Beware of College Loan Statistics

“People think students are drowning in debt, and there is a small proportion of students that borrow an exorbitant amount, but most students graduate with a manageable debt load,” said Sandy Baum, an author of the brief"
"For bachelor’s degree recipients who did borrow, the median loan debt was $19,999" (NY Times).

• Unfortunately, when an educated consumer reads information, one needs to read the fine print in the College Board summary of the Department of Education’s National Postsecondary Student Aid Study:
• "PLUS loans, loans from friends and family, and credit card debt are not included" (pg.1)
• "Results from the NPSAS data for nonfederal student loans should be considered estimates. While the data are the best available estimates for a recent graduating cohort, there are limitations to their accuracy" (pg. 4).
• Since undergraduates are restricted by Stafford loan limits, to not count Plus loans and parents paying out of their own pockets is highly questionable when many families use these options to fund college. Also, Private loan estimates are from student interviews.
• This survey does not look into the fact that many students are borrowing high amounts to go to private colleges with questionable payoffs as compared to public colleges.

http://professionals.collegeboard.com/profdownload/cb-policy-brief-college-stu-borrowing-aug-2009.pdf

http://www.nytimes.com/2009/08/12/education/12college.html?_r=2&hp

Trump / Kiyosaki Videos

Check out the following, free, Trump / Kiyosaki videos: 

• Adversity  
  
• Art of the Deal
• The Power of Debt
• Increase Your Financial IQ
• Keys to Success
• Respect

It is refreshing to hear the insights of these financial literacy educators.  

http://www.richdad.com/RichDad/trump_kiyosaki3.aspx?utm_campaign=New%20Exclusive%20Trump/Kiyosaki%20Videos&utm_medium=Email&utm_source=VerticalResponse&utm_term=Watch%20the%20videos%20now.

Much Education Not Worth The Price

ABC News reporter John Stossel profiles the plight of many students:

• "Promised" a great job after graduation and pushed by high school/college advisors to take out massive amounts of loans, young people have large loans they can never get rid of and lack the job they were promised
• Do not get a major that is not directly relatable to a real world job
• Instead, many teenagers should recieve technical training at a trade school or community college for low cost that will give them real world skills and a good job with no loans

http://abcnews.go.com/Business/Economy/story?id=6654468&page=1

Are law schools "exploiting" 80 - 90% of their students?

Criticism of Law Schools
Speaking at a January 9 program, sponsored by the Association of American Law Schools, the dean of New York Law School, Richard Matsar, said, "We should be ashamed of ourselves. We own our students' outcomes. We took them. We took their money. We live on their money . . . And if they don't have a good outcome in life, we're exploiting them. It's our responsibility to own the outcome of our solutions. If they're not doing well . . . it's gotta be fixed. Or we should shut the place down." (As transcribed on TaxProfBlog.)

Law schools may have many failures, but the shrinking legal market is showing that the failure of an education costing more than $120,000 to pay off for so many students might be the greatest one.

Some Questions to Consider
Does law school pay off as an investment?

• Is going to law school a "lottery" to be in the top 10%, as some critics are suggesting?
• Are monetary gains the only reason students go to law school? If there is another reason, are law schools the most efficient means to the goal?
• Assuming the recent criticism of law schools is justified, accurate, and correct, what can law schools do to remedy the problem? How can law schools get more students hired?

Brief Reflections
Criticizing law schools and higher learning institutions is easy. Thinking about ways to create better systems is much harder.

Ultimately, I believe that students and prospective students should be aware of the current problems and they should engage in a cost/benefit analysis to see whether the very expensive investment of law school will pay off by leading them to their goals.

Resources on the Criticism
The recent criticism is well summarized by the ABA Law Journal in "Law Dean Says Schools 'Exploiting' Students Who Don't Succeed."
http://www.abajournal.com/news/law_dean_says_schools_exploiting_students_who_dont_succeed/print/
TaxProf Blog succinctly excerpts the critical commentary and has interesting comments that follow the excerpts in "Is the Law Professor Gravy Train Over":
http://taxprof.typepad.com/taxprof_blog/2009/01/is-the-law-professor.html

The podcast of the AALS Committee on Research Program (Jan. 9, 2009), "Citations, SSRN Downloads, Carnegie, Bar Passage, Careers: Competing Methods of Assessing Law Schools" is available online:
http://www.aalsweb.org/fri/commresearch.mp3

State Colleges Better Bang For Buck

SmartMoney and PayScale looked at the question: Are private colleges' high tuition worth it compared to state schools? They based their rankings on what the graduates earn in their early and midcareer vs. the debt they have to take on. They developed a "payback ratio" and here are their findings:

• The top state school has a three to one payback ratio compared to the highest private school
• State schools are a better deal than most of the private schools, including ivies.
• If you factor in loan costs, the private schools are at the bottom of the payback list.
• Many of the top state schools are attracting greater numbers of top quality students.
  

http://www.smartmoney.com/personal-finance/college-planning/the-best-colleges-for-making-money/

http://www.smartmoney.com/Personal-Finance/College-Planning/colleges-that-pay-off/?page=all

In a Down Economy, Paying for a Private College Gets Harder

The following paragraph from a WSJ article -- "Painful Choices as College Bills Wallop Families" -- summarizes the struggles that the recession is causing to students and their parents: "Many students are already making painful adjustments, including dropping out, borrowing more to stay in school, transferring to cheaper schools or taking on part-time jobs. A third of parents expect the economic downturn to affect their ability to pay for college this year, according to a survey of 7,000 parents of newly enrolled freshmen by Eduventures, a Boston-based research firm."
http://online.wsj.com/article/SB122895685290096607.html?mod=djem_jiewr_swwgn_121108

Legal Job Market Shrinks

A CnnMoney article reports: "Verdict is in: Legal job market tightens."
http://money.cnn.com/2008/12/03/news/economy/legal_industry/?postversion=2008120305

In short, just as in other areas of the economy, lawyers are losing their jobs, and recent graduates are finding it hard to get a job.

