February 3, 2013 By

The wisdom of paying student loans off quickly

I write in this blog that saving money and paying for college is wise. I talk about the downsides and risks of using student loans to pay for college for yourself or for your child. I talk about the financial dependency and mental drag created by signing up to student debt for 20 or 30 years.

If you already have student loans, or plan to use them, I try to persuade you to pay them off very quickly. I believe that’s the wise path to financial freedom in life. It’s not for everyone, or for every situation, but paying the debt off quickly after graduating is much better than staying in debt for 20 or 30 years.

I’m a Financial Guy

My perspective on money and debt comes partly from how I make a living: providing accounting and financial consulting services. I’ve seen what happens when the financial side of a person’s business (or their personal life) has been neglected. I’ve seen how debt can destroy a company and put everyone involved in the company into deep and lasting financial trouble.

But I’m just like everyone else out there. I have borrowed money to buy cars.  I’ve borrowed money to buy houses.  I’ve borrowed money to go on vacation.  I’ve used credit cards when I didn’t have the money to pay for something.  I’ve done all of that in my life.

But I always had that uncomfortable, nagging feeling deep inside that I wasn’t being smart or wise while doing it. I even took out my own version of a student loan.

Philip Borrows Money to Finish School

The student loan crisis that is brewing today was in its infancy when I went to college. I graduated in 1983 from a small school – Lamar University – in my hometown of Beaumont Texas. I don’t think I had even heard of a student loan back then.

Annual tuition was a fraction of what it is today (although it felt like a lot at the time). My Dad paid for my tuition and books.

In my last year of school I borrowed about $15,000 from my Mom so I could pour on the gas for my final year of college. I wanted to take 21 hours so I could finish school and get out and start working as an accountant. I wanted the loan in order to take the maximum class load possible and not have to work during that time. I was married and my daughter had just arrived into the world. We were broke and I was excited about getting into my new career so I could crank my income up.

My Mom supported my goal of getting through college but she was not really a fan of loaning money to family (she was definitely right about that). I poured on the gas, went to school full-time and got my BBA in Accounting. I went to work for a local CPA firm and my career was off and running.

Now came the time for me to start paying my “student loan” back. How well did I do paying it off you ask? Crappy. I did a horrible job.

Sometimes I made a regular monthly payment… sometimes I didn’t. I justified it at the time based on my financial situation as a young father and husband. I remember always feeling bad about it though. In hindsight, I wish I would have been stronger in that regard and accepted my responsibility to pay it back in a more honorable way.

I eventually paid it off in a lump sum in 1998. I basically let that loan sit around in a somewhat neglected state for 15 years.  If it would have been a student loan of today, there would have been loads of interest tacked onto the principal balance. Who knows how much that balance would have grown to over the years. I would have been caught in the same trap that so many people are caught in today. I basically got off easy because my Mom cut me some slack (thank you Mom). :-)

Your Plan

If you are a parent, I encourage you to begin planning for how you will pay for college if that is a part of their future.

I also think it would be wise to start teaching them the wisdom and value of paying any student loans off quickly upon graduation. (I have definitely learned that lesson.)

I hope you will give that some serious consideration as college time approaches.

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September 30, 2012 By Leave a Comment

The four step plan for your children’s college education (without student debt)

I’ve written recently about four important areas to focus on when planning your children’s college education.

My post How to deal with the high cost of college (without using student debt) talked about the first two areas:

  • Find out how student loans really work
  • Teach your children about money and debt early

I wrote an article this week for the Business Bank of Texas where I went into detail on the next two steps in the plan.

  • Have your children become experts on college costs and scholarships while they are in high school
  • Save money and choose schools wisely

This plan will help you avoid student loans… it will help you educate your children in a way no school could dream of… it will give your children a head start in life they will treasure… and they will learn how important it is to teach their children the same valuable lessons too.

What a beautiful gift for your children.

Check out the article real quick: Planning your child’s education (without student loans) – Part 2.

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June 10, 2012 By Leave a Comment

Paying to attend college hurts… Borrowing is easy (for a little while)

One reason it’s so easy to go into debt is that buying something with money you have worked for, and saved, feels different that just signing a loan agreement.

For example, it hurts when you have to write a check to buy a car. It takes planning and sacrifice in advance. You are going to feel it when you part with your cash.

You hardly even feel it when you use borrowed money.

You just sign on the dotted line and, like magic; you’re driving a brand new, beautiful car off the dealer’s lot. And the more beautiful and fancy the car, the happier you are.

Almost doesn’t matter if the car cost $15,000 or $30,000. All you did was sign a loan agreement. It’s easy.

I Felt the Pain

The first car I ever bought with cash was in 1999. I bought a brand new 1999 Lexus ES300. Trust me, when you buy a car for cash you pay very close attention to what the car costs. (That may be why I have that car to this day… it has over 222,000 miles on it.)

It’s a one-to-one relationship between the cost of the car and how much of your hard-earned cash you are about to part with. You feel it in your bones!

It was the first car I had ever bought without debt. It was the first time I had a car with leather seats—the first time I had a “luxury” automobile.

Here’s the funny part.

When people saw my brand new car they asked me how I liked it. If I was enjoying it.

I said, “I don’t know yet, I’m still bummed out about all the cash I no longer have… ask me in about three months”. I might be over the loss by then—and I wasn’t joking! :)

Freedom and Flexibility

For me cash in the bank is my “blanky”. It helps me think “happy thoughts” and sleep well at night.

It’s part of how I try to build freedom and flexibility into my life.

Student loans trick you by making it a little too easy to sign on the dotted line.

They make it real easy, especially for a teenager who still has a lot to learn about how money and financial commitment work, to hardly make any sacrifices to attend college.

