In our June cover story, Making the Most of Your College-Savings Program (subscribers' link), we note that "the average student-debt burden [for graduating college seniors is] an estimated $24,000, according to the Project on Student Debt." That's a heavy load to carry into the "real world." So it's good to alert new high school grads about debt's dangers before they ever start getting college loans.
Image by Makena G via Flickr
That's what college senior Zac Bissonnette (University of Massachusetts at Amherst) does in "Money Lessons for Every High-School Graduate," a column that appeared over the weekend in The Wall Street Journal. Bissonnette lists five things those planning to go to college need to be aware of — all of which SMI readers have heard before, but they bear repeating:
1. Debt is slavery: "The borrower is slave to the lender," says the Bible. When you have monthly payments to make, your life choices are greatly reduced. You can end up chained to a job you don't like — unable to take the low-paying, entry-level job in your dream field or pursue further education to gain the qualifications for the career you really want....
2. College debt takes its toll: Going deeply into debt to pay for a prestigious college degree rarely pays off in the long run. Not only does it saddle you with a large, pressing debt that limits your options upon graduation, you're not likely to be any more successful either.
A recent study by economists Stacy Dale and Alan Krueger found that, once you control for aptitude, career earnings don't vary based on the college attended: if you're smart enough to get into a brand-name private university, you'll do just fine going to a state college. What will determine your success will be your aptitude and your work ethic, not the name on your diploma....
3. Rich friends may be broke: When I was in high school, I hung out with a girl whose parents lived modestly and drove a beat-up station wagon that you could hear coming from a mile away. Our other friend drove a BMW Z3 — and made fun of the junky cars we drove....
[F]our years, a real-estate crisis and a few foreclosures later, the Z3's gone. My friend's parents who drove the station wagon sidestepped the crisis; they owned their home outright....
4. Materialism is misery: Lives of thrift and conscientiousness lead to less stress....
Recognize the real benefits of wealth — freedom and flexibility — and don't let the pursuit of its illusory trappings interfere with your ability to reap those rewards.
5. TV makes you feel poor:.... A 1997 study by researchers Thomas O'Guinn and L.J. Shrum found that people who watch more TV believe that a higher percentage of Americans have tennis courts, luxury cars, maids and swimming pools.
And that perception can lead to feelings of inadequacy when you don't have those goodies — and a willingness to stretch beyond your means.
We've written before about the psychology of paying cash. Using actual dollars to pay for things — as opposed to using a credit card or even writing a check — somehow creates a stronger sense that you're spending your hard-earned money. (This is one reason why cutting back on credit card use and using cash for purchases tends to keep one's spending in check.)
Last week, college student Nic Ramos, a sophomore at the University of Colorado-Boulder, paid his entire bill for the spring semester — all $14,309.51 of it — in $1 bills, along with a 50-cent piece and a penny. (The money came from various sources, not solely from his own savings.)
The Wall Street Journal has the video story:
I found one of Nic's comments in the video particularly interesting:
When you walk in with a 33-pound duffel bag of cash...it puts a lot into perspective. It made me really appreciate that people are willing to give up that money for me to go to school.
Indeed. Incidentally, the price of tuition at UC-Boulder went up 5 percent for this school year, according to CBS. Another hike, perhaps close to 9 percent, is expected for next year.
If you have son or daughter in college, you're sure to be interested in how the new Credit CARD Act affects card marketing on campus. Also, the new law restricts card availability for those under 21.
SMI assistant editor Joseph Slife discussed the details this week in a conversation with host Bob Crittenden on Faith Meeting House from Alabama's Faith Radio.
You can listen below (12 min.) — or download an mp3 (Windows users: right click, then "save link as").
A related story — from the September issue of the Sound Mind Investing newsletter — is here (subscribers' link).
Two days ago, we made note of a Wall Street Journal report that served as an interesting follow-up to our October 2009 cover article, Is a College Education Still Worth the Investment? The Journal found that the earnings gap between high-school grads and college-grads has long been overstated.
