Jul 19

Why Aren’t We Graduating From College?

A recent article on the Harvard Business Review blog discussing the current state of college education. Their summary? It’s not looking pretty. A little over half of students are completing their four-year degrees within 6 years, and only 26% (!!!) of people getting two-year degrees finish within 3 years [1] . That means that a large portion of the second half of those students at four-year colleges aren’t even graduating and most likely still have some amount of debt and no degree.

I don’t necessarily think it’s that students are becoming dumber or lazy, but many college students are simply unprepared for such a decision. You have just turned 18 years old and high school didn’t really prepare you for this. All of a sudden you need to decide what you want to do the rest of your life, oh and by the way, if you make the wrong decision you will have to work anyways because you will have $35,000 in debt!

Students and parents need to become more involved in this process, do your research ahead of time! What do you enjoy doing? What are your passions? Figure out what schools you can go to, how much they will cost, and then how much someone in that field can expect to make after graduation. Will you be able to pay off the debt in a reasonable amount of time on that salary, or will you be stuck in debt forever?

If you are currently in college my advice would be: you definitely need to work your ass off. You are the one paying for your education, so don’t waste your money. GPA is also not the end all that some people make it out to be, but it can really be a determining factor in screening canidates to be selected for interview. Don’t freak out if you don’t have a 4.0, but many companies do set a threshold of say a 3.5 in order to be able to interview with them. After your first job though, GPA becomes largely unimportant.

Use your time wisely too, you don’t need to spend every waking minute studying or doing homework but you want to set aside enough time to be succesful. There will still be plenty of time to party – do you really need to wake up hungover every morning? More importantly, you need to network. Internships and co-op positions are extremely valuable experience and a good way to make connections. You could be the smartest person at your school but if you don’t know anyone, have no experience, and lack communication skills you may get passed over by an “above average” student that has been building their resume. Your college should have a ton of resources at your disposal, get to know your career development office very well and any professors that have industry experience.

If you are looking to go to college or know someone who is and they are unsure of what they want to do, don’t waste those years at an expensive 4-year college. Go to community college and save the money, take some classes there and figure out where your interests are first. It would be much better to “waste” that time there, especially because if your grades were good enough in high school many times community college can be free or close to free. Many states also have transition programs to state colleges afterwards that are similiar in nature. If you woul prefer something more hands on, you may be able to skip the college route all together – research some technical and trade schools in your area as well.

Photo Credits for this post: 
aprilbell [1]
1060 [2]

yirsh [3]

Jul 13

A new way to approach student debt?

It looks like Oregon is on it’s way to attempting to solve the student loan crisis in their state. But just how feasible is their solution? The basic concept of the plan is that you would not receive any traditional loans and you would not pay any tuition. You heard that right: no student loans. What you would do upon graduation is pay the University 3% of your income for 25 years. Essentially it would put everyone on an income based repayment plan that you currently get through federal loans.

I definitely agree with this program in principle, but I think it needs a few modifications for it to actually succeed. Let’s look at a few examples of how much each person would be paying over the course of those 25 years:

30,000 Salary: $22,500
50,000 Salary: $37,500
75,000 Salary: $56,250
100,000 Salary: $75,000

As you can see, obviously the higher salaries would be “subsidizing” the the cost of lower paying degrees and you know what? I’m actually OK with that with a slight modification. If you are able to pay more than the 3% of your income, you should be be able to pre-pay your “loan” amount up to a certain max amount. Maybe something like the cost of tuition + $1,000 to cover any extra expenses? That would seem pretty fair to me.

You may also argue that students would not be motivated to pursue higher salary jobs because they would pay more back, but I think that is what the payback cap would be if you start to pre-pay your loan back instead. We also don’t see the increase in taxes really stopping anyone from taking that $100,000 salary job compared to the $50,000 salary job.

If we use the example of Oregon State University, the cost to attend in 2013-14 in Tuition and fees is $8,538. So that means over the course of 4 years your total would be $34,512+$1,000. That means that everyone making over $50,000 a year would most likely want to pay more than the minimum. You would obviously have the choice of what to do, and for people making less they would still be able to use the IBR method to pay a lower total amount.

The only thing that it seems may be a problem is with the program itself, and how the funding will work. Australia already does a similar thing, so there must be some way to make this work! If we assume that there are about 4000 freshman entering Oregon State University each year the costs for the state would rise very quickly.

