Beating Debt News Archives

By Jack Hough, SmartMoney

The higher incomes that college education brings may not make up for the savings it consumes or the debt it adds early in the life of a typical student.

Consider two childhood friends, Ernie and Bill. Hard workers with helpful families, each saves exactly $16,594 for college. Ernie doesn’t get accepted to a school he likes. Instead, he starts work at 18 and invests his college savings in a mutual fund that tracks the broad stock market.

Throughout his life, he makes average yearly pay for a high school graduate with no college, starting at $15,901 after taxes and peaking at $32,538. Each month, he adds to his stock fund 5% of his after-tax income, close to the nation’s current savings rate. It returns 8% a year, typical for stock investors.

Bill has a typical college experience.  Bill will have higher pay than Ernie his whole life, starting at $23,505 after taxes and peaking at $56,808. Like Ernie, he sets aside 5%. At that rate, it will take him 12 years to pay off his loan. Debt-free at 34, he starts adding to the same index fund as Ernie, making bigger monthly contributions with his higher pay. But when the two reunite at 65 for a retirement party, Ernie will have grown his savings to nearly $1.3 million. Bill will have less than a third of that.

How can that be? College degrees bring higher income, but at today’s cost they can’t make up the savings they consume and the debt they add early in the life of a typical student. While Ernie was busy earning, Bill got stuck under his bill.

I’m not arguing against higher learning but for it — and against the degree system that stands in its way.

Jack Hough makes a compelling argument to the traditional argument that education at any price is worth it.  He argues that the debt being piled on young people under the current educational system may not be worth the education.  His research has found that under average conditions you will have more when you retire if you do not take on the debt of education and instead start saving as we should at an early adult age.  It is something to consider now that Back to School sales, Freshmen Orientations are swinging into gear, and the traditional marketers and loan officers are selling our young people and their parents on the need for more debt in the name of higher education.

It is a tough discussion and many aspects to the issue.  However, young people need to be made aware of all the information, so as young adults they can make informed decisions.  This decision will have huge impacts on the rest of their life no matter what they choose.

To read more on this article, click here.

If you are against excessive debt in the name of higher education then join the Students against Debt online forum to discuss ways to accomplish a great education without much debt.

~~~~~~~~

Volunteer or Donate to Help Convince More People To Stay Away From Debt.

Show others how much you’ve beaten debt
for the price of one latte a year. – – Beating Debt Charts