This story, from Fast Company magazine, touches on a different aspect of that same October '09 cover article: for-profit colleges. It begins with a very interesting angle.
Michael Clifford never went to college. He was a trumpet player "strung out on sex, drugs, and rock and roll," he says, until he started a new life as a born-again Christian and successful tech investor. Then Bill Bright, founder of Campus Crusade for Christ, gave him a life-changing piece of advice: "He knew I loved business and did a lot of charity work," says Clifford. "He told me education is the one business where you can help people live better lives and make a lot of money for your investors."
Today, Clifford chairs Significant Federation, a private equity firm that is a principal investor in a half-dozen higher-education companies, including the most successful IPO of 2008 (Grand Canyon University) and one of the most successful of 2009 (Bridgepoint Education). His six colleges have almost 100,000 students — 90% of them studying online.
The article notes for-profit colleges now enroll almost a tenth of all students, many of them in online programs. The biggest players are Kaplan (part of The Washington Post Co.), DeVry, and the University of Phoenix, now the largest university in North America (42,000 students).
While private colleges have taken huge hits to their endowments, and public universities weather historic cutbacks, for-profits like Clifford's keep costs down with innovative use of technology, publish metrics like job placements, and are open to any high-school graduate. They target under-served markets like first-generation students and working adults with convenience and a customer-service ethic....
"I don't even use the term 'for-profit' anymore," Clifford says. "I say schools are 'market-driven' or 'publicly funded.' Everyone has to put their guns away and focus on providing the best experience for the student. Market-driven can learn a lot from traditionals, and the traditionals have a tremendous amount to learn from market-driven best practices."
You can read an interview with Michael Clifford here.
Here's an addendum to our October 2009 cover article, Is a College Education Still Worth the Investment?: The long-touted lifetime-earnings gap between college graduates and high-school graduates isn't as wide as commonly reported.
The Wall Street Journal has details in a story that bears out some of the analysis in our cover article.
In recent years, the nonprofit College Board touted the difference in lifetime earnings of college grads over high-school graduates at $800,000, a widely circulated figure. Other estimates topped $1 million.
But now...some researchers are questioning the methodology behind the high projections....
The problem stems from the common source of the estimates, a 2002 Census Bureau report titled "The Big Payoff" (PDF). The report said the average high-school graduate earns $25,900 a year, and the average college graduate earns $45,400, based on 1999 data. The difference between the two figures is $19,500; multiply it by 40 years, as the Census Bureau did, and the result is $780,000.
There at least two significant problems here: 1) An average is just that — it isn't predictive of actual personal experience; 2) The earnings estimates from the College Board don't take into account any debt incurred in earning a degree. In other words, the estimates show only the revenue side of the picture, but ignores the ongoing liability incurred in an effort to produce that future income.
The WSJ notes that some researchers have been disputing the $800,000 for years, yet the College Board has continued to overstate the earnings gap.
[The Board] recently said on its Web site: "Over a lifetime, the gap in earning potential between a high-school diploma and a bachelor of arts is more than $800,000...."
The $800,000 number, it turns out, was pulled from a footnote of the College Board's 2007 "Education Pays" report (PDF) that explained lifetime earnings. The report's author, Sandy Baum — an emeritus Skidmore College economics professor who didn't write the promotional text on the Web site — says that $450,000 is actually a more reasonable estimate of the difference in lifetime earnings.
A College Board spokeswoman told the WSJ that the person writing the website copy apparently "misinterpreted the data." No doubt. But that same misinterpretation has been going on for about eight years now. Perhaps now that the Wall Street Journal has blown the whistle, the misinformation will be corrected.
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If you have son or daughter in college, you're sure to be interested in how the new Credit CARD Act affects card marketing on campus. Also, the new law restricts card availability for those under 21.