have a student (or are one) from 8th grade through college, you MUST get this book -- it will save you a boatload of money. Buy a copy, borrow a copy, or check one out from the library. But get a copy of it and read it. You'll be glad you did.

College Degrees, Earning Power, the Value of a Law Degree, and the Best Colleges

We've discussed the value of a college degree from various angles and perspectives over the past few years (even to the point of asking if any college degree was better than no college degree). I'm a big believer in getting a college degree (for most people and if done the right way). My MBA in particular has been a goldmine and if I had NOT gotten it, there's no way I would have earned nearly as much as I have throughout my career. So when I recently ran into several different pieces on college degrees, the value of a degree and the like, I knew I had to throw them into the discussion by giving you all the highlights.

We'll start with a CNN Money piece on what a BA degree is worth. The highlights:

The average starting salary offered to 2010 graduates with a bachelor's degree is $48,288, according to a survey conducted by the National Association of Colleges and Employers. That's down 0.7% from $48,633 last year.

A graduate with a bachelor's degree in petroleum engineering, for example, can expect to earn a starting salary of $77,278, on average. That's the highest of all majors in the survey and was followed by chemical engineering, mining and minerals engineering, computer science and computer engineering.

Meanwhile, liberal arts majors can expect to be offered a starting salary in the range of $35,508, down 3% versus last year. Psychology majors were the hardest hit, with initial salaries plunging 6.7% to an average of $32,260, while offers to English majors dropped 1.8% to $35,946.

Overall starting salaries for business majors, once among the most lucrative degrees, were essentially unchanged from last year at $46,672.

Earning $48k puts you above half the income earners in the US (if my numbers are right -- see the link to the left for details). Can that be true? I'm inclined to believe that the average earner brings home $40-$45k, but $48k as a STARTING salary seems high to me. Does it to anyone else?

The next piece is from Smart Spending and asks if law school is worth it. Their summary:

Guess what a first-year lawyer right out of law school makes at a major law firm? For major firms outside of New York City, the starting salary is $145,000, plus a bonus that can add $20,000 to the total package. For major firms in NYC, starting salary can hit $160,000 or more, with bonuses as high as $40,000. Welcome to the world of big law. But here's the kicker: The high salaries may not be worth the cost of law school.

So why is it potentially not worth it? Because the cost of law school is so high. The author argues that the graduate can leave with $150k in loans (not counting what he borrowed for an undergrad degree) and this can make the law degree not worth it.

Yes, that's true. If done the wrong way, almost any degree can be shown to be "not worth it." But there are tried and true ways that you can make the most out of a college degree that combine getting the best salary possible from a degree/school that cost you the least amount possible. IMO, this is the way to go about getting any degree, including a law degree.

In an almost separate point (not part of the law school discussion), the video in the center of the Smart Spending piece notes the following:

According to the College Board, it takes 14 years before a college grad's income minus their debt beats out the earning power of a high school diploma.

I get several things out of this:

• It takes a good amount of time before getting a college degree is better than not getting one (BTW, I'm sure this includes the fact that the high school grad earned four years of salary while the college grad was going to college).
• That said, on average, a college degree does beat out a high school degree. And though it takes 14 years to break even, the college grad then has 25 years or so of better earnings ahead of them after that point. Not a bad deal.
• If you take my advice and make the most of your college degree, you can maximize your income while decreasing (or eliminating) your debt and thus make your degree pay off in under 14 years (well under 14 years if you do it right.)

Finally, here's an article from Yahoo that ranks the top schools as rated by company recruiters (you know, the guys that actually hire and pay graduates.) Their top 10 (here's the whole list) :

1. Penn State
2. Texas A&M
3. University of Illinois at Urbana-Champaign
4. Purdue University
5. Arizona State University
6. University of Michigan, Ann Arbor
7. Georgia Institute of Technology
8. University of Maryland, College Park
9. University of Florida
10. Carnegie Mellon University

Notice anything about these schools? None of them is Ivy League/prestigious (unless you want to count Carnegie Mellon). They are "good" schools but not "the best." And yet companies like to hire from these, huh? Sounds like these schools offer a good blend of affordability and performance (they get you a job.) Then again, these ratings aren't based on job-at-graduation percentages or starting incomes. Perhaps only 50% of grads from these schools get hired and the reason recruiters like them is because they can pay the grads peanuts (I'm not saying these are true, just bringing up some potential arguments.)

But we don't have to guess at the motivation, the piece tells us:

State universities have become the favorite of companies recruiting new hires because their big student populations and focus on teaching practical skills gives the companies more bang for their recruiting buck.

Under pressure to cut costs and streamline their hiring efforts, recruiting managers find it's more efficient to focus on fewer large schools and forge deeper relationships with them, according to a Wall Street Journal survey of top corporate recruiters whose companies last year hired 43,000 new graduates. Big state schools Pennsylvania State University, Texas A&M University and University of Illinois at Urbana-Champaign were the top three picks among recruiters surveyed.

Ok, so it gets down to the fact that can save money in recruiting costs. As such, I'm not sure how much this is telling us about how good of a deal these schools are or aren't. It probably isn't telling us a whole lot.

What's your two cents on these articles? Do you have anything to add?

Jewish Thoughts on Wealth: Gain Knowledge

For those of you new to Free Money Finance, I post on The Bible and Money every Sunday. Here's why.

In my Sunday posts we're currently digging into the book The Jewish Phenomenon: Seven Keys to the Enduring Wealth of a People. It notes that Jews are disproportionately wealthy and accomplished and much of this success is due to seven keys which can be traced to the teachings of the Jewish faith.

Today we're going to talk about one of the "seven keys to Jewish success" that the authors list: understanding that real wealth is portable; it's knowledge. (BTW, this "key" goes nicely with "key" #3: successful people are professionals and entrepreneurs.)

This whole chapter is an ode to higher education. The authors detail much of the information that we go over regularly here at Free Money Finance, in particular how much more those with a bachelor's degree earn over a lifetime versus those with no college education (and the more education, the better -- in general.) They also give statistics on Jewish higher education (from a 1990 study, so it is a bit dated):

87 percent of college-age Jews were enrolled in college versus 40 percent for non-Jews.

So, more education (in general) leads to a higher income and Jews have more education than average. Hence, Jews have more income than average.

Now of course we know that a higher income doesn't necessarily lead to greater wealth (they could spend all of their higher income), but it certainly helps. Plus, we'll see in a later post that Jews also have a good handle on controlling their spending. And we all know that a high income with an ability to control spending are keys to becoming wealthy.

The book goes on to list six ways we all can use what the Jews do in this "key" to the economic advantage of our kids. They suggest:

1. Build your child's self-esteem.
2. Build the ability to defer gratification.
3. Choose the best education possible.
4. Develop and demonstrate informed and literate habits.
5. Create the education expectation.
6. Keep your skills up to date (as an adult).

I would agree with most of these. The one I might take issue with is #3. I think you want to get the education that costs you the least and still gets you the job/pay you want. I've seen too many studies that say the "best" schools don't really end up getting you much for the extra cost. And I've also seen way too many people with enormous amounts of debt because they "had to" go to "the best" school. There's no such thing as "the best" school IMO.

Any thoughts to add?

New College Grads: Make the Most of Your Clean Slate

The following is a guest post by Lauren Bailey, who writes for Best Colleges Online.

So you just recently graduated from college, and now, all of sudden, a whole new set of responsibilities have been foisted on you from the Real World. You were probably mostly on your parents' dime, and so spending money wasn't as much of a concern as it is now. Before, your parents would send you cash, you'd spend however you saw fit, and then you'd hold on tight until next month's allowance. Maybe you even had a part time job that would enable you to splurge on nicer dinners out or drinks with friends.

Once recent grads get jobs, however, we have to start thinking about the ever-elusive future, and that includes investing and dealing with debt. As someone who graduated from not too long ago, here are a few tips.

1. Save at least 10% of your income.

Chances are, as a recent college graduate in today's job market, you aren't making a whole lot of money, although you certainly have much more disposable income than you've ever had before. The first few months of my job, I was astounded by how quickly I went through it all, simply because I wasn't used to having that much money in my bank account. Even if you don't earn very much, saving a mere ten percent is easy, if you're conscientious about it. It's a good start before you begin looking into investment options.

2. Student debt? Try to pay it off as soon as possible, and pay more than minimum.

Most student loans have a six to nine month grace period, allowing recent grads some time to be gainfully employed and get their finances in order before paying back. However, if you find yourself with a job right after college, and you can afford it, start paying immediately. That way, you won't be having to deal with increasing interest rates later on. Most student loans have a very small minimum monthly payment. If you can pay a little more, then by all means do so. The faster you get out of debt, the better.

3. Consider moving back in with your parents temporarily.

I know. The prospect sounds terrible, but if your parents will have happily take you in, and you aren't one who needs absolute privacy, then consider moving back with the family, if only to get a very large jump start on saving and paying off debts. The advantages are numerous, since you'll be paying little or no rent, you'll be tempted to eat out less, and you'll generally be saving a lot. Some may call this free-loading, and certain situations, this may be true, but saving thousands of dollars in rent will enable you to get started on building a nest egg quickly.

4. Look at novice investment options.

While the prospect of investing may seem daunting, especially if you have little knowledge about markets, start looking into it as early as possible. There are several guides online that help young investors navigate the world of stocks, funds, and equities. A great recent article in the Wall Street Journal, Investing Advice for New Grads, asks several experts what would investment options they would advise for novice investors.

Above all, make the most of your youth. As a young person, you can take more financial risks with investing, with the prospecting of larger returns over the long run. You also won't have as nearly as much debt as older folks, and if conscientious about staying out of debt, you can achieve financial security and success much more quickly. Our parents didn't necessarily know about the importance of investing and debt-management when they were our age, simply because there wasn't as much readily accessible information out there. With a little bit of Internet research and a measured amount of determination and will power, you can avoid the mistakes that previous generations have made.

How to Graduate College with Zero Debt

MSN Money lists thoughts on how to graduate college with zero debt. The keys:

• Early graduation is a big money-saver. Test out of classes if you can. Attend summer session. Investigate dual enrollment in high school and community college. Also: Seek colleges with three-year bachelor's degree programs.
• Pick a solid school that's also affordable. Consider two years of community college (but make sure all the credits will transfer).
• Tuition is a bill, so pay it -- but not all at once. Expect your kids to pay most of it.
• You can work while in school. Organization is key. Also: "True Blood" marathons are not the college experience; they are an indulgence that you may not be able to afford right now.

My thoughts on these:

• Overall, GREAT tips! Using them can save people thousands (if not tens of thousands) of dollars on college costs.
• My kids are on track to be able to take some college classes while in high school. They are going to be able to do this because they are taking some high school classes while in middle school (and thus will have the time later to take college courses.)
• I like the idea of a three-year bachelor's degree versus a four-year one (assuming employers treat it the same.) By going three versus four years you lope off 1/4 (or so) of costs right away. Cool!
• I've always said to pick a "good" school (not the most expensive) that gets you to where you want to go (and be employed.) No reason to pay $45,000-a-year in tuition when a $20,000-a-year college gets you the same starting job.
• I don't expect my kids to pay most of their college costs -- unless you count scholarships they receive off "list price". (In that case, I'm counting on at least one of my kids doing enough to save me a bundle. If both do, I'd be ecstatic!) The rule-of-thumb is 1/3, 1/3, and 1/3 when paying for college: 1/3 is paid from savings, 1/3 from current income, and 1/3 from loans for the student (this is after scholarships, of course.) My plan is 100% from savings. We'll see how that goes. ;-)
• Yes, I expect my kids to work to help pay for school. Certainly leading up to college (my son is already making a good income refereeing soccer games) and during the summers, but probably at least a bit while in school too.
• I want the kids to have fun in college too, but they are going to have to pick and choose what they do (kinda like us "grown-ups" have to.) They'll need to manage/control their spending to make sure they can participate in those activities that are most important to them.

How's Your College Savings Going?

Fidelity recently released guidelines for how much should be saved by parents at different incomes to pay for their kids' college costs. They estimated the cost of private and public colleges in 18 years, subtracted expected financial aid, assumed a given return rate, and then estimated the total amounts people should save. The summary:

According to Fidelity, a family making $55,000 would need to save $48,000 to cover the qualified expenses of a public university and $107,000 to cover such costs for a private one. This translates into saving $160 a month for a public college and $410 a month for a private one.

