Changing Your Family Tree

I love to hear stories of people dealing with student loans and deciding to pay them off quickly. And I really love it when they go so far as to start saving for their own children’s college… even grandchildren’s college.

Roger wrote this on a LinkedIn article I published about student loans and how they are marketed as something every student has to have:

“I absolutely have a problem with it! As a student, I was fortunate to have both scholarships and a part-time job to help. I graduated, married, with #2 child on the way and three job offers to begin my career, AND NO DEBT. However, all of my five children incurred some debt to complete their college and I incurred too much debt to help them have less. Ouch! Living under the debtor is SLAVE to the lender truth, our family waged the war to get out of that debt.

I now encourage my children to save for college for my grandchildren and I am now saving some for the grandchildren to hopefully change our family tree to have our grandchildren graduate debt free. Any method that makes it EASIER to borrow and EASIER to not get paid back quickly is a disservice to the next generation.

As a taxpayer, YUCK, I want the government out of my life and my children and grandchildren’s life. I DON’T want them depending on government for anything, especially being in DEBT to them. The erroneous belief that someone else should pay for it, IE forgive the debt after 20 years, is no way to build up financial independence of our Professionals and Entrepreneurs of the future!”

You’ve got to love his spirit and determination.

Here’s my response to Roger’s comment:

“I agree Roger. You made the case perfectly. Nobody considers the implications of the government encouraging all this debt, and under the new Pay As You Earn plan, encouraging super low monthly payments and staying in debt for 20+ years. Staying in debt and teaching young people to spend more of their income kills their ability to save for their own children.

The government is teaching young people the opposite of financial intelligence. They are teaching financial illiteracy. They are teaching government dependence in the name of education.

It’s already hard enough to save money. Encouraging a person to stay in debt for 20+ years makes it next to impossible. This is one of the best reasons to go “gazelle intense” as Dave Ramsey says and sacrifice after school so a person gets the loans out of their life.

“Education” and the word “debt” don’t really go together. If a person does mix them, they are wise to get rid of the debt quickly. That way their educations can be used to build a better life for themselves and their family. That way they can become strong financially.

I have a huge amount of respect for the approach you are taking Roger. You rock!”

Great story that I hope you will consider making a part of how you deal with, and payoff, your student loans. Family trees are changed one person at a time.

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Two Examples of Going Blindly into Student Debt

One of the great ironies of student debt is that it is so closely tied to getting an education… yet very few people with student loans are educated about how this form of debt really works. Weird!

Young people are going to college to learn and grow yet in many cases they are oblivious to the debt they are taking on in the process.

Here is a quote from an article titled Student loans: Lessons learned, choosing a major, and overcoming regrets  on the web site of KTAR, The Voice of Arizona.

‘’Kasey was proud, hopeful, and ready to begin her dream career. But unfortunately for Kasey, things weren’t exactly what they seemed.

What Kasey didn’t know was that she had borrowed nearly $80,000 for her degree. She didn’t realize that interest accrued while she was in school either, which came as quite as a surprise. Upon graduation, the interest on Kasey’s student loans capitalized, leaving her just under $100,000 in debt. And, even after making over $17,000 in payments over the last three years, Kasey still owes around $95,000.”

Student loans are too dangerous a form of debt to ignore like this. The dollars are so big and it is so easy to borrow the money that you can’t go into this process uneducated. And I’m willing to bet that the vast majority of people are borrowing on student loans with the same blindness that this quote reveals.

Here is another quote along the same lines from the article.

“Also like Kasey, Richard wasn’t fully aware how much he was borrowing at the time.

“I realized I spent too much while trying to gather all my separate loans together for my consolidation,” says Richard. “To be perfectly honest, I really didn’t have ANY idea that I had amassed six figures in school loans. When I got my MINIMUM monthly payment quote from Nelnet, I couldn’t believe what I had done.”

Richard blames his high debt load on a handful of factors that he didn’t recognize until it was far too late.”

Parents, if you have decided that debt is OK for your child, at least encourage (or force) them into becoming an expert in how student loans really work and how they will be paid back. Think how sad it would be to turn the pride and accomplishment of college into pain and suffering after college if they are allowed to go blindly into a huge debt mess.

And if you are in school now and borrowing money, make a commitment not to be ignorant about how student debt works. Don’t be the person a writer quotes for their article in the future about the ever growing student loan mess.

