Category Archives: Student Loans

3 Tips For Parents Looking To Avoid The Golden Handcuffs of Student Debt

I grew up with a friend who is now a doctor at a prestigious hospital back home in California. “Tony”, always intended to become a doctor, and worked hard to get there. However, he assumed so much debt in Medical School, a huge part of his budget is dominated by paying them back. Don’t get me wrong, he makes good money now. He is one of the top in his field. However,the golden handcuffs of student debt when we recently talked, he mentioned how much he wanted to quit. A man of deep faith, Tony wanted to spend 3 years with Doctors without Borders doing “good works”. However, paying back his student loans has become his all-consuming goal and he can’t leave the hospital until the loans are paid off.

Welcome to what I call the modern “Golden Handcuffs”


What Are The Golden Handcuffs

Seriously Think Before You Borrow!
Avoid the golden handcuffs by not borrowing

In the business world, the term “Golden Handcuffs” refer to certain financial incentives that companies use to keep employees tied to their jobs. An example would be a vesting schedule, which allows the employee to own shares, but not be able to sell them unless they are still employed with a company past a certain date. Often this is 1 to 5 years. However, a new form a golden handcuffs have arisen in the student loan debt that is assumed every year.

Let say  you are lucky enough to get a decent job straight away after college. Let also suppose that you have the average student loan debt profile of $29,400.  Your payment, based on the average salary of exiting graduates is around $320 bucks. That is around 10% of your monthly salary. However, for those students sporting a graduate degree who have racked up $100K or more, it is much worse. Medical school graduates have an average of $169K in debt student debt. At that level, with both undergraduate and Medical school debt is crippling and hard to managegraduate debt, the average payments each month are around $2160. Thankfully, doctors get hired. Lawyers have it much worse, as so many are not even getting hired after graduation! If you are lucky enough to get hired, the pay will tie you to your job just to pay back the  loans.  This is what has happened to Tony.

Randal S. Olsen, a Ph.D. student at MSU decided to ask the questions, “Could you actually work your way through college“.  you can't work your way through college anymoreRandal examined the trend of tuition at MSU and the rate of minimum wage pay in the US. He found (as many of us in college finance expected) that the likelihood of an average person working 35+ hours per week for minimum wage and being able to pay for the cost of attending MSU was nil. The inflation in the cost of college, coupled with the average spending power of a minimum wage worker, has made debt a part of the college experience.


How to Avoid The Golden Handcuffs

Avoiding the golden handcuffs of student debt requires the parents of college-bound teens to take charge of the college financing effort and be proactive on every front possible.

1) Find The Money Before Students Start College Classes

Search locallyAs I have said many times, the sordid love affair of matching a student and a school requires an approach that emphasizes the balance of college fit, with affordability, and aid. The college your student attends must be the one that wants them the most. The way a school shows their love of your student, is via the Merit Aid offered on the financial aid offer letter. The more aid offered from the school itself, the more they want to invest in your child’s success. Take the time to look at sites like CollegeAbacus.com and how looking at the net price calculators side by side will offer a realistic view of college expenses.

Working hard during the high school years towards earning solid grades, and earning higher SAT/ACT scores makes a difference, When coupled with searching for the gem colleges that will offer the best aid can help avoid student-loan debt in the long run as many merit aid awards are multi-year.  And when offered, being willing to appeal the financial aid award offered, and/or have your child’s EFC reconsidered will make a difference in the cost your family will pay out-of-pocket

2) Be Proactive & Fight For Additional Financial Aid During The College Years

Finding the aid you need by searching for scholarships everywhere!It’s not enough to get a good package during the first year of school and stop there. Being proactive every year is a must for cost conscious parents. Having your EFC reevaluated each year may make a difference. In addition, using EFC reduction strategies can make a difference in the aid offered.  If a job loss in the family occurs, or your family business takes a financial hit, contact your financial aid office immediately. Beyond that, the hunt for scholarships and grants must never end. In fact, there are many scholarships that are not only multi-year, but only qualify for only after you have attended school for a semester.  So a relentless pursuit of outside aid, coupled with already awarded  merit and federal aid can make a difference between student debt and a debt-free degree.