In contrast, a family making $75,000 would need to save $51,000 total, or $190 a month, for a public university and $115,000 total, or $410 monthly, for a private one. Finally, according to Fidelity, a family making $100,000 would need to save $55,000, or $250 a month, for a public university and $123,000, or $460 monthly, for a private one.

So, how are you doing?

BTW, this assumes that you're paying all of your kid's college expenses yourself (no loans) and that you're paying it all out of savings (versus out of current income). And the biggest assumption (at least some will say this is the biggest) is that you're paying for your kids' college expenses in the first place. But we've debated that over and over, so I'll skip it for now.

What I'd like to discuss is how we are all doing when compared to these guidelines. I'll start:

1. Here's my college-paying/saving philosophy:

• My kids will do the best they can in school so they can maximize potential scholarships. This is their contribution to college (plus a bit of savings and potentially working during school.)
• We will together select a school that we think is a good value (one that gets them where they want to be in life/career that doesn't cost an arm and a leg.)
• My wife and I will pay for this.
• We will save for the vast majority of these expenses in advance so we don't have to spend anything out of current income. We're saving using Education Savings Accounts and 529s for our kids.

2. That said, we need to save somewhere in the $55,000 to $123,000 range. Since we're pretty good bargain-hunters and know a bit about saving on college expenses (like taking some classes while in high school, going to a community college the first two years of school, etc.), I think we'll be closer to $55k than $123k even if our kids go to a private school. So let's say we'll need $75k for each kid saved to cover college expenses.

3. We currently have $55k saved for each child. My son will be off to college in four or five years and my daughter a couple years after that. So we should be good (we sock away at least $5k per child per year to get the max state tax savings from our 529s.)

Now, how are you doing?

The Best Way to Spend College Savings

The following is an excerpt from Personal Investing: The Missing Manual.

As you learned at the beginning of this chapter, a college education provides plenty of opportunities for spending money. The trick is spending the money you save in a way that stretches your savings and increases your child's financial aid. Here are several steps that help you do just that:

1. Start by spending assets held in your child's name, because these assets reduce your child's financial aid eligibility.

These assets include Uniform Gifts to Minors Act accounts and other savings accounts in the child's name. For example, you can use these assets for college-related costs that occur before you fill out financial aid forms, such as application and testing fees and college visits.

2. Divide your college savings by 4 (the number of years you hope your child will take to complete college), and spend a quarter of the savings each year.

This approach ignores the unfortunate tendency of college costs to rise faster than inflation. For "extra credit," you can use the average rate of college inflation (about 6%) to calculate how much to spend each year.

To calculate the first two years of spending, multiply the one-fourth by the college inflation rate. For example, if you have $5,000 to spend each year, the first year's spending is $4,450, and the second year's is $4,717. To calculate the third and fourth years' spending, increase the one-fourth by the college inflation rate, $5,300 and $5,618, in this example.

Tip: If you use current income to pay some expenses during your child's first two years of college, you can postpone tapping into your college savings. That delay leaves more money to cover the last two years and also gives your savings more time to grow.

If what you've saved isn't even close to what you have to pay, you're not alone. Most parents have to dip into income, take out loans, or do both to make up the difference between savings and actual costs. Here are some steps to take to fill in the gap:

1. Get your child to sign up for what he qualifies for in federal Stafford loans, a government-funded loan program that he doesn't have to repay until he graduates.

The federal government increased loan limits in 2008. See http://tinyurl.com/yd5hedm to find out more.

2. Ask your child to help foot the bill.

He can pitch in savings from a summer job, work-study programs, or a part-time job during the school year.

3. Make an emergency appeal to the college's financial aid office.

You may get more financial aid, especially if you or your spouse has lost a job or had any other major financial setback. Call the financial aid office, explain your situation to a financial aid counselor, and ask whom you should talk to. Then write a letter to that person explaining your situation.

4. Decide whether to take on debt.

Additional debt should be your last resort. PLUS loans are federal loans parents can take out to help pay for a dependent child's undergraduate and graduate tuition and expenses. If you qualify, a PLUS loan isn't cheap. In 2009, fixed interest rates were 7.9% to 8.5% with up to a 4% origination fee. And you start repaying the loan right away. Find out more at http://tinyurl.com/q4pr7j.

Banks, savings and loans, and credit unions offer private student loans, which come as loans or lines of credit. Most come with high up-front origination fees, variable interest rates, and require that you start repaying right away.

Seven Good Jobs that Do Not Require a College Degree

Now that the general opinion seems to be that any college degree is better than no college degree, here's a list of great paying jobs for which no college degree is required:

1. Freelance Photographer: $47,800 median salary
2. Private Detective or Investigator: $50,600 median salary
3. Elevator Mechanic: $61,500 median salary
4. Nuclear Power Reactor Operator: $79,100 median salary
5. Personal Trainer: $37,500 median salary
6. Director of Security: $62,400 median salary
7. Air Traffic Controller: $60,200

If you read the piece they note for many of these that while a degree is not required, it's often an asset.

That said, a winning financial strategy without a college degree might look something like this:

1. Avoid the four-year sacrifice that most people put into getting their college degree. Instead, get a job out of high school and earn money for those four years. At $20k per year, you're ahead of the game by $80k when the college student graduates.

2. Avoid the associated college debt (because you didn't go to college.) If this is $20k, you're now ahead by $100k even if you pay it off in one lump sum (which most people don't.) In the end, that $20k will cost you a lot more than $20k when interest is added in over five to ten years or so.

3. Get a high-paying job like the ones above. Many of them are better than what you'll earn in other fields with a college degree.

All this said, I think it's a tougher path to pull these off and hence going the "traditional route" of getting a college degree is the better option for most people. But not getting a degree can be a better financial move -- if it is done in the correct manner.

More on the Value of College

We've discussed the pros and cons of going to college several times here at Free Money Finance including the following:

• Is Going to College a Bad Financial Move for Many People?

• Revisiting the Value of a College Degree 

• And Yet Another College Student Who Needs a Clue

• The Value of an Elite College

Recently I've run into several pieces that address this topic from various angles. Instead of writing about each of them, I thought I'd cover them all in one post.

The first is from Yahoo which wrote College: Big Investment, Paltry Return. As you might imagine from the title, they aren't all that impressed with the value of a college degree. The highlights of their thoughts:

Over the course of a working life, college graduates earn more than high school graduates. Over the past decade, research estimates have pegged that figure at $900,000, $1.2 million, and $1.6 million.
 
But new research suggests that the monetary value of a college degree may be vastly overblown. According to a study conducted by PayScale for Bloomberg Businessweek, the value of a college degree may be a lot closer to $400,000 over 30 years and varies wildly from school to school. According to the PayScale study, the number of schools that actually make good on the estimates of the earlier research is vanishingly small. There are only 17 schools in the study whose graduates can expect to recoup the cost of their education and out-earn a high school graduate by $1.2 million, including four where they can do so to the tune of $1.6 million. At more than 500 other schools, the return on investment, or ROI, is less—sometimes far less. College, says Al Lee, director of quantitative analysis at PayScale, "is not the million-dollar slam dunk people talk about."

A few comments on this:

1. The earnings they are discussing are net of costs for college, in case you're wondering. And the costs look like they are without aid of any sort. Hence the returns could be improved upon greatly with aid/scholarships.

2. Ok, so maybe it's not millions, but $400k is nothing to sneeze at.

3. These are averages. Since when are we striving to be average? If you take the right steps, you can make the most of a college degree and blow the averages out of the water.

4. The payouts are based on a 30-year career. Most people have a longer time period (40 years or so) they work -- making the value of the degree understated in this study.

I'll get to the PayScale study in a minute, but before I do, I want to include this quote from the Yahoo piece:

Advanced and professional degrees, however, may be a bigger differentiator in the labor market, with bigger payoffs. According to a June 15 study by the Georgetown University Center on Education & the Workforce, the gross lifetime earnings for someone with a professional degree is nearly $4.7 million, about $3.5 million more than a high school dropout earns. "The increased earning power conferred by postsecondary education and training is both tangible and lucrative over a worker's lifetime," says Nicole Smith, senior economist with the center.

For personal experience, I have to agree 100% with this. My MBA has been a financial home run (we'll cover this a bit more in a moment.)

Let's move on to the PayScale data. Here's a link where they allow you to compare costs and ROI on various college degrees. Here's how they summarize what they offer:

A return on investment (ROI) calculation tells you what you get back for what you spend - and it's a great way to compare college costs. With the average cost for college rising, PayScale helps you figure out which school's tuition costs will return the biggest dividends for you after graduation.

You can use the site to find the ROI's on both private and public colleges. The top schools for each category are:

• Top Private School: Massachusetts Institute of Technology (MIT)
• Average Cost for College in 2009: $189,300
• 30 Year ROI (2010 Dollars): $1,688,000
• Annual ROI: 12.6%

• Top Public School: University of California, Berkeley
• Average Cost for College in 2009: $118,900
• 30 Year ROI (2010 Dollars): $1,223,000
• Annual ROI: 13.1%

I like this data because it gets to the basic financial decision people face in deciding what college to attend: what return will I get for my investment? Yes, there are issues with it (like the 30-year payout period), but it's the best stab I've seen at estimating the payback on a college investment.

I couldn't find the MBA info on the PayScale site, but I did locate it in a different Yahoo piece, this one titled MBA Pay: Top B-Schools, Top Dollar. The highlights of their findings:

On average, MBAs from the top 45 B-schools will make around $2.5 million in base pay and bonuses over the course of a 20-year career. But there are great differences between the total compensation of the schools at the top of the list compared with those closer to the bottom, especially as MBAs move deeper into their careers. An MBA grad from Harvard, for instance, will earn nearly $4 million over the span of two decades. A grad from the University of Iowa's Tippie College of Business will earn less than half that. Newly minted MBAs at some top programs, such as Yale, earn high starting salaries but experience only a minimal increase over time. At other schools, such as the University of Connecticut, MBA grads more than double their salaries over the 20-year period.

A few comments:

1. Their findings are "graduates from the best schools earn the most."

2. They also find that the "best" students often go to the "best" schools and it's likely that these students would be among top earners no matter where they went to school.

3. I went to a top 45 business school, and as noted previously, it was a very worthwhile investment.

4. Why are they using a 20-year career as a basis? If I retire at 65, I'll have had my MBA for almost 40 years. This seems to imply that it will be worth far more than $2.5 million.

5. Again, these are averages. All of us reading this should be striving to do far better than average.

The last article I want to cover is about a local university considering taking the "risk" out of getting a college degree -- by guaranteeing that their graduates will get a job. They don't have the program set up yet, but Davenport University is considering guaranteeing jobs for its graduates by no later than 2015.

Is this a legitimate idea or simply a marketing effort? Time will tell. But Davenport needs to do something. They rank 849 out of 852 colleges covered in PayScale's survey with grads earning an ROI of only $34,100 (5.4%) over the course of their careers.

So, where does all this information leave us? Probably in the same place we started. For me, I still believe college is a great investment for most people, but it needs to be done in the right way: minimize costs and maximize potential income. For details on specifics, see How to Make the Most of a College Degree.

Is Any College Degree Better than No Degree?

Here are some interesting thoughts/questions to add to our on-going discussion of the value of a college degree, whether or not it's a bad financial move, people who have too much college debt, the value of an elite college, and so on.

This comment was left on my post titled The Top Ten Worst-Paying College Degrees:

So, how many people have the degree but do something totally different? I have a degree in advertising, but worked in insurance before staying home when I had kids. Hubby has a degree (BA) in psychology, which is probably about the equivalent of that social worker degree. He is in IT and has never done anything in the psychology field. My brother is probably more knowledgeable in some IT areas than my husband, but he cannot get a decent job in IT because he has no degree. So, is any degree better than no degree?

Here's my two cents, then I'll let you all chime in:

• I personally work in the field that my degrees are in (business/marketing.)

• That said, I know scores of people who have a degree in one thing (like "education") and work in a completely different field. My dad spent a great part of his life working in an area totally different than his degree.

• So, does education beat experience/skill or the other way around? (We've discussed this before.) My take is that you need education to often get your foot in the door, but after that experience starts gaining in importance while the value of an education lessens over time comparatively.

• Is any degree better than no degree? In most cases, I do think that any degree is better than no degree. Look at the data and college grads make more, have more opportunities, and get considered for positions that non-grads don't have access to (example above). That said, there are times, and they appear to be increasing in frequency, when a college degree is a bad decision. One clear example: when a person borrows a huge amount for a degree that has no chance of paying back its cost.

