How to Stop the Student Loan Crisis from Killing Your Retirement Savings
According to Greg Gottesman, Managing Director of Madrona Venture Group and founder of Rover.com, students in the U.S. have accumulated college debt of over a trillion dollars (for perspective, if you stack a trillion one-dollar bills it would reach one-fourth of the way to the moon). Currently, two-thirds of students take out loans to go to college and thirty-five percent of these students are seriously delinquent on paying for their loans. (Watch his TED talk here: (https://www.youtube.com/watch?v=1IEkncWZffY).
If this pattern seems familiar, that’s because it is. When too many people have easy access to money that they can’t pay back, it creates an economic bubble—and we know that bubbles pop (like that pesky housing bubble in 2008). The current model for financing higher education is mindboggling; and it’s not sustainable. As a nation, we need to think about two important issues—how we deliver education and how we finance it.
How We Deliver Education
As we talk about how degrees are earned, let’s answer the burning question, “Do increased wages compensate for the huge cost of on-campus college?” Usually no. The average income for college grads that land a job is about $45k per year. The average student loan payment is about a thousand per month. Assuming they finish the degree and they make the payments, they may break even, but the ROI for a degree in a classroom is a hard case to make.
One answer is getting a less expensive degree online. Here’s the current problem with that—a 2013 survey revealed that a majority of human resource professionals preferred candidates with traditional degrees from brick-and-mortar universities over candidates with online degrees (even from top schools). However, with hope on the horizon, we believe that the stigma for alternate ways to get education is dying.
The new generation is used to technology offering them immediate, high-quality . . . everything; and they will demand it from online education too. They’ve grown up in an era where technology will enable online learning to become the norm instead of the exception. Hiring managers and students will stop questioning whether a degree earned on a laptop is as valuable as a degree earned in an auditorium.
But until then, let’s assume that education expectations for a brick-and-mortar degree will continue. Helping your kids pay this enormous expense is probably on your bucket list.
How We Finance Education
Let’s look at some more statistics. We’re offering this information not to freak you out, but to help you plan and build a financial strategy.
Today’s average tuition for a public college is about $25k per year, and it will increase by about 4% per year for inflation. That means when your 8-year-old hits college it will cost about $40k per year. Let’s add that up for for, say, three kiddos to attend college. You may want to sit down for this.
Assuming the higher education system stays the same as it is today, and your three kids attend college for only 4 years each, you can expect a total bill of about $500,000—and that’s not including expenses.
Many parents want to help provide an education for their kids. The question becomes how do you afford it? You can’t come up with this amount of money without a plan and most people don’t have one—and pulling it out of your retirement fund could end up costing you millions in lost returns. Really.
You may want more specifics about these numbers, and we have them. Watch our YouTube video that offers a scenario here: https://www.youtube.com/watch?v=B1Lz0-Ef9QY .
How You Can Prepare
Your first step starts today. Set some expectations with your kids:
- Regardless of the education they choose, they can help put themselves through college
- Scholarships and hard work are important
- Goals are achievable
- Money doesn’t come for free and budgeting starts young
When it’s time to choose a school, encourage your kids to ask themselves, “Is this school a realistic fit for me?” and “What is the purpose behind my education?” Staying in school to finish the degree can be as important as the name of the school. Let’s just say, “I dropped out of Harvard,” may not be enough to get them the job.
The next step is planning ahead financially. We want to teach you about a strategy called Infinite Banking that allows you to save for retirement and have access to your money. You can borrow from yourself and pay yourself back incrementally. You can be there for your kids without draining your retirement. Just click on the “Start Now.” button to sign up for our free eCourse called Infinite 101®.
Gottesman believes that something in our education system has to give, and education will likely look very different in 20 years from now. When you take away the stigma of alternative ways of getting a degree, you realize that for the college student, your money should be an exchange for educational value that allows you to offer your contribution to the world—not a debt you carry as a burden to society. Period.
We want to offer you help in financing whatever type of education comes into your life, and we have a commitment to providing you with financial education. Take 2 minutes to sign up for a FREE, extensive eCourse called Infinite 101®. You’ll receive access to video tutorials, articles, and podcasts. It literally costs you nothing to become educated on this ideal strategy and start changing your wealth paradigm!
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