There are at least two important takeaways from this article:

1. In this market, getting a J.D., or even an LL.M, does not guaranty a safe, secure job. The tune that you have to go to school to find a safe, secure job is ringing hollow. One student's experience in the article shows this: "In addition to his living expenses, Magdy has about $150,000 in student loans and the first payments are due in the middle of this month." So, before you sink yourself into debt for a school loan, think carefully!
2. Students must study their profession. Within the law, some areas are doing well: "While hiring is slowing in certain areas, including real estate and M&A, there are other opportunities for lawyers that are flourishing in the current climate, Pierce Stronczer said, specifically, 'litigation, intellectual property, white-collar crime and bankruptcy, of course.'"

College Cost Calculators

At FinAid, you can find numerous essential college calculators for your every financial need.
Here is just a summary of what you will find:

College Cost Projections
Savings Growth
529 Plan Growth
Savings vs. Borrowing
Payment Calculator
Expected Family Contribution
Loan Calculator
Income Based Repayment
How Much To Borrow
Loan Comparison
Budgets

http://www.finaid.org/calculators/

Best Majors By Salary

PayScale has created a list of the most common college majors by salary potential.
You can look up the median starting salary and the median mid career salary by major.
The major disadvantage is that the list is not organized by highest salary major to lowest.

When deciding what career to pursue be sure to factor in what you will be earning.
These are only general median salaries (you may earn more or less based on your area and the economy). Your choice of major and salary potential should be an important factor in your choice of school and how much loans you take on.


http://www.payscale.com/best-colleges/degrees.asp

Rethinking College Debt

In her article, "Its Time to Rethink College Debt," Laura Rowley writes about the emotional impact that taking out loans has on students. The student profiled was shocked to learn that she could find a job for only half the salary than she was told by her school counselor.

Rowley writes that students need to reassess the risk involved in taking out loans and not earning enough to repay them. She also says to stay away from private loans because you could owe double the amount as a gov't loan because of higher interest rates.

Other important facts:

• Make sure your yearly loan repayment is not more than 10-15% of your salary.
• A manual worker may end up with a higher standard of living than a professional because of not owing loans.
• State schools offer great value because of their low tuition rates.
• Don't borrow in total more than your expected starting salary.
• Start a 529 plan early to fund your childs education.

http://finance.yahoo.com/expert/article/moneyhappy/100520

Will your education pay off?

I am always reading stories about people who take out debt for college and for graduate school and anticipate riches in the future.

For an example about a person who went to law school and who expects the debt to pay off, see http://www.ireport.com/docs/DOC-133729

Although this story could be true for a small percent of students, it certainly is not true for many that I know. I know far too many people who have graduated with professional degrees but are struggling to find a job. They are now deferring their loans payments.

You need to ask yourself a key question, "Will my education pay off?" More on how to answer this in later posts.

IRS Ruling: Law School Loan Forgivness is Not Income

IRS Revenue Ruling 2008-34 provides that debt forgiven through law school loan forgiveness programs will not be income. For a historical perspective, see this informative link:
http://taxprof.typepad.com/taxprof_blog/2008/06/irs-blesses-law.html

A Critical View of Federal Loan Forgiveness Programs

A blog entry on http://www.usnews.com/ titled, "The Problem with Federal Loan Forgivness Programs," provides a sobering view of such federal loan forgivness programs.
http://www.usnews.com/blogs/on-education/2008/5/28/the-problem-with-federal-loan-forgiveness-programs.html

For a list of such programs, see our blog entry:
http://mhs-financial-advice.blogspot.com/2008/11/httpwww.html

How much did you really borrow?

It is well known that when you take out a loan, you have to pay back more money than you borrowed. You have to pay interest on top of the principal that you borrowed. But how much do you really have to pay back? An easy to use calculator from FinAid will quickly tell you the answer:
http://www.finaid.org/calculators/loanpayments.phtml

Public Jobs Loan Forgiveness

Learn how to get some of your student loans forgiven if you qualify and are willing to work for a certain period of time. You can choose one of many public service options. Don't worry about the money you might lose if you don't go into private industry. Think of all the money you will save in years of loan payments!
http://www.finaid.org/loans/publicservice.phtml http://www.finaid.org/loans/forgiveness.phtml

How much is the name of a school worth to you?

I spoke with a friend who attended Columbia University for a masters in psychology. He currently has a job earning less that $50,000 a year and has over $80,000 in debt from undergraduate and graduate loans. He told me, "I will have to pay over four hundred dollars per month for the next thirty or thirty-five years." I asked him, "Was going to Columbia worth it?" He answered, "No, but at least I can say I went to Columbia."

Financial Advice for Scary Financial Times

A timely article for Halloween, "13 Financial Frights," provides some solutions to thirteen financial problems people could currently be facing in this economic downturn. We like this article because it lists some of the main concerns we are hearing, including, having your retirement savings decrease, seeing your stocks tank, and an inability to get a student loan.
http://finance.yahoo.com/banking-budgeting/article/106063/13-Financial-Frights

Dave Ramsey's Seven Steps

Dave Ramsey's seven steps guide you on how to get out of debt, save for retirement, save for your child's college costs, pay down your mortgage, and become financially secure!
http://www.daveramsey.com/etc/cms/index.cfm?intContentID=2926