• In the end, I think a college degree is like any investment -- will you get back more than what you put in (some of which could be intangible benefits)? If so, it's a good deal for you. If not, you're probably better not to get a degree.

What's your take on the issue?

The Top Ten Worst-Paying College Degrees

Yahoo lists the top 10 worst-paying college degrees as follows:

10. Drama (starting annual salary: $35,600; mid-career annual salary: $56,600)
9. Fine arts (starting annual salary: $35,800; mid-career annual salary: $56,300)
8. Hospitality and tourism (starting annual salary: $37,000; mid-career annual salary: $54,300)
7. Education (starting annual salary: $36,200; mid-career annual salary: $54,100)
6. Horticulture (starting annual salary: $37,200; mid-career annual salary: $53,400)
5. Spanish (starting annual salary: $35,600; mid-career annual salary: $52,600)
4. Music (starting annual salary: $34,000; mid-career annual salary: $52,000)
3. Theology (starting annual salary: $34,800; mid-career annual salary: $51,500)
2. Elementary education (starting annual salary: $33,000; mid-career annual salary: $42,400)
1. Social work (starting annual salary: $33,400; mid-career annual salary: $41,600)

Consider this the supreme "do not borrow a ton of money to get one of these degrees" list. If you do, you could be in big trouble financially -- stuck with huge college loans and no real way to pay them back.

On the other hand, here are five degrees that have great returns on investment. These are much more worth borrowing to obtain (though I still recommend to keep borrowing as low as possible.)

And I'm not saying you should get a degree in a field you hate simply because it will help you earn more money. I'm simply pointing out that college costs should be in line with the expected income you hope to receive during your career. So it's probably not a great idea to borrow $100,000 to get a degree in social work, but it could be ok to borrow that much to get an MBA. Though again, I'd suggest you do all you can to minimize your college debt no matter what degree you get. That's what I did -- and it's worked out well for me so far.

Is Going to College a Bad Financial Move for Many People?

Here's a piece from Yahoo that examines the value of a college degree -- and finds that for many people it's a bad financial move.

Why do they say so? First of all, many people who start out in college don't finish it, leaving them with no degree. The details:

Federal statistics show that just 36 percent of full-time students starting college in 2001 earned a four-year degree within that allotted time. Even with an extra two years to finish, that group's graduation rate increased only to 57 percent.

In addition, many of these pile up debt while they are in school:

Spending more time in school also means greater overall student debt. The average student debt load in 2008 was $23,200 — a nearly $5,000 increase over five years. Two-thirds of students graduating from four-year schools owe money on student loans.

Not to mention the salary they are foregoing during the years while they are in college.

And worse -- a job is no longer "guaranteed" (like it ever was) upon college graduation:

And while the unemployment rate for college graduates still trails the rate for high school graduates (4.9 percent versus 10.8 percent), the figure has more than doubled in less than two years.

And when they do find a job, many college grads find that it is significantly lacking:

"A four-year degree in business — what's that get you?" asked Karl Christopher, a placement counselor at the Columbia Area Career Center vocational program. "A shift supervisor position at a store in the mall."

So what are the options? The piece suggests technical training could be a viable substitute for many.

Here's my take on the issue:

• Sure, if you start college, rack up a ton of debt, and don't get a degree, it's generally a bad deal (assuming you ignore the intangible benefits from attending college.) Or if you do get a degree, rack up a boatload of debt, and get a low-paying job (and one that you could have had without the degree), it's also probably a bad decision to attend college. Unfortunately, these seem like regular outcomes for many who enter college.

• That said, if you take the proper steps to make the most of your college degree, it can be quite lucrative. For example, my degrees have earned me millions of dollars. 

• One of the main keys to making a college degree pay off is being sure it's a good investment -- that you match the costs/debt with what you expect to earn after graduation. Look at it like any other purchase: will you get more out of it than you pay to get it? If so, it's a "good deal." If not, it's likely not a good money move for you.

What's your take on the issue?

And Yet Another College Student Who Needs a Clue

Here's yet another in what seems like a long line of clueless college students (for others, see College Debt Run Amuck, A College Debt Nightmare, and An Example of What I've Been Talking About.) Like the others, this one borrowed way too much and is now having a hard time paying it back (she owes $97,000). And if that's not bad enough, this article grates on my nerves because the author looks at who to blame for the problem -- it can't be the student and the parent alone, now can it? Is Sallie Mae, Citibank (private loan), or the university at fault? Ugh.

Let's look at a few comments from the piece that I think get to the heart of who is to "blame" for this mess:

Like many middle-class families, Cortney Munna and her mother began the college selection process with a grim determination. They would do whatever they could to get Cortney into the best possible college, and they maintained a blind faith that the investment would be worth it.

The second sentence is the killer. Let's dissect it piece by piece to see where they went wrong:

• "Do whatever they could" -- This can be translated "borrow whatever they need to borrow." Not a good idea no matter what you're buying (a house, a car, or a college education).

• "The best possible college" -- People equate "most expensive" with "best" when it comes to colleges. This is simply a (very) false assumption (as we have seen).

• "A blind faith" -- Having blind faith in anything is not a prudent financial move.

• "The investment would be worth it" -- Unfortunately they didn't do the math to see if their investment would be worth the cost before they borrowed. Big, big mistake.

That's just the first paragraph. We go on:

They and their families made borrowing decisions based more on emotion than reason.

Yep. And when you make financial decisions based on emotion and leave out reason, it's usually not going to end well.

"All I could see was college, and a good college and how proud I was of her," Cathryn said. "All we needed to do was get this education and get the good job. This is the thing that eats away at me, the naïveté on my part."

Yes, she was naive. How did she expect her daughter to get "the good job?" Did she think simply because she went to a specific school that she was guaranteed a certain income? Did they research the sorts of careers the school was getting its graduates? I'm guessing not. More than likely they simply assumed that the daughter would get a high-paying job and all would be well. Bad mistake.

To get the most financial benefit out of college, you must compare expected costs with expected post-graduation incomes. And you HAVE to do this before you decide which college to attend and how much you'll borrow (if any) to go there.

The daughter would simply like to have the debt forgiven (not likely since "federal bankruptcy law makes it nearly impossible to discharge student loan debts.") Her thoughts:

Ms. Munna badly wants to call a do-over on the last decade. "I don't want to spend the rest of my life slaving away to pay for an education I got for four years and would happily give back," she said. "It feels wrong to me."

How exactly is it wrong? You borrowed and now you must repay. Is that a difficult concept to understand?

Most of the rest of the piece is crap -- arguing how others conspired to give her money she could never repay. Take some responsibility, people!!!!

Anyway, here's how the situation nets out now:

The balance on Cortney Munna's loans is about $97,000, including all of her federal loans and her private debt from Sallie Mae and Citibank.

She recently received a raise and now makes $22 an hour working for a photographer. It's the highest salary she's earned since graduating with an interdisciplinary degree in religious and women's studies. After taxes, she takes home about $2,300 a month. Rent runs $750, and the full monthly payments on her student loans would be about $700 if they weren't being deferred, which would not leave a lot left over.

So she makes $46k per year. This is actually much better than I would have expected for a degree in religious and women's studies. Then again, she lives in San Francisco, not exactly a great place to live if you're trying to save money (though a beautiful city). Sure, why don't we just heap another major difficulty on the school loan one and make it even harder to get out of debt? What -- there are no photographers in other parts of the country? Ugh again.

Anyway, paying back $97k on a salary of $46k isn't impossible. She can do it if she buckles down and works at it for some time (no, it won't be easy, but she can do it.) How? Follow my seven steps to get out of debt.

And for those of you about to enter college (or if you know someone who is, please send them a link to this post), please, please, please think about where you are going to school, what you can reasonably expect to earn coming out of that school with the degree you'll have, and what it will cost to attend the school. Then do the math and see if it's a good financial move BEFORE you commit to going there.

Update: I guess others weren't too sympathetic either. Here's the woman's reponse to those who commented on the original piece (telling her to get a clue.) One quote that summarizes the whole mess:

"In retrospect, it’s absolutely clear to me that I should have thought more about the cost of the education versus career prospects. I didn’t think of it as a purchase."

Is This Why So Many Have So Much College Debt?

In The Total Money Makeover: A Proven Plan for Financial Fitness, author Dave Ramsey tells this story of a college

A couple of years ago, I met with the dean of the college of business from the university where I graduated. At that time, the average college student graduated with about $15,000 in student-loan debt after spending three of four years in an apartment, not the dorm, and eating off-campus, not on the meal plan. The average student paid $5,000 more per year to live and eat off-campus than to live in the dorm and eat cafeteria food. The student loans that they "had to have" or they wouldn't be able to go to college weren't for college at all. The student loans, on average, paid for an off-campus standard of living, and no debt was needed to get the degree, only to look good while getting the degree.

I've documented the ever-growing college loan situation in several posts including the following:

• College Debt Run Amuck

• A College Debt Nightmare

• An Example of What I've Been Talking About

I used to think that college debt was accumulated simply to pay for tuition and the basics of room and board. But Dave's comments made me wonder -- how much debt is being racked up simply to support a lifestyle at a certain level? If it's true that students are leaving college with thousands in debt simply because they prefer to live and eat off campus, then my sympathy level for them (which was already pretty low to be honest) just dropped through the floor. As you might suspect, I don't have any compassion for someone who generates a lot of debt buying stuff that they really don't need.

I'm not sure whether this is common or not, but now that I think of it, doesn't it seem likely that at least some of the very high levels of debt that some people leave college with (I'm talking $50k+ here) was generated because of lifestyle choices (where they simply preferred to live one way rather than another)? I had these choices as well. But I lived in the dorm even in grad school and ate at the cafeteria as well. Not the greatest food, mind you, but a lot cheaper than alternatives. So, as I said, I do not feel sorry for those who have to have a certain type of place to live, eat certain food (barring a medical condition), need the latest tech devices, etc. and thus leave college with a large amount of debt.

What do you think? Do you think this is common or more the exception than the rule?

College Scholarships – Murky Waters for Students and Parents

The following is a guest post from College Search GamePLAN.

As the search and admissions process unfolds for the typical family of a college bound high school student, there comes a tipping point.

When the student shows up on the radar of colleges (after taking the PSAT), he/she is inundated with a variety of direct marketing messages.

All of them proclaim: “Come on in, the water’s fine!” The issues of cost and financial aid is typically glossed over.

Mom and Dad are usually left out of the loop in this process, until the question arises of how this college education is going to be funded. This is the moment when the word “scholarship” raises its head, and there is a (usually online) scramble to search for the so-called “millions of unclaimed private scholarship dollars”.

In fact, the student may already have received online solicitations to subscribe to a scholarship search program, if her name has found its way into the database.

The journey towards a college degree is littered with red herrings, and this section of the road is no exception.

After many years in the trenches, here is our advice to parents and students alike …

First, understand that there are three breeds of scholarship:

• National private scholarships
• Local community scholarships
• Merit based college/university funded scholarships and grants

In our experience, there is real confusion regarding the nature of each type.

It’s really important to make the distinction and decide your plan of action.

National Scholarships (Our least preferred)

If you receive a direct mail solicitation to engage in a search for private scholarships, be wary.  Although there are some reputable companies conducting data base searches for private scholarships, most of these companies provide little or nothing for the money they ask you to spend.

They are also frequently part of some marketing ploy, and are not looking to benefit the individual student.

If you decide to go down this road nevertheless, good luck, and here are some pointers:

• Search for private scholarships – FREE.
• Start with fastweb.com and you’ll find plenty - if you are willing to invest a little (and we mean A LITTLE time).
• Don’t get bogged down looking for scholarships in the private sector,
• Pay attention to the deadlines - They are non-negotiable.
• Contact a state student loan guarantor - They can search the College Board data base of private scholarships – FREE!
• Spend no more than 6-8 hours on this process.
• Be sure to start investigating these programs early in the junior year of high school.
• Be prepared for a multi-layered competition that could take over a year.

Remember - some 2,000,000 students apply to college every year, and a huge number of them are looking for private scholarships too. The number of applications these national scholarship providers receive is staggering.

The chances for success are between slim and none in the national private sector, and slim usually leaves town early.

This is a good time to start thinking about “ROI” – time and resources invested versus potential return.

Community Based Scholarships (A better option)

• Stay local.
• Don’t invest too much time (see “Merit Scholarships” below).
• Contact the Guidance Office at your school. Most keep a list of local community scholarships for which you can apply during your senior year.
• Your guidance office may also have more detailed information and application forms.
• Pay attention to the deadlines. They are non-negotiable.
• Don’t get your expectation level too high.
• Don’t ignore your local civic and charitable groups.
• If you are to be awarded some private money, they are most likely to be your benefactors.