It becomes way too tempting to sign away your financial future and trade a portion of your freedom and flexibility in life for the “I want it now” feeling.

Student debt is not the “financial aid” it is hyped to be.

How much have you saved for your kid’s college?

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April 25, 2012 By 3 Comments

Choose freedom (or 2 smart ways to handle student loans)

Being free from student loans is about:

  1. Avoiding student loans altogether, or
  2. Paying your student loans off aggressively. Then go back to step 1 as you plan and save for your children’s education!

I know my advice to avoid student loans (and/or pay existing loans off aggressively) raises some hackles.

The cost of college is super high and your parents may not have the ability, or maybe the desire, to help pay for your college. It looks like you have no other choice but to take out the loans being offered to you.

The interest rates are low. You don’t have to start paying them back until after school. You will get a good paying job after school which will make it easy to pay back the loans. And all the other stuff you hear if you are considering a student loan.

But consider this first.

Here’s my view of how student loans work out for the average group of 10 people.

  • 30% are ruined financially for life
  • 30% are harmed financially (but not ruined)
  • 20% will come out on the good end of the deal after about 10 or 15 years
  • 20% will come out looking great and clear the debt within 3 years or less of graduation

So 6 people are harmed financially in varying degrees and 4 come out OK. You have a 60% chance of being harmed financially when you take on student loans.

That’s a recipe for disaster for too many people in my opinion. Give step 1 some serious thought before making any commitments.

Paying Down Student Loans Aggressively (Step 2)
One size does not fit all. Whether it clothes or student loan repayment plans.

It is very easy to set your loans up on a very, very long repayment schedule. For some, 30 years isn’t long enough to make the monthly payment affordable.

For others who have good incomes, the longer repayment periods make it way too easy to make small payments and let the little devil take up residence with you. It makes it easy to go out and buy a home and make a huge financial commitment (funded by even more debt). Not wise.

You should look at your student loans like a snake that has gotten loose in your home. Don’t ignore it… something bad will eventually happen if you don’t find it and get it into a cage. Or just kill it!

Freedom is No Student Loans
Student loans can go horribly wrong if something happens to your income.

Sometimes life has a way of throwing curve balls.

It’s a lot easier to handle the ups and downs of life when you are debt free… including the student loans.

Choose freedom, please!

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April 23, 2012 By 2 Comments

Here’s what the Freedom From Student Loans blog is all about

Hello there!

I thought the best way to kick of my new blog was to share with you what my objective is in writing here for you. It all boils down to this:

Help you live your life free from student loans.

The reason I want you (and your children) to live your life free from student debt is that I believe:

6 out of every 10 people that use student loans are harmed financially.

Would you send your 18 year old child out in the car to pick up something for you across town if you knew the odds of them being in a serious auto accident was 60%? Of course not.

We all know that getting in the car and driving on the freeway has risks. But we also know the risks are relatively low all things considered. Yes, accidents happen – but not at levels of 6 out of every 10 trips on the road.

You wouldn’t send your child out on a drive across town if you knew there was a 60% chance they would be seriously hurt before they returned.

You wouldn’t fly on an airplane if you knew the odds of your plane going down in flames were 60%.  You would find an alternative means to get where you are going.

I’m betting that once I show you how amazingly harmful student loans turn out for the majority of people that use them, you will agree with me that staying out of debt is the only smart way to get through school.

That’s my objective with this blog.

Here’s the Approach

My approach to helping you live free from student loans is to:

  1. Convince you to seriously consider outlawing the use of student loans, and/or guarantees, in your family. I will show you why they can be one of the most dangerous forms of debt ever created. The best way to live free from student loans is to never have one in the first place. It won’t be easy, but you will be so glad you did it.
  2. Or maybe you already have a student loan (or you co-signed a loan). OK, so you didn’t know better or you felt you had no choice. That’s all right. But now it’s time to smack you on the head with the cold, hard reality of what you got yourself into… and what you have to do to become free from these student loans. I’ll help you unlearn a couple things first. Then we are going to attack this little devil and see if we can get it out of your life quickly. Then you can start planning a better way for your children to get through school.

Everything I share with you will be to help you stay away from, or get away from, this evil little destroyer of lives known so innocently as – student loans.

I Believe in Education

I’m a huge believer in education and lifelong learning. I graduated from college in 1983 and have loved my career in accounting and in business. And I’m surely one of Amazon’s best customers because I read like a crazy person. I love to learn and constantly work on improving my ability to make a difference in my work.

In fact, in the first book I ever wrote, Never Run Out of Cash: The 10 Cash Flow Rules You Can’t Afford to Ignore, I wrote this as my Acknowledgments page:

“This book is dedicated to my parents who made it possible for me to get my business education and develop a career I truly enjoy. Thank you for your investment in me.”

What I am saying is that going in debt with student loans to go to school can turn into a huge financial mistake. You will be chaining an anchor around your neck, or around your kid’s neck, that could be there for a lifetime. It will become a drag on your spirit that you will likely regret for the rest of your life.

Sometimes the smartest thing you can do in life is to avoid doing something really dumb. Taking out student loans meets that standard.

The act of avoiding them can create freedom and peace of mind.

And that’s priceless.

I Want to Help

I’d like to see you win financially in life. Freedom from student loans is an important part of your journey toward winning in life. I hope I help in some small way in your success along that path.

Be sure to drop your email address in the box at the top right corner of this post so you can get these blog posts delivered direct to your email inbox shortly after I post them. I will post two to three times per week.

And please share this blog with your friends and followers who you think will benefit from my message of freedom from student loans.

Thank you for spreading the word! And welcome to a new and refreshing look at creating financial freedom in your life, and the life of your children.

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