3) Keeping An Eye On Cost Drivers

Most consider college costs fixed and non-negotiable. I’m here save_moneyto tell you that college costs can be lowered if you use the right strategies.  Everything from the meal plan your child chooses, to how often they come home to visit are factors that are controllable.

Living off campus with roommates, and sharing bills can keep living expenses lower. Letting Junior know they can’t drive home to visit every weekend can cut travel costs. Utilizing community colleges during the summer to cut the total cost of a degree can make a huge difference in tuition costs.  Also, taking summer courses is key to the strategy of getting a degree in 3 years, not 4. If you think about it, by reducing the cost of a college education by a year shaves off an entire years living expenses and added fees.

A great tool many students fail to use, is the Federal Work Study award included in their aid package. While a job doesn’t seem like aid, it actually is a great opportunity for your student to build job experience while earning on campus. In addition, the funds earned are not counted against your student in later years in the financial aid calculation. Finally, buying or renting books online can also save nearly $1500 over the average college students term over buying them in the college store.


 Never Put On Cuffs You Don’t Have To Wear

Avoiding student debt while in college is a matter of finding and securing financial aid from every source you can find, coupled with a relentless eye for reducing costs. But this will only work when you and your student work as a team to constantly seek aid, while controlling expenses. As the parent of a college-bound teen, it’s up to you to take charge and get your student on board to the realities of heavy student debt and how to avoid it. It may mean the difference between putting on the golden handcuffs of student loan debt, & financial freedom for your student after graduation.

 

How to Save Money By Selecting The Right College: WIU and The 4-Year Price Guarantee

The Fighting Leathernecks

This January 15th,  2014 episode we talk about college costs and how to make sure cost of attendance matches with total financial aid. We speak with Andy Borst (Twitter @WIUAndyBorst) regarding rising colleges costs, and how colleges and universities like Western Illinois University (twitter @WIUNews) are locking in rates for four years at a time to keep costs low for students.

Listen to the episode: [audio https://s3-us-west-1.amazonaws.com/cmmwordpress/Podcasts/episode14-3.mp3]

Download The Episode: Ep14-03 January 15, 2014

How to Fundraise For Your Childs Education: JR’s Daily Two-Minute Financial Aid Tip

Todays Episode: How to Fundraise For Your Childs Education

Episode 37

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Why Its Best to Go To School Where You Are Wanted, and Not Just Where You Want to Go: JR’s Daily Two-Minute Financial Aid Tip

Todays Episode: Why Its Best to Go To School Where You Are Wanted, and Not Just Where You Want to Go

Episode 36

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Financial Aid Programs for the Disabled: JR’s Daily Two-Minute Financial Aid Tip

Todays Episode: How to Gain Additional Financial Aid If You Are Disabled

Episode 35

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How to Get The Most Out Of Your Federal Work Study Grant: JR’s Daily Two-Minute Financial Aid Tip

This is episode 34 and today we are talking about How to Get The Most Out Of Your Federal Work Study Grant

Now there are many ways to work while in college. But the job dependent students take at the local fast food joint can really hurt their opportunity to receive federal grants by increasing their Expected Family Contribution a great deal. So to make the most of working while in college, its important to take advantage of Federal Work Study. In order to make sure students can get the most out of the program, they should follow these three tips:

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Why You Should Wait To Buy Your TextBooks: JR’s Daily Two-Minute Financial Aid Tip

This is episode 33 and today we are talking about Why you should wait to buy your textbooks

I spent 4 years in the textbook industry after graduating, and to be honest, its one of the most rigged industries out there. The person who buys the final product has little choice in the product they are required to buy. It can cost close to $1,000 a year for book for many students if purchased new. So saving even 10% on books is an extra $100 in your pocket. So before you head to the bookstore, consider these three tips before buying textbooks this semester;

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