Important Note

You are obliged to notify colleges that offer you financial aid that you have been awarded a private scholarship. 

The college in turn may adjust the amount they awarded you to keep the total aid within your calculated need. In that case, you have no net benefit.

And remember, this type of scholarship is typically a one shot deal.

Merit Scholarships - Where the “real” money is.

This is your best strategy:

• Give high priority to colleges offering MERIT SCHOLARSHIPS (mostly academic, but also for performance in arts and special interests).
• This means paying very careful attention to your college search and the essential attributes of those colleges and universities on your refined and final list.
• Focus more time getting the details about these awards than you do on the private sector awards, and you will be way ahead of the game.

The college-based merit awards are usually higher, and they are renewable from year to year.

The probability of receiving a merit award, especially from a college where you fit the top 10-20% profile of the admitted students is much higher than your chances with third party scholarships. 

Keep in mind these funds are not portable.

In other words, should you decide to change colleges, you cannot take your merit scholarship with you and comparable money for transfer students (at your new school) will be extremely limited. 

Give your college search serious thought. Do not commit to a college light-heartedly.

The ultimate costs could be in the tens of thousands of dollars should you decide to transfer.

The key to a successful campaign is to start early and lay out a clear plan involving all the stakeholders (student, Mom and Dad).

College Debt Run Amuck

Here's a piece a reader sent me that shows people with the amount of their college debt written on signs. There are all sorts of (usually high) levels: $100,000, $250,000, $180,000, $92,000, $40,000 and so on.

Then, if you want to, you can read each person's story and get the details on how they racked up so much debt, how it's a big burden to them today, how they don't know how they'll pay it back and so on. But you don't need to read them all because they are basically the same story. My summary:

• I wanted to go to a certain school.
• I didn't think about the cost of the school or what I would make when I graduated from it. I simply borrowed as much as I wanted/needed to pay for it.
• I didn't think about the size of the debt, how I could pay it back, the terms of the loans, or anything else a sane person would consider before they borrowed tens of thousands of dollars.
• A major part of my life is this over-whelming debt I don't know how I'll ever get out from under.
• Boy, do I feel stupid.

Ok, so that's not what they all say -- but it's pretty close.

Why is it that all financial sanity seems to go out the window when people start looking at colleges and deciding what and how to pay for an education?

Let me say it again in case any of you are new to this topic -- you MUST make sure the amount you borrow for college is acceptable based on what you'll earn when you graduate. Most people do not do this and that's why you have people with $100k in debt making $20k per year in social work. The math does not work that way. It's fine (even commendable) if you want to do social work, but you don't need a degree from an Ivy League school and a boatload of debt to do so.

Just like any other purchase -- and especially large purchases -- you need to take necessary steps to be sure your college costs are as low as possible (and that includes asking for a discount). Don't shut off your brain and simply pay "what it costs" for a degree that's not going to earn you a decent rate of return back. That's called a BAD INVESTMENT.

Save Money! Get a College Degree In Three Years

The following is a guest post from Cheap Scholar.

As money gets tight and your budget for educational expenses is shrinking quicker than a used Arm & Hammer Magic Eraser, you start to think about different approaches to decreasing your costs for college.  This brings us to a widely used but under marketed practice of completing your undergraduate degree in three years instead of four (or ugh.. five).

It is not the easiest thing to do and it is certainly not for the academically challenged but it is very possible for a student to complete college a year early and under budget.

The first step is to take post-secondary courses while you are in high school. Most students can qualify to participate in this program in their junior year. Basically, you go to a couple of classes at your high school campus and then you go to a local college or university for FREE to take more "advanced" coursework to round out your schedule. I put advanced in quotes because a college course doesn't necessarily mean that it is going to be harder than a class you take in high school (it should be tougher but depending on the professor and curriculum you should be just fine..).

The silver lining to this program is that courses you take at your local college not only count toward your high school diploma but they also provide benefit in that they are actually college credits that you can transfer to the school of your choice. If you get started in the post-secondary program (sometimes referred to as High School Scholars) early enough, you should have no problem in having a semester or two worth of credit hours to get you started. Also, many states pick up your textbook expenses for these programs so that is extra savings that you can count on. Check with your guidance counselor if this is something in which you have interest.

The next step in getting through college in three years is to take as many classes as you can each semester. Many colleges have a standard rate(cost) of tuition each semester regardless of whether you take 12 credit hours or 19. If you take the basic 12 credit hours, you are not maximizing your tuition dollars and may even prolong your stay at the college. However, if you take the maximum of 19 credit hours each semester, you are sure to cut off at least one semester on the back-end of your program. Again, this is not for the academically challenged. If you struggle in the classroom, you will have a very difficult time keeping up with 19 credit hours each semester. Not to mention that your social life may take a huge hit as well.

Lastly.. consider summer college.  Students take advantage of classes in the summer to catch up on course work that they could not complete during the year or in the sequence that is required by their program. Since summer college courses are usually offered at a discount rate by most traditional colleges and universities, you could save some cash by loading up on these classes. If you take enough summer courses you could easily shave a semester or two off your stay.

Based upon all the steps above, it seems like you could get your bachelors degree in two years let alone three. However, I don't recommend a student to make use of all these opportunities during your college experience. Going to college is an educational process in and out of the classroom and it is a time when you learn to take on more responsibility and become a true adult. If you short change yourself from this experience, it could impact your accomplishments later in life.

So... 4 is good, 3 is better, but be very cautious about getting your bachelors degree any quicker. However, if you are really anxious. I know of a diploma mill in Florida that will give you your degree in two weeks (enough time for your $180 check to clear the bank!) ;)

Deadly Mistakes on the FAFSA Could Cost You Thousands of Dollars in Financial Aid

The following is a guest post from Manuel Fabriquer at College Planning ABC.

It's time to fill out federal financial aid forms, preferably online. Families often think they will not qualify for financial aid and filling out the Free Application for Federal Student Aid (FAFSA) is too much of a hassle. Do it anyway.

In addition to qualifying students for scholarships and work-study awards, this form is required for any student who wants to get a federal student loan, which is a relatively cheap and flexible way to finance college and to allow your child to build a credit rating while still in school. Besides, you may be surprised at what aid you can get. As a general rule a decrease in the Expected Family Contribution (EFC) will yield an increase in eligibility for student loans and work-study, often grants. But, just because you demonstrate financial need doesn't mean that the school and government will throw grants and scholarships your way.  Always check with the college financial aid office for more information and see if they also require the CSS Profile form for additional money that is available at the private colleges.

If you are doing your financial aid forms, there is only one goal --reducing "included" assets. There are two types of assets, those that are included in the need analysis formulas and those that aren't. Converting included assets into non-included assets will increase eligibility by sheltering them from the need analysis process. Legally and ethically show less income and assets as possible. There is some income and asset planning parents should consider at least one year prior to entering college.

The 10 biggest mistakes smart people make when doing their financial aid forms:

1. They enter the wrong Legal Name. When registering for their pin code, the Name does not match social security information.  Two first names such as Mary Ann or two last names or hyphenated last name.  The FAFSA verifies this information with the social security administration and if the names do not match this will cause a delay in processing.  This can be the difference of getting your form in on time and receiving the full amount of financial aid that you deserve.

2. They wait too long and think that they have to have their taxes done before they file their forms. There is an option on the form that allows you to choose "Will File" and estimate your income from your last paystub for the previous year. Do your forms earlier than later, Do not wait until the last few days to file your forms. You may experience some technical difficulties due to the high volume of people filing at the same time.

3. They enter the wrong amount in the Adjusted Gross Income question.  This is your last number on the first page on your tax return line 37.  Some families forget to add or deduct the losses or gains from interest, dividends, and/ or business.  Talk to your CPA or tax advisor to see if there is any way you can still add to your 401K , IRA, SEP IRA's to lower your income. The more you can lower your income the better for financial aid.

4. If the student is a male and is 18 yrs old. They must register for selective service or they will not qualify for financial aid even if they are eligible for federal money.

5.  Parents include their home equity in their current net worth of investments. The equity in their primary home is not included in the FAFSA form, but is included in the CSS Profile form. You will need to include the value of land or equity in the rental properties. However, this may be a little tricky at this time because of the drop in the real estate market.  Take the average of the home values based on the recent sales, foreclosures, and short-sales.  This may not be pretty right now, but we want to legally show fewer assets as possible. 

6. Parents should write out their bills for the month and then fill out their FAFSA. The question asks “enter the amount of Parents Total Cash, Savings, and Checking Accounts?”  It makes sense that if you just got paid on the 15th or 30th of the month not to state what your balance is with your income deposits. Write out your bills for the month, balance your checkbook and then enter the amount that is in your account that day after all the bills are paid.

7. Business Assets are not included if you have less than 100 employees.  If you are self-employed and have less than 100 employees the correct answer is "0".  Many small contractors, doctors, dentists, shop owners, etc. make this mistake. They add their inventory and equipment, computers in this and this is not included.

8. Divorced Family - If you are divorced or separated, you only need to input the financial information for the parent that the student lives with the most during the year. The mistake is that parents add income and assets of the ex-spouse not living in the household.

9. Parents do not need to include any retirement accounts such as IRA's, 401k. 403B, etc in their net worth of assets.  

10. Don't have your kids fill out the FAFSA or financial aid forms. Why? Your kids have no clue about your income, taxes, and about your assets. They do not understand what an asset is and what is considered a non-included asset. What does a 17 -18 year old kid know about finances when they can barely balance their ATM account?

Should Students Pay Their Own College Costs?

Here's a question that's bound to get people riled up (it always seems to when we've discussed it before):

Should student pay their own college costs or should their parents (or somewhere in the middle)?

MSN Money asks this question without taking one side or the other.

Here's a summary of our plans:

• Help our kids get into a good (not necessarily "great" -- I don't think it's worth paying for "great") school
• Help them secure as much financial aid as possible (it will have to be non-need based since we have no chance of getting need-based scholarships.)
• They will pay for a good portion of their schooling themselves in scholarships or through working and saving.
• We're also saving in 529s and Education Savings Accounts since a good portion will simply need to be paid for (and we don't want to take out loans, as you might imagine.)
• In all, I'm guessing that we'll end up picking up 75% of their college costs. In my point-of-view, it's the last thing we need to do to set them up for success before they leave the nest completely.

A couple other things to note:

• We are not slowing down our retirement savings to fund college savings. If we had to choose, we'd pick retirement.
• Just because we want to provide for our children this way doesn't mean I think it's everyone's responsibility to do so.

So, what are your plans? Will you pay for your kids' college educations, expect them to pay, or share the costs with them?

Start Saving for College the Day They Are Born

The following is a guest post from Marotta Wealth Management.

My youngest is a first-year student at the University of Virginia. My coauthor Matthew's youngest child was born only a month ago. Matthew is just beginning to think about college funding, and I'm withdrawing from my final 529 plan.

Over their lifetime, college graduates gross $1 million more in earnings than their less educated counterparts. Education helps people both gain and keep wealth. But paying for it can be daunting, especially if you have to pay all at once. For some families the price tag exceeds the cost of their home. Thus starting a savings plan early is critical. Fortunately, compounded savings eases the financial burden.

The College Board's annual study (www.collegeboard.com) reports that the average costs for a year at a public in-state college will set you back $14,364. For every dollar you spend at an in-state college, only 36 cents goes toward tuition. Room and board account for 42 cents and the extra 22 cents covers books, supplies, transportation and other costs.

Expect an average price tag of $26,741 if your child enrolls as an out-of-state student or $35,636 if he or she attends a private college. Aid from grants and tax subsidies help reduce the price about 40% on average. However, those families making over $100,000 in income should not expect much help.

Saving for college requires time and money. The more you have of each, the better. Time puts the miracle of compound interest on your side. And the more money that is earning money, the less you need to continue contributing.

There is no such thing as saving too early, even for Matthew's youngest child. Saving early can cut the cost of his college education in half. Imagine he decides to go to the University of Virginia like his parents. Currently four years of tuition costs about $47,000. But by the time Matthew's son is ready to enroll, the price tag will have risen to $98,960. The earlier Matthew and his wife begin saving, the more manageable the monthly amount that should be saved.