If you are going to go to school to get an education, don’t neglect the education about the debt. Better yet don’t borrow. :-)

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Are You Justifying Your Student Loans by Defending the Value of Your Education?

I want to clarify something that I think trips a lot people up when thinking about how best to pay off their student loans. There are two different concepts to think about.

  1. Your college education
  2. The debt you created to pay for that education

Once you’ve graduated and you’re out in the working world, there is no longer any reason to connect your debt with your education.  You went to school. That’s a part of your past now.

The debt is a different story. It’s a part of your life in the here and now. It’s also a part of your future.

There’s no longer any need to justify the debt as a great expense or a great investment. A good education is almost always a great investment. Almost everyone agrees with that. But it really doesn’t matter at this point.

The question now is whether it’s wise to purposefully keep your student loans in your life for years and years. Or would it be wise to pay them off quickly.

Which approach is best for your financial future? Which approach promotes financial freedom and independence in your life?

That’s what matters now.

Maybe it’s time to make your student loans a part of your past! :-)

Student debt can drag your entire family down

One of the ironies of student debt is it was designed to help more people get a college education.

But in the process, parents and students have almost turned off their brains when it comes to learning (getting an education) about the risks and dangers that student loans can bring into their life.

If you are truly interested in getting an education, and you are considering using student loans, it would be wise to educate yourself first about the details and ramifications of student loans.

Janet Lorin posted a fascinating article at Bloomberg BusinessWeek’s web site titled “Indentured students rise as loans corrode college ticket”. I’ll give you the link to that article at the end of this blog post.

Here’s a story about one family in that article.

“Geraldine Damiani Brezler took out a $5,000 student loan in the late 1960s to study at the State University of New York. She became a nurse, got married, bought a house and repaid the debt in less than three years.

Today, her son, David, 38, owes about $85,000 in loans for a master’s degree in education at New York University. He can’t find full-time work, lives with his parents in White Plains, New York, and has deferred paying his debt for three years.

The financial-aid odyssey of two generations of Brezlers tracks the history of U.S. student loans, which, like the home mortgage, helped define the American dream. In the early years, the loan program let ambitious teens take on a small debt that could pay off with a lifetime of higher earnings. Now, the $1 trillion in outstanding student debt has become a drag on the economic recovery, a flashpoint in the presidential election and a threat to the egalitarian ideals of U.S. higher education.

“It’s like waking up to a snarling wolf every morning,”said David Brezler, who spends his days searching job listings, following up by e-mail and phone and taking on short-term consulting jobs. “The idea of buying a house — it’s completely inconceivable.”

The article goes on to ask an important question and to get some feedback from someone involved in student loans almost 30 years ago.

“How did a once-modest federal program spiral out of control, weighing down low- and middle-income families like the Brezlers that it was designed to help?

The answer echoes both the health-care and mortgage crises. As college costs have soared faster than the rate of inflation over the past four decades — reaching $60,000 a year at the most expensive private schools — Republicans and Democrats alike postponed a reckoning. They encouraged borrowing and ignored surging tuition, leaving loans to balloon to the size of mortgages, shocking even the system’s own architects.

“No one ever conceived this was a way to create a debtor class of former students, the indentured student,” said Tom Wolanin, who worked on federal higher education policy for 30 years and was a deputy assistant education secretary in the Clinton administration.

Politicians of all stripes ignored repeated warnings that the day would come when debt would become unsustainable.

“The path of least resistance was to have the student borrow more,” Wolanin said.“

Notice how a big part of this problem was fueled by politicians who “encouraged borrowing and ignored surging tuition”.

There is an important tip for you in that statement.

Your path to a valuable education and true freedom in life for your children is to discourage them from borrowing and pay close attention to the cost of the college your children attend.

Planning for your children’s college starts with doing your homework about the cost of different schools and the downsides of borrowing student loans.

Then have your children do their homework as well. They could start that work during high school so they become an expert on how college works.

And they can learn how money works too… and how debt is not the free ride so many politicians make it out to be.

Here’s the Article

Check out Janet Lorin’s article at Bloomberg Businessweek’s web site titled “Indentured students rise as loans corrode college ticket”.

It is a fantastic article.

Michael Ellsberg’s fun look at why student loans and education don’t mix well

The Education of Millionaires is a great book by Michael Ellsberg.

He does a brilliant job of making the case for why we should look at funding our college education, and the college education of our children, using the principles of bootstrapping.