Year 1: 4000 Students * $8,538 = $34,152,000 Cost
Year 2: 8000 Students * $8,538 = $68,304,000
Year 3: 12,000 Students * $8,538 = $102,456,000
Year 4: 16,000 Students * $8,538 = $136,608,000

Total cost: $341,520,000

So the total cost at this one university before they even begin receiving a cent of income from the program would be around $341 million! I didn’t even factor in people not completing their degree or dropping out – and what do you do to them? Still charge them 3% over 25 years or until they pay back how much they were “loaned”? Those are more rules and situations that Oregon would also have to account for.

The other side of the program, or the income assuming that the average student graduating with a bachelor’s degree will make $40,000 a year.

$40,000 Salary * 4000 Students * 3% = $4,800,000 Income/Year

fast forward 4 years to when they are making the “full amount” each year…

$40,000 Salary * 16,000 Students * 3% = $19,200,000 Income/Year

and then 24 years later when they have the “maximum” amount of students paying…

$40,000 Salary * 96,000 Students * 3% = $115,200,000 Income/Year

So while the school would technically be able to break even on a per-student basis, it would probably take many years to actually generate a positive cash flow (if they even do?) and that is a huge, huge cost upfront. You also have to take into account students that become unemployed, or students that eventually leave the workforce to start a family. Obviously there would be a lot more complex calculations going into this, but I like the sound of this program at it’s face value with a few tweaks. I’ll leave the technicalities and funding to someone much more knowledgeable on the program than me!

Jul 10

Living Paycheck to Paycheck

There was recently an article on CNN Money that a staggering 76% of Americans are living paycheck to paycheck, something that was very disheartening to read. About 16% of Americans are considered to be below the poverty line in America [1], so it’s crazy to think that 76% of people are also living paycheck to paycheck. One would think that this number should be lower?

If we dig into the article a bit more, I think a more accurate way to display the information that is presented in the article is that 27% of Americans have no savings at all. That is what I would qualify as living “paycheck to paycheck” – which still isn’t that great of a rate. But it isn’t as drastic as the headline that lures us into the article and that actually lines up pretty well if you factor in the people living right at the poverty line or slightly above it.

We can also see that 22% of people have less than $100 in savings, while 46% have less than $800 in savings. I think that in this case we are actually dealing with two groups of people. There are the people working hard just to pay their rent, feed their families, and pay the bills. There is no way this person or family is going to be able to save money without increasing their income and there is a legitimate reason they are working paycheck to paycheck.

We then have a second group of people who are making enough to live comfortably but nothing extravagant, but spend every last dollar of their paycheck on stuff they might not really need. They keep up with the latest iPhone, they have an unlimited data plan, and they might get a more expensive car than is really needed on a loan. They probably also have a large amount of credit card debt as a result of living “paycheck to paycheck” and splurging on going out every night or buying expensive furniture and clothes.

And while the second group definitely does exist and is a sizable amount, I don’t think it’s as bad as the article makes it out to be. I think they use the 76% statistic to draw you in right away, and while almost half of the people not having at least a three-month cushion there was another half that at least did have an emergency fund. I think if you wanted to really stretch, you could say that half of all Americans are living paycheck to paycheck and make a valid argument for it.

What do you think of these statistics? Was there a time in your life when you were living paycheck to paycheck? Was it out of need or overspending?

Photo Credits for this post: aeropw

Jul 08

Monthly Budget Review – June 2013

Sorry that this post is a little later than usual, but I was down at the beach for a long July 4th weekend with the girlfriend 🙂 You will also notice that I ditched the weekly spending posts – I had only planned on doing that to see how my spending was going on a running basis. After realizing it’s pretty much in control and much lower than I was expecting (maybe it was posting it on the internet that did this?), I’ve decided to just stick to monthly budgets. If I notice my spending inflating or starting to get out of control again I will bring back the weekly spending posts for myself.

Now let’s move onto the numbers, so here is what my budget for June ended up being:

Item Budgeted Actual Difference
Income $2,800.00 $3,300.00 $500.00
Rent -$100.00 -$100.00 $0.00
Car Insurance -$110.00 $0.00 $110.00
Cell Phone -$20.00 -$20.00 $0.00
Gas -$100.00 -$120.00 -$20.00
Gym -$20.00 -$20.00 $0.00
Dining Out -$50.00 -$20.00  $30.00
Entertainment -$100.00 -$100.00 $0.00
Total Income After Fixed Expenses $2,300.00 $2,920.00 $620.00
“Extra” Spending $0.00 -$92.00 -$92.00
Total Income Before Student Loans $2,300.00 $2,828.00 $528.00
Student Loan Payments -$2,000.00 -$1,500.00 $500.00
Total Remaining $300.00 $1,328.00 $1,028.00

As you may have noticed, I had additional income this month compared to the usual $2,800. After talking to my grandma about student loans in general and then my student loans, she wanted to help me out with my loans this month for my birthday – and would not take no for an answer. I feel extremely fortunate to have her help and I am very thankful and grateful that I have someone in a position like that to help me. I absolutely do plan on putting all that extra money I received towards my loans next month after the confusion this month with my federal loans switching services.