Saving early allows you to buy your education at a discount. After saving $225 a month for 18 years, the newborn's college savings account will have grown to $98,960. An astonishing $49,235 of that amount accrued through the magic of compound interest. The great benefit of a 529 plan is that all the growth in the account can be withdrawn tax free.

Those with the money upfront could deposit $26,500 and let compound interest generate the remaining $72,460. Buying a college education for a 73% discount is a deal those with money should not pass up!

My daughter's 529 plan was first funded at the end of 2002 and has experienced a time-weighted return of 88.3%, or 9.4% annualized, since then. Yes, it was once up 121.6%, or 17.7% annualized, but it has still earned over $30,000 and saved us a tremendous amount of money.

If you cannot invest a large sum now, save a little every day. Started young enough, even a few dollars a day will pay the tuition at many public schools. By investing in a college savings plan, your money can grow faster than the inflation rate of higher education. These costs have been rising at a rate of 5%, and over the past 10 years, tuition at public schools has gone up more than 50%. If you are not saving for college, you are falling behind.

Saving for college is a critical part of financial planning. But saving for retirement is even more essential. You can borrow money for college but not for retirement. So prioritize your savings plan based on your specific situation.

For many of our clients it is the grandparents who are secure enough financially to be able to fund their grandchildren's education. The added benefit of having a grandparent own a 529 plan is that these funds are not counted in the formula for financial aid.

Higher education is critical in uncertain economic times. Although official unemployment is more than 10%, unemployment for those with a college education is only about 5%. And for people who did not finish high school, the unemployment rate is 15.3%. These are the official rates that do not count any workers who have been unemployed awhile and presumably have given up. Jobs that do not require a college education continue to move overseas into the emerging market countries.

Many states offer tax benefits when using your state sponsored 529 plan. You can check this at www.savingforcollege.com and find a plan that is right for you.

Make Yourself More Marketable in College

The following is a guest post from Austin at Foreigner's Finances. For related pieces that also may be useful, see The Most Useful Thing Students Can Do to Prepare for the Job Market and How College Students Can Manage Their Future Career.   

I've only been out of college for only six months, but I can already pinpoint a handful of mistakes I made in my 4 years.

People go to college for different reasons, but letting it be 4 years of relaxing and hanging out before "the real world" kicks in is a huge mistake. As one too many jobless grads will tell you, graduating with a bachelor's degree doesn't mean a job is waiting post-graduation.

Now, don't get me wrong. College should be fun. Socializing and making connections are part of the experience, but that's what Friday and Saturday nights are for.

College students must spend the rest of their time looking for  a way to create an advantage for themselves as eventual employees. The key to being successful at anything is to stick out from the rest and work hard.

You can go about this by trying everything in college. Follow your interests, discover new creative outlets, but don't get pinned down by a label.

A common questions students often receive is: "what are you studying in school?".

Major and classes are overrated. It's important to do well - a B average is fine - but unless you're planning on going to grad school, don't waste time trying to get A's in Statistics. The extra hours spent cramming for finals probably won't have any weight in the real world. It's the stuff outside of the classroom that will make you more marketable after graduation.

That "stuff" is extracurricular activities. I don't mean science club and the ultimate frisbee team. I mean self-made extracurriculars.

The one thing that will make you more marketable to a potential employee is stuff you  created on their own.

Any businesses, internships, or clubs you create will make your resume bolt to the top of the pile because they're unique bullet points no one else can claim. Marketing deity Seth Godin calls it the purple cow. That specific trait that makes you stand out from the rest.

For example, if a students goes out of their way to create an internship at a local law firm, they stick out to potential employers for three reasons.

1) It shows you have the initiative to reach out and create something for themselves. This is incredibly admirable in any job market because there are more do'ers (workers) in the world, but not enough creators (entrepreneurs).

2) It makes you much more interesting to interview. Your story is probably an interesting one and one that the interviewer hasn't heard.

3) You'll receive a more valuable internship. Since you went above and beyond at the beginning, you can mold the internship to your specific skill set and create projects that excite and motivate you.

Far too many people waste days, weeks, or months at internships with huge corporations because it looks good on paper. If I was in charge of hiring for a business, I would choose the candidate who created an internship at a small mom & pop store and helped improve sales by 12% because of a new online cataloging system, compared to the candidate who was one of thirty interns at NBC and was the coffee runner.

My good friend Erik is taking this route and I applaud him for it. He's been a victim of the small job market so he went out to a local college and offered to work for free as an intern in their office of international programs. Will he get paid? No. Will he have the wow factor or interning at a world-wide corporation with hundreds of interns? No. But if he works hard and shows initiative he should be able to make a huge impact on the college, improve his professional portfolio, and maybe a new contact or job lead will come out of it.

You only have 4 years until they're out on you own. Far too often students tell themselves they'll work on their professional portfolio once they graduate. It'll be too late and you'll be stuck working a job you hate to pay off student loans.

Here are 3 things college students can do to make themselves more marketable in the real world:

1) Start a side business

The best part is, it doesn't even have to be good. I'd respect someone who had a failed side-business if they could tell me what they learned from it. Not every business is going to go public, but the fact that you have the entrepreneurship gears working says a lot. It shows a potential employer that you can create systems without being prompted and that you have a willingness to succeed. Most importantly, you'll learn about your strengths and weaknesses as a worker and you'll learn what you want out of a future job.

2) Intern everywhere and anywhere that interests you

There's no reason a business management major can't intern at a science lab. Pursuing different interests is vital in college. This is especially true for students who aren't sure about a career path.

I heard a great quote recently about passions and careers: "You may not know what you want to do with your life, but you should always be searching by following your interests".

When searching for internships, look at what the internship offers, not just who the company is. Perhaps, a small company is in desperate need of help and you could step in and play a substantial role. Maybe you notice they're lacking in human resources or have no online presence so you offer to create it yourself. Small companies move more quickly than larger corporations and they'll probably be thrilled at your offer. This will give you valuable experience that will look great down the road when you go to interview for a full-time job.

3) Create or become prominent in a school club

Clubs in college can be treated as small businesses or internships. Find one that aligns with your interests and use your skills to make an impact. Don't just show up to the meetings and take part in the events. You need to be a driving force behind the club's direction or improvement. By doing so, you can explain in a future interview the steps you took, the changes you made, and the positive results of your impact. If you can be on the club's board it's even better because you can have a title for yourself on your resume.

The key is to walk away from the experience with measurable improvements. How much money did your fund-raising events make? How much did that improve from the previous years when you weren't involved? How many new students did you attract to the club with your new marketing strategies?

A line on your resume that reads: "Created and led the Volunteer Club's first coat drive that brought in $10,000 worth of donations in one semester" looks much more appealing than a line that just reads "Member of the Volunteer Club from 2007-2009".

Clubs are a great way to test your interests, gain valuable work experience, and network with other go-getter students you may not have met otherwise.

If you're a senior or a junior don't waste time sulking because you didn't get started earlier. Note some of your interests and take action.

With businesses struggling, interns are needed. In an economic downturn, entrepreneurs can thrive. College clubs will always need leaders. There is a spot for you somewhere, but the chances of someone asking for your help is slim. Be the person who sends the first e-mail, makes the first phone call, or shows up uninvited. When you wow people with your presence and poise, the opportunities for work will follow if you're willing to do the type of job you promised you could. 

The perfect time to step up and make the change will never come unless you create that chance.

Kiplinger Doesn't Get It

Generally, I like Kiplinger's website. I don't get their magazine any longer because most of their good stuff is online, and those pieces are pretty good. I link to/write about their articles quite frequently.

But in the case of naming the best values in public colleges, they're off the mark. They detail how they rank the schools and give this as a summary:

We narrow the list to about 120 schools based on measures of academic quality -- including SAT or ACT scores, admission and retention rates, student-faculty ratios, and four- and six-year graduation rates, which most schools reported for the class entering in 2002. We then rank each school based on cost and financial aid. In our scoring system, academic quality carries more weight than costs (almost two-thirds of the total).

To assess costs, we look at total expenses for in-state students (tuition, mandatory fees, room and board, and books); the average cost for a student with need after subtracting grants (but not loans); the average cost for a student without need after subtracting non-need-based grants; the average percentage of need met by aid; and the average debt per student before graduation. (In the table, aid is need-based assistance.)

In all, they list 24 different pieces of data but miss the one key that would really make this analysis great -- expected earnings at graduation.

Why is this so important? Because to see if getting a degree at any particular school is a good deal, you need to know two things -- what it costs and what you expect to make when you graduate. Only by knowing these two things can you make the most of a college degree.

But Kiplinger only ranks "quality" versus cost (giving 2/3 of the weight to the "quality" measures.) Who cares if the "quality" of the school is great or even if it's a good deal cost-wise to go there if you can't get a job paying much upon graduation?

For instance, Kiplinger ranks the University of North Carolina as #1 and Shippensburg University of Pennsylvania as #100. The average debt at graduation is $14,936 for Carolina and $20,148 for Shippensburg (they also list other cost numbers, but let's focus on these for simplicity's sake.) But what if you found out that the average grad from Carolina made $25,000 out of school and averaged $50,000 10 years later versus $35,000 and $70,000 for Shippensburg? (FYI, I'm making these numbers up -- they're not listed anywhere -- which is exactly my point). Would your conclusion be a bit different? Probably!

Of course you'd need to adjust for the differences in majors from one school to another (at least in part -- maybe one analysis could be overall and another could be by-major), but once this is done, wouldn't knowing what you'd make upon getting a degree be pretty important information? Without it, how can you really determine what the best "value" among colleges is?

Maybe I'm missing something. Feel free to add your thoughts and take on this issue.

Graduate Degrees Raise Income

We've covered the value of a college degree (a few times) as well as the value of an elite college, so it made sense for me to post on this Wall Street Journal piece saying that graduate degrees raise income. Their thoughts:

People with master's degrees post median annual incomes almost twice as high as the typical full-time worker with only a high-school diploma, says a 2007 study by the College Board, New York—$61,300, compared with high-school grads' median annual earnings of $31,500. Compared with bachelor's degree holders, the master's degree premium is 20%—$61,300, compared with $50,900. Median income for people with professional degrees in such fields as law, medicine or engineering was $100,000, more than three times that of high-school graduates and 96% more than bachelor's degree holders.

Over the course of a lifetime, the ratios are similar. People ages 25 to 64 who have master's degrees tend to earn 93% more than high-school grads over a 40-year career, and 20% more than bachelor's degree holders, the study shows. And those with professional degrees earn 187% more income than high-school grads over the course of a 40-year career, and 78% more than bachelor's degree holders, says the study by Sandy Baum and Jennifer Ma.

A few thoughts here:

1. As you probably know, I'm a big fan of graduate degrees since my MBA has been a big key to my financial success.

2. You have to apply the same principles to a graduate degree that you do to an undergrad one to make it a worthwhile investment -- namely, you need to match the post-graduation expected salary with the cost of getting the degree. In other words, if it's reasonable to expect you'll make a lot more with the grad degree, then it's worth more to get it. If you don't expect to make much more with it, you really have to think over whether it's worth the time and cost associated in acquiring it.

3. Just having a graduate degree guarantees you very little. You still need to take the right steps to grow your income even if you get an advanced degree. If you don't actively work to grow your career, the value of your graduate degree will be far lower than what it could have been.

The Value of an Elite College

Many people will say that going to an elite college (Harvard, Stanford, etc.) is worth the added cost because:

1. You'll get a "better" education

2. You'll make great contacts (that will help you network and boost your career from graduation day until you retire).

As a result (or so "they" say), you'll earn more money throughout your career.

Not really.

The Wall Street Journal adds to our conversation on the value of a college degree by weighing the value of an elite college degree. Here's their summary of a comprehensive study on the issue:

When comparing students who graduated from elite colleges, as measured by students' average SAT scores, with those who graduated from less-selective schools, the researchers found no significant income differences between the two sets of students. In fact, being rejected by an elite school where students had higher SAT scores was a better predictor of higher earnings than the competitiveness of the college the student actually attended. The findings suggest a student's innate ambition, as reflected by his or her willingness to stretch in applying to exclusive schools, is a factor in career success.

This is my college story summarized in one paragraph. Granted, my similar experience was with a graduate degree, not an undergrad one, but the principles still held true.

I've told you how I got both bachelor's and master's degrees with only $5k in debt. But what I didn't tell you is that I applied to several graduate schools when I wanted to get my MBA. I was turned down by some of the top-ranked programs (Michigan and Chicago if I remember correctly) but accepted by a couple schools ranked in the #20 to #30 range. One of them offered me an assistantship, so it was pretty much a no-brainer to go there. Since then, my income has risen dramatically through the years because I've applied the right principles and been determined to succeed.