Here’s a great quote on that subject from his book.

“Hey, I’ve got an investment opportunity for you.

It’s going to require an investment of about $45,000 to $200,000 on your part over several years. Given your current finances, you’re going to need to borrow a large part of that amount, that is, invest on margin, but that’s OK, the rates are pretty low. (One thing you should know, though, is that if the investment goes under, you’re personally on the hook for that money, until you pay it down, for the rest of your life. There is no way to discharge the debt in bankruptcy, and your future wages and social security benefits could be garnished if you can’t pay.)

The business I would like you to invest in is, well, sort of in the exploratory/development phase. It doesn’t really know what business it’s in, to be frank, or what product it sells. In fact, it may not even know that for a few years. The chief executive in the business may have to move back in with her parents at some point during this time – before she figures out the business’s mission, revenue model, or core competency. (Oh, and by the way, the CEO is quite immature. She is often irresponsible and from time to time becomes distracted by side projects, like partying.)

The business you’re about to invest in has absolutely no knowledge or experience in sales or marketing. It doesn’t even really know how to keep its own books or balance a budget, and often runs up a lot of credit card debt. It’s not even sure it wants to be a business; the CEO may want to start a nonprofit, pursue a passion in acting, or go help orphans in Botswana. The chief executive has no business network or contacts to speak of, and in fact, has no experience whatsoever running a business.

Wanna invest?

Unfortunately, this is precisely the way many people in America go about investing in themselves today. It’s the opposite of bootstrapping. It’s high-expenditure, high-debt up front now, and revenue (if at all) much later.”

That last sentence is very important.

He describes the way people are investing in their educations as “high-expenditure, high-debt up front now, and revenue (if at all) much later”.

That is a very, very risky approach to getting your education. It is a big part of why 60% of people who take on student loans are harmed financially as a result.

I wrote more about Michael’s book (from a bootstrapping your business perspective) at Philip Campbell’s Blog.

The traditional model for getting an education is changing

There is no doubt that the way you get your education, and the way you learn and grow and develop a career, is changing in our online world.

Sonia Simone of copyblogger.com wrote a blog post recently that suggested the traditional form of education is in trouble.

Here is a quote from that blog post:

“Smart writers like Michael Ellsberg and Josh Kaufman have been pointing to a shift in how universities are serving students. The traditional model of “get a degree and land a sweet job” just isn’t working any more, at least in most professions.

I’m still a big fan of universities — but we have to face the fact that they’re quickly becoming a pricy luxury. Students are looking for other ways to learn what they need to learn — without the six-figure price tag.”

Of course, getting a degree is almost always a smart decision, but, and it’s a very big but, signing up for student loans to get that degree may not be wise.

A Desire to Learn and Grow

Remember, there is more to making good money in a career than just getting a degree. It is about a strong desire in your gut to learn and to grow on your own – in addition to your formal schooling.

When I hear someone who is out in the workforce or in a profession say they don’t ever read, I think holy cow, how do they improve themselves. How are they increasing their ability to make a difference in their work? How are they going to progress in their field?

A thirst for learning is a very important part of becoming successful in whatever career or field of work you want to pursue.

As you review your college and career planning, be sure to think seriously about the full range of learning and growing opportunities you can access at low to no cost.

Zac Bissonnette on getting an education without student loans

Great interview on April 26 on the Daily Ticker at Yahoo Finance with author Zac Bissonnette.

Zac wrote the book Debt Free U. His newest book is just coming out. It is How to Be Richer, Smarter, and Better Looking Than Your Parents. I own his first book and will be getting his latest book as well.

Zac is a very sharp young man.

Here is a quote from the Introduction in Debt Free U.

“Throughout this book, I’m going to be letting you in on the strategies – some secret, others blindingly obvious but rarely discussed or put into practice – that will allow your student to get a great college education, a great degree, lifelong friends, and (this is the part that makes this so unique) a strong, debt-free financial foundation that will prepare your child for tremendous success in life.”

Here is a quote from the interview with Zac.

“Probably 10 percent of borrowers have essentially ruined their lives with student loans,” he says.

My view is the number of people ruined is more like 30%. And another 30% are harmed for having taken out student loans.

Either way, it’s a good reason to avoid student loans.

Or pay them off aggressively if you already have one.

Mixing education with debt is a recipe for trouble (deep trouble for far too many people).