You will also see that because of my camping trip, I ended up spending more on gas than was budgeted for that category – but I expected that because of all the extra driving. I also ended up spending more on my entertainment and extra spending categories, from buying groceries while camping as well as buying my Dad a gift for Father’s day. I managed to only spend $20 going out to eat this month – I didn’t include the groceries in this category as I considered them to be entertainment and extra spending to go along with camping.

I really don’t think I broke my budget too bad if any at all. I went over by $20 in gas and over by almost $100 in my extra spending category. But I also saved $30 on going out to eat this month, and I still didn’t have to pay car insurance which will continue until next month. I’m pretty satisfied with my spending this month, especially with the camping trip being included! I expect next month to be about the same with our trip down to the beach this past weekend, but it may look “negative” after using the extra $1,328 from this month to pay even more on my loans in a few weeks.

Jul 03

Cutting out that morning coffee? Congress sure isn’t!

One problem that I have never had to deal with is having to rush to make sure to get my morning coffee at Dunkin Donuts or Starbucks. And it’s not because I make my own coffee either, it’s because I’m really just not a coffee person at all. It’s strange as both my parents are pretty big coffee drinkers, as well as there parents. I tried it few a times and just never really saw the need for it. Even throughout college I probably only drank it one or two times, and it’s not like I even replaced it with energy drinks or tea.

I only really drink hot tea when I’m feeling sick or have a sore throat, and while I used to drink a large amount of iced tea it wasn’t for the caffiene kick. I just enjoy iced tea, though I have largely replaced that by just drinking water now.

When looking to cut personal spending, many people look towards reducing the money they spend on going out to eat, including the purchase of coffee. Unfortunately when it comes to Congress they seem to have a different idea. As you can see from this article and video, Congress spent over $2 million in 2012 on coffee and food! And I’m not a fan of either party, and not trying to get into political issues here – this crazy spending is happening on both sides of the line. As the sequester effects millions of Americans, we see more and more examples of just how wildly incompetent Congress really is.

And while you technically can control where Congress is spending your money with your power to vote, right now those efforts seem to be fruitless – every single member of Congress is spending your tax dollars. So let’s turn our focus to a more positive subject that we can control which is exactly how much money can you save by cutting out or reducing your morning coffee.

If we assume that there are 47 weeks in the year to get coffee while taking into account for days off, vacation, and the days where you are running late and don’t get coffee that gives us 235 days to get coffee.

For the Dunkin Donuts and Starbucks pricing, I just used estimations. Obviously depending on the type and size of beverage you get the price may vary as well as your location. Often Starbucks will run at a slightly higher price premium. For the fast food and gas station estimates, I just went off the fact that many of these chains offer coffee of any size for 99 cents.

For the cost of K-Cups, I went with a 96 count of green mountain coffee at amazon which comes out to 47 cents per cup. Obviously with K-Cups there are brands that are cheaper but the lowest I was able to find was 33 cents per k-cup and some people will also end up buying more expensive brands as well. For the cost of drip coffee, I just went with a tub of Folgers that you you should be able to get in the store for around $10 or even less if you buy in bulk online. They claim you can get ~270 cups of coffee at 6 ounces, but lets say that you can only get around 180 cups as most people aren’t drinking a 6 ounce coffee. This comes out to around only 6 cents per cup! I added 5 cents per cup to both of these to factor in milk/cream and sugar. I also added in another cent to the drip coffee to factor in the cost of filters. You will also have to remember that both of these solutions have an additional expense of buying the coffee machine initially.

Type Of Coffee Cost Per Cup Cost Per Year (1 Cup a Day) Cost Per Year (2 Cups a Day)
Starbucks / Dunkin Donuts $2.00 $470.00 $940.00
Fast Food / Gas Station $1.00 $235.00 $470.00
K Cups $0.52 $122.20 $244.40
Drip Coffee $0.12 $28.20 $56.40

As you can see from the above analysis, it’s these really small victories in the short term that can add up to be large victories for your wallet over the long term without sacrificing too much. If you absolutely have to have that coffee, definitely consider making your own as opposed to going out to get it which will save you hundreds each year. Drip coffee is the cheapest solution, although you can find re-usable K-Cups as well that cut the costs down towards drip coffee. Maybe your work offers free coffee that you can start to take advantage of? Or maybe you can work on cutting the cost of coffee all together?

Photo Credits for this post: 
Peter Griffin [1]
ABC News [2]
Petr Kratochvil [3]