I don't say these things to brag (it's not really bragging to say schools rejected you anyway, is it?), but to highlight a few points I've made at FMF consistently as well as ones that are highlighted in the Journal's summary, namely:

1. You don't have to go to the "best" (and usually most expensive) college possible. One that's "good" will do. How do I define good? One that has the sort of companies you want to work for recruiting its graduates. It's even better if the sort of company you want to work for has a big brand name.

2. Going to a "good" college often allows you to make the most financial success possible from a college degree because you have low debt but still possess a good earning capability.

3. The key: "a student's innate ambition, as reflected by his or her willingness to stretch in applying to exclusive schools, is a factor in career success." Like I tell my son all the time (when he wants to buy $300 soccer shoes), Cristiano Ronaldo would still be good even if he wore no shoes at all. Why? Because he's got the skills, the drive, and the work ethic. It's the same for colleges. A person with the right drive and the willingness to work and succeed will do well whether he goes to Harvard or the University of Iowa.

Unfortunately, drive, determination, and commitment to succeed can't be taught. For the most part, they have to exist inside an individual. If some university could reliably teach these skills, then THAT would be an elite school worth paying for!

Revisiting the Value of a College Degree

A couple months ago we discussed whether or not a college degree is still worth the cost. My opinion is that it's not worth it if you borrow to the hilt and get a worthless degree. On the other hand, if you make the most out of your college degree, it certainly is worth the time and cost. Everywhere in between is a shade of gray, but in general I think the college degree is worth the expense for most people.

The Wall Street Journal recently assessed the value of the college degree in a piece that seems generally favorable to the college degree. They list the benefits of going to college as follows:

• A path to a better-paying job: College graduates in general earn at least 60% more than high-school grads on average, both annually and over their lifetimes, and the income gap has been growing over time.

• Preparing for a rich, well-rounded life: The opportunity "to 'marinate' for four years in an amazing environment" served as a "springboard to lifelong learning and inquisitiveness," she says.
• Finding work you love: This is a good reason to attend college.

• Gaining an influential network: Many graduates of elite colleges swear by the value of their network of campus buddies in opening doors after graduation, and say striving to gain admission to such schools is worth the effort.

I've made my opinion rather clear -- if you can go to a good (not great) school, control your costs (and especially borrowing), and match any borrowing you do to your post-graduation expected salary, then it's highly likely that going to college is a great economic investment.

To illustrate what I mean, look at these two examples:

• Kathy goes to an exclusive, costly, private school that runs $40,000 a year. She leaves college with $100,000 in debt and a degree in social work, where she can expect to earn $20,000 a year to start.

• Kelly goes to a public school that costs $20,000 per year. She leaves college with $20,000 in debt and an engineering degree that will earn her a $50,000 annual starting salary.

Kathy is in deep do-do because her expected income is way too low to pay off her huge school debt. On the other hand, Kelly is in good shape. With some financial discipline, she should have that $20k in debt paid off in a handful of years. Then, with her higher earning capacity, she's set up to really grow her net worth during her remaining work years.

Sidenote: One way to keep costs really low is to get radical about no debt the way this guy did. But who wants to live in a van for several years? ;-)

How to Graduate from Harvard for $40k or Less

Here's a piece from Personal MBA that tells how to get a degree from Harvard for $40k or less. The highlights:

• There’s a little-known back door to getting a Harvard degree: the Harvard Extension School.
• All you need to do to become a student at the Harvard Extension School is pay a course fee and show up.
• If you’re able to complete 3 Extension School courses with a GPA of at least 2.5, you’ll be able to petition for acceptance to the degree program. The admissions criteria are straightforward: if you meet them, you’re in.
• The diploma that you receive upon graduation is issued by Harvard University, and there is absolutely no difference in the quality of the courses.
• You’ll also have the same benefits of the Harvard reputation “halo” and network.
• The total cost of an undergraduate program at the Harvard Extension School is ~$35,000-$40,000. For perspective, the cost of one year of Harvard College’s “normal” bachelors program is $33,696 for academic year 2009-2010.
• Harvard Extension School also offers Masters and Professional degree programs

Here are a few comments on this issue:

1. While not as lucrative as it once was, getting a college degree is still a smart financial move especially if you make the most of your college degree by matching costs and benefits (the key is to avoid the college debt nightmare).

2. In addition to having "any" degree, a degree from Harvard gives you A) name-brand recognition and B) the vast network of high-powered alumni to use as you manage your career. Talk about putting your network on steroids -- from my experience, Harvard graduates stick together and help each other out throughout their careers. And since so many Harvard grads are well connected and hold high positions, who could ask for a better network?

3. Ok, $40k is not a drop in the bucket; it's still $40k. But it's a TON better than $160k!!!!

4. Glad to see they have advanced degrees too. Getting my MBA worked out for me and I didn't go to a top-tier school like Harvard, thought I may have if this had been an option when I went to school.

5. Is it really this easy? There's a catch here somewhere, right?

Is a College Education Still Worth the Investment?

Sound Mind Investing asks if a college education is still worth the investment. They provide a good amount of data, insight, and analysis and come up with the answer "it depends." (I hate that response too, but it's often the correct one for any sort of financial decision people make -- because everyone has different goals, challenges, etc.) That said, there are some very interesting points made in this piece -- especially at the end. Some of their thoughts:

As a former full-time college instructor, I can attest to the sad fact that some students are doing little more than wasting time and accumulating debt. There was no denying that they had gifts; they just weren't strongly gifted when it came to academic pursuits.

Because the student is the real key, the decision about what kind of post-high-school education to pursue must be a personal one. Just don't assume, as many parents and students have done in recent years, that earning a B.A. is the "best" option.

There is no rule that says a high-school graduate must immediately enroll in college. Perhaps your son or daughter would be better served by taking a year or two to work and save.

Consider the military. Military life isn't for everyone, but entering the armed services is an excellent way to gain an excellent education at low or no cost, while also serving the nation.

Some interesting suggestions here IMO.

Our kids are still several years from making the college decision, but I can see the wisdom in what's being talked about here, especially:

1. College is not a holding place where people go to "figure out the rest of their lives" -- that's an expensive way of deciding what you really want to do. Instead, how about taking a couple years off between high school and college, working a bit, and then deciding what to do as a career option? Sounds like a good idea to me -- especially for those who are unsure or not as mature as their counterparts.

2. I am guessing that there are several readers out there who were/are in the military (based on comments I've received.) Any of you used the services to get a college degree? If so, can you give the rest of us a few ideas -- what you did, what worked, what you'd do differently, etc.?

Eight Steps to Lower Your College Costs

The following is an excerpt from America, Welcome to the Poorhouse: What You Must Do to Protect Your Financial Future and the Reform We Need, courtesy of FT Press, imprint of Pearson. Originally published in "America, Welcome to the Poorhouse." I don't agree with everything that's written in this book (you'll be able to see pretty clearly where we differ), but it often offers an interesting perspective that I thought would start some discussion here.

In Collinge’s book, The Student Loan Scam, he provides heart-breaking, horrific testimonials of borrowers who were hounded to pay their debt. He describes a man who borrowed about $7,500 in the 1980s who subsequently was found to have a form of autism that prevented him from finding a job. Despite being declared totally and permanently disabled by the Social Security Administration, he was still getting collection calls from the lender two decades later. Another borrower tried to repay her loan in full in order to save on interest costs, and the lender refused; instead, it garnisheed her wages so that it could collect the full amount. Still others took desperate measures, including leaving the country and committing suicide.

Your first plan of action should be to protect your college-bound kids from having their lives destroyed if they fall behind or are unable to make payments and wind up having their credit rating destroyed—even being deprived of a job in some circumstances. First, seriously consider whether you, the parent, ought to be the borrower and not your son or daughter—especially if you and/or your spouse has a well-paying and secure job. Unfortunately, a student loan is especially risky if my prediction about the retirement crisis is on target: if the first wave of Boomers is supposed to be able to retire in 2011 but can’t afford to, my daughter’s graduating class of 2011 is going to have a tough time landing jobs. Saddling an unemployed graduate with loan responsibility could very well mean sharing the same nightmarish fate as Collinge’s.

On the other hand, if the parents’ job situation is shaky or their income is below $60,000 or so and the son or daughter is an A student majoring in medicine or engineering or a similar lucrative pursuit that will enable him or her to repay the loan, the student loan may be the way to go. What’s more, a few dozen wealthy colleges now offer “free rides” or “cheaper rides” to students from families with less than $60,000 in household income—and sometimes more (details at the end of this chapter)—so a loan may be unnecessary.

Until we get some genuine college cost reform in Washington, there are still steps you can take to lower college costs:

1. Take advantage of free money. Before we talk about cutting costs on borrowing for college, make sure that you take advantage of grants or scholarships.

Grants, scholarships: The bad news is that they are a small percentage of the total cost of college—and most kids won’t get them because there’s only so much money to go around. For example, in 2005 a mere 2.1% of students got tuition and fee waivers—which is essentially the same thing as a full scholarship. That same year need-based grants were awarded to more than 10% of undergraduate students but averaged only $3,300. That year merit-based grants were awarded to 7.9% of students, with an average award of $4,269, and federal Pell Grants were received by 26.8% of undergraduate students, with an average amount of $2,492—plus you probably won’t even qualify for the latter unless your household income is less than $50,000. In summary, at best you’re getting around $10,000 a year. But it’s better than nothing and it’s $10,000 less that you have to borrow and pay interest on for many years.

Most of Uncle Sam’s money—about $7 billion—is distributed through Pell Grants. To get this money, you need to file the Free Application for Federal Student Aid (FAFSA), the federal government’s instrument for finding out how much each family can pay for college. The FAFSA generates an expected family contribution that guides colleges in the distribution of federal funds and serves as a baseline for calculating eligibility. See the end of this chapter for the website that tells you how much of the bill you’ll be footing.

Merit aid: This is when the college gives you a “reward” for having good SAT scores so that you’ll apply and doing so will boost its rankings with U.S. News & World Report. Yeah, it doesn’t make sense but every little bit of money helps, $4,000 or so worth in this case. Keep in mind that SAT scores matter even more for merit aid than for admission; some schools even publish cutoff test scores for scholarships on their websites. So if your kid’s SAT scores are close to the cutoff, it’s worth spending the money to take the test again and potentially save you $4,000 or so.

2. Is your kid Harvard- or MIT-worthy but you’re short on cash? Apply to a “rich” college that will subsidize most or all of the cost. Most likely thanks to Sen. Chuck Grassley’s (R-IA) efforts to put a harsh glare on colleges with rich endowments who charge sticker-price tuition, more than 60 colleges have either replaced loans with grants or eliminated tuition altogether for those falling under certain income ceilings, most often under $60,000—some offer free education for everybody, regardless of income, under certain circumstances. See the end of this chapter for some sample colleges and the link on the internet to the complete list.

3. Consider a state school, especially if you live in one of the 35 states that offer merit programs. While the price tag for many state colleges has risen because of shrinking budgets due to economic doldrums, there are still a few bargains around. For example, Georgia’s HOPE Scholarship allows any high-school student with a 3.0 GPA in core subjects to get free tuition at the state’s public schools or up to $3,000 a year at its private ones—a fantastic deal. The reason Georgia can still afford to do this is that the revenues come from the state’s lottery. Not all states are as generous as Georgia—the average grant is around $1,000—but it’s worth checking out. The following website contains links to each of the state programs: http://www.nassgap.org/links.aspx.

4. Consider one of the best bargains around: community colleges for the first two years, or maybe even all four! The average annual community college tuition is $1,500 to $2,000, compared to $5,000 to $20,000 at four-year public schools and $30,000 to $50,000 at private four-year universities. What’s more, some colleges have articulation agreements that make it easier for students to transfer from a community college to a four-year institution. Even better: some states, like California, Florida, and Pennsylvania, guarantee that students who receive an associate’s degree will be admitted into one of the state’s public four-year colleges. It gets even better: As of 2009, 17 states, including Nevada, Florida, Texas, and Washington, have allowed community colleges to award bachelor’s degrees, so you’ll be saving big bucks for all four years of schooling, as long as your son or daughter doesn’t mind commuting to college—as opposed to living there. Even if you live in a state that offers only a two-year program, community colleges are definitely a deal to consider. The only downside for students—depending on the personality of your son or daughter—is that it may be tougher to make friends at their new four-year college if they’re transferring from another college. Many students may have already joined clubs or sororities and have made “ties that bind.” Make sure that the community college of your choice has an articulation agreement.

Great resource for community colleges: http://www.ccweek.com. If you click on “Top 100,” you will see how your local community college stacks up.

Resources for four-year community colleges: Unfortunately, I couldn’t find a website with this information; presumably your child’s high-school guidance counselor will keep up-to-date on whether your home state permits community colleges to offer four-year programs and which of those that do are within commuting distance.

5. Most of us will have to borrow to afford paying for college—so keep your borrowing costs as low as possible. Unfortunately, while a home-equity loan was a good option for my Dad, it may be a risky approach these days, given the melting housing market. So what options do you have? First, consider the federal direct lending program—and make sure your child does not apply to any college that Sallie Mae has convinced to drop the loan program, which means you’re likely to be stuck with a high-cost “opportunity” loan. There are two components: a loan that parents take, and one for students. The Parent Loan for Undergraduate Students (PLUS), a federal loan program for parents of college students, is the best deal around that Sallie Mae doesn’t want you to know about; that’s why less than 10% of the population has them. You can borrow up to the amount of college expenses, regardless of income. The Stafford loan is a federal loan taken by the student. While its interest rate is currently lower than on a PLUS loan, 6.8% versus 8.5% for the PLUS loan, there are limits on how much can be borrowed. (Don’t ask me why the rate on the parent loan is higher since parents have better credit ratings.) That’s why the best course of action is for your son or daughter to borrow up to the Stafford limits and you the parent take out a PLUS loan for the rest. Two websites with more info on the Stafford and PLUS loans are http://www.parentplusloan.com/ and http://www.staffordloan.com/.

6. Whether you, your kids, or both of you wind up being the borrower, have a serious talk with your kids about choosing a major that will lead them to a career that will make the investment worthwhile. Whenever one of my kids’ friends tells me they are majoring in English, I have to bite my tongue—what kind of well-paying jobs can you land with an English degree? Some colleges actually charge more for majors that lead to low-paying jobs, such as education, fine arts, and journalism. (As a former journalist, I can attest that this is a poorly paying profession unless you’re the next Katie Couric or Anderson Cooper.) In fact, if your child is seriously interested in careers in low-paying or hard-to-get professions such as these, he or she should definitely consider a state school/community college so that your/your child’s debt load will be lower. Better yet, convince your kid to opt for a career that will enable him or her to pay back the loan. A good resource for hot job growth can be found on CNN Money’s website: http://money.cnn.com/magazines/business2/nextjobboom/. Promising careers range from physician’s assistant to computer software engineer to college instructor (most likely because college professors often have tenure and pensions so that they can afford to retire).

7. Needless to say, don’t consult U.S. News & World Report’s rankings when considering a college. A much better guide is America’s Best Value Colleges, published by the Princeton Review.

8. If your child has stellar grades and SAT scores, consider the universities that are now offering great deals—replacing loans with grants even if your household income is $200,000 or more in some cases. This is one area where Congress has tried to do right and basically shame some of the richer private colleges into shaking their money trees. Here are some examples: Stanford University, which eliminates the parental contribution for families with annual incomes below $60,000; Yale University, ditto; Dartmouth College, which offers free tuition for students from families earning less than $75,000; Princeton University, which replaces loans with grants for all students who qualify for financial aid (you have to go online and apply to find out); Columbia University, which replaces loans with grants for families with incomes below $60,000; and Harvard University, which dramatically reduces the amount families with incomes below $180,000 have to spend. This is only a partial listing, because colleges are updating their criteria all the time. To find out current offerings, visit the following page on FastWeb.com: http://www.finaid.org/questions/noloansforlowincome.phtml.

How Parents are Saving for College

Here's a study from SallieMae on where American parents stand on saving for college. They surveyed 1,200 parents of children under 18 to find out their thoughts, attitudes, and actions regarding college for their kids. A few highlights that I found interesting:

• Only 29% of families are on track to reach their savings goal.

• Parents cited employer matching as the top motivator (66%) that would encourage them to save for college, followed by tax benefits (44%). In addition, 25 percent indicated that a shopping rewards program would motivate them to save for college.

• 529 college savings plans are gaining popularity, particularly among families with younger children. While the overall 529 usage rate for savers was 33 percent, parents with children under age seven are twice as likely to turn to 529 plans (43%) as parents of teens (20%).

Here's what I think is going on based on the above:

1. Most parents are way behind in saving for their kids' college expenses.

2. More parents are taking the issue seriously as the cost of college has risen dramatically. I think that's why we se younger families saving more.

3. If given some incentives (other than the well-being of their children), they would save more. Duh.

4. I don't see an employer match happening, but with Obama focusing on education (or at least saying he will), then some tax benefits of saving are possible. Then again, with the deficit where it is and health care reform costs looming, tax incentives for other areas are probably not that likely. (BTW, there are some tax incentives that currently exist. Since we save in a 529 plan from our state, we get a state tax deduction.)

5. Shopping rewards program! Ha! Americans would save for anything as long as shopping was a part of "saving" for it. :-)

Asking for Discount Nets Guy $40k

We've talked a lot about how asking for a discount can save us all a bundle of money (and, yes, you can ask at a chain store too). But those suggestions revolved around shopping experiences -- when you were trying to buy something and wanted a cheaper price. Here's a different example (at least different in a way -- I guess you still are buying something ultimately) -- a guy asks for additional scholarship money for his son's college tuition. What's he end up with? He gets awarded $10,000 a year for four years!

Of course, there had to be other things happening -- the son had to qualify for the school, the son had to meet certain academic requirements (I assume), and so on. But all of these conditions were already present, and the father then took the step to ask for more assistance. Simply by doing this, he saved himself $40k. Pretty nice amount to save, huh?

Just a reminder to all of us that it never hurts to ask for a discount -- no matter what you're buying.

Community College Seems Like a Smart Option to Me

Check out this intro from a recent US News piece:

Can't come up with the money for four years at a traditional college? What if you could take the same courses far more cheaply, experience life on a residential campus, and transfer smoothly after two years to complete your bachelor's degree at the university you thought you couldn't afford? That's the attraction of many community colleges.

The key steps in this process:

1. Go to a community college for two years to get basic classes out of the way.

2. Before you commit to doing #1, be sure that your credits will transfer to the university you eventually want to attend and that you can get into that college (you can get accepted and delay your start date.)

3. Attend the community college, saving a boatload of money on tuition and living expenses (you may be able to live at home.)

4. Transfer to the bigger/name-brand university after two years, go there for years 3 and 4, and graduate with a diploma from the big college.

In addition to saving a bunch of money, this option allows for less mature 18-year-olds to grow up a couple more years before being completely release from the nest (assuming they can attend a local community college).

But you have to BE SURE that your credits will transfer (back to point #2 above). Here's what US News says:

More and more [community colleges] have streamlined transfers by reaching agreements with universities on which courses will count toward a bachelor's degree. In California, Florida, Arizona, Minnesota, Maryland, and North Carolina, students can find that information online.

Anyone done this or thinking of doing it? What are the pros and cons of such a plan?

Ten Things College Students Don't Need

Kiplinger lists ten things college students don't need as follows:

• New textbooks.
• A high-end laptop or desktop computer.
• Printer.
• Cable TV.
• A car.
• A credit card.
• ATM fees.
• Campus health insurance.
• Big meal plan.
• Private loans.

This list seems reasonable to me. Anyone disagree with it?

I have two recent college-related money stories that relate to some of what Kiplinger is saying:

• My nephew is starting out in community college (good move -- get credits at a much cheaper rate) this year and has one class where the book was $400!!! Yikes!!! Why don't they just use a gun so they can rob him the old-fashioned way? (BTW, I asked my wife if my nephew has made sure that his college credits will transfer if he wants to go to a bigger, name-brand school for his junior and senior years -- and thus get a diploma from there. She said she didn't think so. Double yikes!!!!!)

• My other nephew recently moved into his college dorm. He shares his "suite" with one other guy, they both have their own bedrooms, and they share one bathroom (just the two of them -- no one else uses it). They also have cable TV. When did college living become nicer than living at home? If I had gone from home at 18 to a set-up like this, I would have thought I'd died and been re-born rich!

Anyone out there have friends/family going to college this year? Any money-related stories from them?

Matching College Costs and Salaries

Payscale lists the median starting and mid-career salaries for a variety of different college-related attributes including:

• Colleges

• Degrees

• School location

I like the fact that more and more of this sort of information is being published. Why? Because it starts to get at the value of a specific degree at a specific college. As this information becomes more widespread and detailed, parents and students can then match it against expected costs and decide which college is the best "deal." For instance, which is a better deal:

College A

• Costs $100,000 to attend over four years
• Requires the student to borrow $50,000 to pay all the costs
• Delivers an average career salary of $75,000 per year.

College B

• Costs $150,000 to attend over four years
• Requires the student to borrow $100,000 to pay all the costs
• Delivers an average career salary of $85,000 per year.

College C

• Costs $50,000 to attend over four years
• Requires the student to borrow $0 to pay all the costs
• Delivers an average career salary of $50,000 per year.

It's not easily clear which is the best deal (and actually the answer may differ depending on the goals of the student), but at least with this basic information a student/parent can run the numbers and determine which one offers the best option given the student's unique needs. It allows everyone concerned to work towards matching college costs with expected incomes, a key part to making a successful college choice from a financial standpoint.

And while the examples above all could likely be a "good" deal, here's an example of when a college isn't a really great option:

College D

• Costs $150,000 to attend over four years
• Requires the student to borrow $100,000 to pay all the costs
• Delivers an average career salary of $30,000 per year.

Don't think this happens? It sure does!

A College Debt Nightmare

A reader recently sent me a link to this story from the Pittsburgh Post-Gazette (hello to all my friends and family in Pittsburgh!!!!) that details the college debt racked up by a resident there. The details:

Student loans were a fact of life for Marjorie Dillon and she was OK with that -- even though she didn't keep close track of how much she borrowed or completely understand the agreements. She and many of her former classmates at Robert Morris University in Moon relied on loans to pay tuition and expenses.

Ms. Dillon, 26, of Coraopolis, was the first in her family to attend a four-year university and loans were the only way to finance the business administration degree that would be her passport to a better life.

But six months after graduating with her bachelor's degree, Ms. Dillon is making $7.25 an hour plus tips serving beer at a bowling alley, working 25 to 30 hours a week. She's nearly $120,000 in debt, behind on her bills and, despite her best efforts, cannot find a better job. Her 80-year-old grandmother co-signed for the loans and could lose her house in North Fayette if the debts are not repaid.

Ms. Dillon's college debt has ignited an emotional family drama that which includes her grandmother and her disabled father who raised three children as a single dad. He lives with his mother and receives $598 a month in government benefits.

Ugh. What a nightmare. But as we get into the story, you'll see that this woman was her own worst enemy.

The newspaper contacted her college to discuss the case and after Marjorie signed a release form to let them talk, the details of the case came out. In particular she:

• Did not submit the Free Application For Federal Student Aid (FAFSA) on time so she didn't qualify for federal student aid and state grant money. That's FREE money that she would likely have had access to. I can see missing the deadline one year (maybe she didn't know), but she missed it for three years. You think she would have gotten a clue. Especially when she got counseling: "I can assure you she was told about the ramifications of borrowing," Mr. Frantz said. "She satisfied the entrance loan counseling requirements which the federal government requires to make sure they understand the implications."

• Lost her eligibility for government aid because her grade point average fell below a 2.0. Yikes!

• Failed to pass at least two thirds of the academic credits she signed up for, another requirement for eligibility. Double yikes!!!!

• Borrowed more than the amount needed to take classes ($43,290 over the cost of tuition and fees.) And she was not a resident student.

And just when you think things couldn't get any worse, they do. Specifically, she's spending way too much money. The paper had a financial planner meet with her to give her some advice. A few of his suggestions:

• Move in with her grandmother if possible to save $600 a month on rent.

• Eliminate the $120-a-month cable and Internet bill. (Yes, you read this correctly.)

• Erase the $329-a-month car payment by selling the vehicle and using public transportation.

• Try to renegotiate the interest rate on her credit cards to reduce those $300-a-month payments.

• Reduce her $150-a-month cell phone plan. (Yep, you read it right again.)

And some additional details just to round out the nightmare:

• She thinks she could get a job making $30,000 a year.

• A quote from her: "Every student takes out extra for living expenses. We don't work. But I'll do what I have to to make it. Yes, it will be hard. I've only made one payment and it's already hard." She's already made ONE payment and it's hard? Ugh.

• The article notes that her situation could be a worst-case scenario since the average cumulative debt for four-year college graduates is $22,656.

• Bankruptcy is not an option. From the paper: "Ten of Ms. Dillon's loans totaling $108,639 were private signature student loans through the SLM Corporation -- commonly known as Sallie Mae -- which cannot be consolidated, forgiven, deferred or erased in bankruptcy. Two of her loans, totaling $9,000, are federal government loans."

The paper makes the following conclusion:

Beyond illustrating the perils of student loan debt, Ms. Dillon's story also shows the consequences of a lack of financial planning, missing federal aid application deadlines and not meeting academic requirements for federal programs.

Ya think?

This story is so strange in so many different ways. Here are my thoughts on it:

1. Obviously, this woman was clueless. She had no idea what she was doing in so many areas. I've re-written these sentences over and over a few times to try and be a bit kinder, but there's really no other way to say it.

2. If she did have any sort of clue, I would say, "What were you thinking?" How do you expect to pay back $120,000 in debt with a job that makes $30,000 a year? That kind of debt is what doctors rack up -- and they certainly make more than $30k. This is exactly what I was talking about when I wrote How to Make the Most of a College Degree. You have to match the amount you borrow for college with the salary you can expect in your career. Otherwise you end up in a situation like this -- too much debt for the amount you can earn.

3. Many people (especially in the past) haven't really considered the cost of college in relation to the expected payoffs. I think this trend is slowly reversing itself. People seem to be more aware of the fact that they need to consider the numbers before the plunge into the college world.

4. She obviously doesn't even have a basic knowledge of personal finances. Her spending is way out of whack. Even if she kept the cable and phone, she should be able to get them both for much less money.

5. It's a shame that the situation has impacted her family so much. And now she has a daughter that needs to be cared for. Can this situation get any worse?

6. I'm not sure if it's lack of intelligence, a poor work ethic, or something else, but why did she borrow so much money and base her life on a degree, then fail so many classes? It's just so strange.

I'm sure many of you will have thoughts on this situation. Have at it in the comments below.

Parents and Students Finally Getting a Clue on College Choices

The Wall Street Journal tells us that parents and students are starting to apply basic financial principles when they decide on a college education -- namely, making sure it's a good deal. The summary of their thoughts:

Old dreams of adult children earning degrees from elite, door-opening colleges or “legacy” schools attended by relatives are falling away in some families, in favor of a new pragmatism. Other parents and students are doing a tougher cost-benefit analysis of the true value of a pricey undergraduate degree. As parents wrestle privately with such emotional issues, many say they wish they’d begun years earlier to assess their values and priorities, long before their children’s college-decision deadline was upon them.

Here are my thoughts on the issue:

1. In many cases, selecting a college used to be this esoteric process where Johnny somehow found a school that was "right" for him. It was a great all-around place where he could learn, enjoy social activities, meet new friends, and basically "find himself." Much of the decision was based on emotions and "feel", with cost being a distant second (or third, or fourth) consideration. (After all, we can always borrow the money, right?)

2. Today it's a new ballgame since college costs are higher and schools are more selective in who they admit. As such, parents and students are thinking more about saving for college, evaluating costs and financial aid more closely, and starting to (or should be starting to) prepare for college as early as the student's ninth grade year. 

3. Better yet, they're looking at the value of a college degree. Selecting a college (and the corresponding degree you get from it) is moving from the world of "feel" and "likes" to the world of analysis -- is what you're paying for worth more that what it costs? Pretty basic question, huh? I'm glad we finally made it to this point.

4. I've written about the cost-benefit relationship of a college/college degree several times, so I won't reiterate those thoughts. But if you want my perspective, check out How to Make the Most of a College Degree.

5. Note in point #2 that I said "thinking about saving for college". I haven't yet seen any numbers that say people are actually saving more, but by reading various pieces I do think they are more aware that they should be.

6. Personally, this issue is going to become a big reality in my life very soon as my oldest child enters 9th grade in a couple years. I'm sure you'll be hearing more on this topic from me -- but this time from a parents ground-level eye view.

Five Tips Every Parent Should Consider When Sending Children to College

The following is an article sent to me from RESQDEBT. This piece offered some new tips on an interesting topic so I felt it was worth sharing with all of you.

Heading off to college.  Along with getting a driver’s license and graduating high school, this is the biggest milestone in your child’s life, not to mention quite an event for any parent.  You and your child have managed to maneuver through the scholarship and student loan process, make contact with his new dorm mate and load up on all the items to make a tiny dorm room feel like home away from home.  Mission accomplished, right?  Wrong.

“Many times parents are so focused on making sure their child has all the comforts of home that they forget to have a talk about managing their finances,” says Heath Tudor, consumer liaison with RESQDEBT.  “By now, parents have a wealth of knowledge and experience to pass along to their children and this is the perfect time to do it.”

Tudor offers the following useful tips for parents to consider as their children prepare to head to college:  

• Have “the talk” – By now, most young adults are familiar with the terms debit card and credit card but, surprisingly, many aren’t aware of the term charge card.  It is important to educate your child on the difference between the three and their advantages as well as disadvantages.  In a nutshell, explain that credit cards are borrowed money for which they will be charged interest for the luxury of use; debit cards are tied directly to a savings or checking which limits the amount you can spend based on balances; and charge cards usually require you to pay the full balance on a monthly basis…and most have membership fees. 

• Create an online budget -- Most likely, this is your child’s first time living independently, which means all purchasing decisions will be solely at their discretion.  Take advantage of one of the many free online budgeting tools available such as www.mint.com or www.budgettracker.com to set up a monthly budget before your child leaves.  Online budgeting tools provide a comprehensive snapshot of spending habits which can easily help your child identify when and where any adjustments are needed.  Consider sharing a password with your child so you can track spending, too.

• Give the gift of Gift Cards – It’s an age old problem: you give your child money for a specific expense and somehow it gets spent on something other than for what it was intended.  To alleviate this problem, consider sending your child gift cards for specific retailers or uses such as a prepaid long distance card. 

• Lead by example – The best advice a parent can give is often that of personal experience.  Share your horror stories as well as those of financial frugalness to make sure your child doesn’t make the same mistake.  Additionally, practice what you’re preaching to your child.  Recent studies show that parents are the most influential role models for children…you may not think they’re listening to you, but chances are what you say and do does sink in.

• Plan(e) Ahead – The current economy has forced many airlines to engage in price wars to lure travelers.  Consider purchasing any flights for your child now as opposed to waiting until closer to the holidays.  If an unexpected trip does arise, remind your child that many airlines offer special standby rates for college students.  Additionally, there are several sites that cater to college students, including www.statravel.com and www.smartertravel.com.

By following these simple tips and having an open, honest conversation about money management with your child, the journey through college can be a little easier on the pocketbook for both parents and students.

Sixteen Ways Students Can Make College Pay Off

The following is excerpted from 25 Ways to Make College Pay Off: Advice for Anxious Parents from a Professor Who's See It All (an excellent book IMO -- I'll be featuring more of it in the weeks to come) by Professor Bill Coplin (AMACOM 2007). Today we'll cover 16 of the 25 tips in the book -- the ones dealing with the students' part of college planning. (FYI, the intro below is for all 25 tips and is included even though the tips are broken up.)

Although there are far more than twenty-five specific tips and strategies presented in this book, this list represents the twenty-five key ideas I would like to convey. If you take nothing else from my book, incorporate these twenty-five principles as you help your child find a satisfying career through the college experience.

This list is divided into two groups. The first group describes things you can do (or avoid doing) to be sure your child is on the right track. You can think of it as advice to you as an investor in your child’s future. The second group addresses actions your child must take, but you have a lot of influence on those actions.

For Students

1. Pursue the three goals of developing skills, building character, and exploring careers.

2. Determine how your college years will help you achieve these goals.

3. Consider taking a year off before college to work or investigate nontraditional programs and colleges.

4. View the application process as a test of your commitment to skills, character, and career exploration rather than as a test of your future success.

5. Gain between six and fifteen college credits while in high school.

6. Assume that no more than 50 percent of your course work will help you prepare for a career; the other 50 percent comes from internships, part-time jobs, student activities, and social experiences outside of the classroom.

7. Hit the ground running and aim for a valuable work or internship experience the summer after your freshman year.

8. Take courses that emphasize skills, use hands-on activities, and require team projects and writing.

9. Don’t obsess over grades as long as you are near or above a 3.0.

10. Spend at least one semester and as many as three semesters in off-campus, credit-bearing programs.

11. Avoid summer school unless it can be used to eliminate pesky requirements.

12. Don’t make graduate school your default option instead of getting a real job; in most cases, graduate school should be preceded by two years of full-time work experience.

13. Go to your college’s career-services office early and often.

14. Remember that temp agencies can provide summer jobs and a career launch for the confused and undecided.

15. Put as much time into searching for your first job as you should have put into applying to college.

16. See your first job after college as a step that can lead in many directions you never anticipated.

---------------------------------------------

This is the hit-list I'll be working with my kids on for sure over the next several years!

Thoughts and Questions on Saving for College

Here's a piece from the Wall Street Journal discussing saving for college. It brings up a few points I'd like to comment and as well as hear your thoughts about.

The first thought talks about how time factors into saving for college as follows:

For most of us, the only way to accumulate that kind of cash is to start setting money aside while our kids are still in diapers.

Don't get discouraged if you can't set aside as much as you'd like. Even if you can only save $100 a month, it will be worth the trouble. In 18 years, that monthly contribution could be worth nearly $46,000 if you invest it in a tax-advantaged college savings account that makes at least 6% a year.

Yep. Just like with investing, time is a major factor (if not the most important factor) that influences the total amount you save before college.

Their next comment gives a guideline for the percent of college expenses the government expects/assumes kids to/will pay:

Think carefully when setting up a college savings account. Under the current federal financial-aid rules -- which could change -- children are expected to contribute 20% of their assets toward tuition and fees (also known as the expected family contribution), while parents only have to fork over less than 6% before financial aid kicks in.

Let's see: 20% of my kids' assets is almost zero. 6% of my assets are -- yikes!!!!!!!

Anyway, here are my questions for you coming out of this piece:

1. What age were your kids when you started saving for college? (Mine were at age 5 or so.)

2. What percentage of college do you expect your kids to pay for (not what percent of their assets should that use, but what percent of their total tuition, room, board, etc. will they pick up)?

Nine Ways Parents Can Make College Pay Off

The following is excerpted from 25 Ways to Make College Pay Off: Advice for Anxious Parents from a Professor Who's See It All (an excellent book IMO -- I'll be featuring more of it in the weeks to come) by Professor Bill Coplin (AMACOM 2007). Today we'll cover nine of the 25 tips in the book -- the ones dealing with the parents' part of college planning. Tomorrow, we'll feature what the kids should do. (FYI, the intro below is for all 25 tips and is included even though the tips are broken up.)

Although there are far more than twenty-five specific tips and strategies presented in this book, this list represents the twenty-five key ideas I would like to convey. If you take nothing else from my book, incorporate these twenty-five principles as you help your child find a satisfying career through the college experience.

This list is divided into two groups. The first group describes things you can do (or avoid doing) to be sure your child is on the right track. You can think of it as advice to you as an investor in your child’s future. The second group addresses actions your child must take, but you have a lot of influence on those actions.

For Parents

1. Use the Goldilocks principle—not too hot and not too cold. Just the right mixture of hands on and hands off.

2. Have your child prepare a written or verbal plan about how college is contributing to his career focus.

3. Perform a ‘‘focus check’’ every four months to check his commitment to that future career.

4. Require your child to pay for at least 20 percent of his college education.

5. Don’t be held hostage by the fear that your child will not earn a college degree.

6. Don’t worry about your child’s GPA if it is 3.0 or above.

7. Take strong action if your child’s GPA is heading below 2.0.

8. Don’t fight your child’s urge to transfer; just try to minimize additional costs and lost credits.

9. Tell your child before she enters college that you will not pay for more than four years (unless it is a longer program, such as architecture or pharmacy).

---------------------------------------------

As noted above, the tips for kids will be shared tomorrow. In addition, you'll be seeing more on this book here in the future. IMO, it's a VERY practical guide to getting the most out of college (starting with what you should do when your kids are in high school). Since my kids are nearing this age, it's especially interesting (and has been useful) to me.

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.

----------------

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