What do you say to parents who will no longer have access to need-based financial aid without loans being included in the package? It concerns me that the top-flight public university can't provide aid to reach the neediest students without them going into debt (and I, unlike Ms. Singletary, do not reflexively object to student loans as part of all aid packages, as I took on my share and was able to find good-paying jobs: I just don't think that's a fair burden for families near the poverty line).
I think it's fine for low-income students to take on loans as part of their package, as long as they are not over borrwing (which I define as more than $30,000 for an undergrad degree). But I do object to parent loans being included as part of any package of financial aid, no matter the income level of the family. Parents should decide on their own if they want to take on debt to pay for the college education of their kids. Colleges shoud not encourage it as part of the financial aid package.
Hi Michelle, I'm in my mid-30s and have made some financial mistakes in the past two years (along with job changes). Basically I've got 12k of credit card debt and have no idea how to get out of it. Half of that is on a zero interest card. I'm tempted to take a withdrawal from my IRA to pay off the debt because I just feel like I'm drowning. I've exhausted my savings while trying to pay off the credit cards and really just want to get back to zero and start over. I know an early retirement account withdrawal comes with fees and isn't a good idea, but I'm not sure what else to do.
First, breathe. I mean that. You are so frustrated with yourself that you are about to make a big mistake.
Don't tap your retirement money. The penalities aren't worth the short-term relief.
Go at this slowly. You didn't get into debt overnight and so don't look for a microwave way to get out of debt.
I've seen people in far more credit card debt buckle down and get rid of it in two to five years. Plus I want you to feel the suffering so that it serves as a reminder not to put yourself in this position again.
So rather than tap the retirement money, look for ways to reduce your costs. If you have run, get a roommate, a second job, cut everything.
But most important be patient.
Dear Michelle, Here's my testimony: my mom recommended your column to me as a teen and I've been a regular reader ever since (almost 30 now.) A few years ago, I was in a serious relationship that was heading towards marriage. Ultimately, I pulled the plug because of various irreconcilable differences, the second biggest being money. Despite earning 10x as much as I did, he had nearly one million dollars in debt. (How is this even possible?!) Part of me still can't believe that I chose my life as a small-town schoolteacher over something that looked so good on the outside -- being a prestigious doctor's wife in a cooler city. However, I know it was the right choice because I'm debt-free, saving money, and living life on my own terms. I feel fortunate because I knew I had a lot of lose (family home, beloved job, etc.) and feel for women who don't feel they have as much going for them as singles (they do!) I hope to one day find someone to marry and have children with but know am already set on my own. Indeed, relationships take compromise but I won't be compromising my fiscal values next time! I want to thank you for all you do and also highly recommend your book, "Your Money and Your Man: How You and Prince Charming Can Spend Well and Live Rich." Sincerely, A Washington Post Reader in Virginia
Thank you so much for that wonderful testimony. And give your mom a BIG hug for me. She's a smart woman :)
Hi Michelle. We are going to buy a used car with cash. At what point should we tell the dealer we are paying cash? We don't want to pay a higher price because we are not financing through them. Also, how and when do we get a certified check to them since we won't know the exact price until after negotiation? Thanks.
When I buy a car I keep various parts of the deal separate. For example, if I were gong to trade it a car, that's done after we agree on the price of the car I'm buying. The salesperson will press you to try and make all the deals at once but that's a mistake and leads to what you are concerned about.
So negotiate the price of the. You don't have to disclose how you will pay for it or whether you are taking the dealer financing or using other credit or cash.
Once the deal is done, then you can say you are paying for cash.
And actually the last cars I purchased wth cash, I just used a personal check. Didn't have to get a certified check. But if the dealer requires that, after you get your price, return the next day with the check.
Michelle, I wanted to share with you that as of Wednesday night, my grad school student loans-- nearly $75,000 at their peak ten years ago-- have now been paid off. My husband and I have pitched every spare penny at them over the past couple years. We also managed to pay cash for a new car to replace my old hoopty with 221,000 miles on it. Although I'm looking at the possibility of unemployment in the next year, we are saving aggressively and feeling a lot more secure in the knowledge that our only debt is our very low interest mortgage. Your virtual encouragement and mantra, "debt is bondage," helped me kick my credit card habit some years back and kept me going through this long slog of paying off the loans. Thank you.
I'm so proud of you. And this is a good testimony for the person with the $12,000 in credit card debt, whom I hope is still on the chat.
See it's possible.
I'm a fan and read your chats often (schoolwork keeps me busy so I do my best), however, I recall you saying that you started a program at your church to help people with their finances. I'm planning to join my girlfriend's church in MD and they too have a ministry to assist members with their finances! I want to participate but want to get to know the church and its members better. Then I wondered if its your church? Because then I would jump right in!! Would you mind sharing your church information?
Don't mind at all. I attend the First Baptist Church of Glenarden in Prince George's County. I am the director of Prosperity Partners Ministry. In the ministry, which is a 10-month program, we match people who have financial challenges with money mentors (Senior Partners) who help them become better money managers.
But I wouldn't want to poach you from another church. It's just important to be in a program that teaches sound financial principles whether it's in a church at the local community college or community organization. I just favor continuting education where personal finance is concerned.
Isn't it possible to go to college without loans? Why are loans thought of as a necessity?
It is possible to go to college without loans. There are plenty of low-cost options, particularly community colleges, and in many states, public 4-year colleges. Indeed, according to the College Board, some 40% of students take out no loans for college. Where loans become a necessity is at expensive private and public colleges that can't provide enough of their own aid. I think it's okay to borrow for college (have skin in the game), but you don't want to over borrow.
With many colleges pricing themselves out of the marketplace for middle-income families, do you have suggestions on the best way to obtain a college degree that is more affordable for both the student and parents?
Completing the first two years at a community college I think is an underused pathway. Too many students think they need to start at a four-year college when they are unsure what they really want to do, or if a school is a right fit for them.
A third of students now transfer at least once before earning a bachelor's degree, so the pathway from 2-year to 4-year is becoming very common. One warning: be sure your credits will transfer from the 2-year college to the 4-year college. Some states are better at that than others.
One free tool that was recently released by the Chronicle of Higher Education allows students and parents to easily compare colleges on everything from price to grad rates to average debt at graduation and first year salaries. Check out: collegerealitycheck.com
This is from Jeff. Check it out.
Ms. Singletary, thank you for your amazing words of wisdom each week. I started reading your column in 2010 when I started to racked up a great amount of debt. I thought this woman is crazy!! No one could live like this and kept on spending. It took me until 2011 to realize I was out of control and had accumulated somewhere around $30,000 in debt. I'd pay some off, add some on for awhile and finally decided to buckle down. Long story short in one month I will be FREE from credit card debt, have paid off my car loan, and saving for a wedding to pay in cash. I can not thank you enough for all that you do and opening my eyes to a life free from debt.
You are so welcome. Truly believe this is my calling. And every time I get a note like yours it's encourageing to me.
And it's encouraging because LOTS of people think I'm out of my mind or simple or that I don't really understand the world of finance and that "leveraging" or debt can be handled by the masses.
I'm not out of my mind. I do understand that loans are sometimes necessary (just for homes) and that some people can manage debt. But many can't. Debt puts you in bondage and my goal is to help as many people as I can avoid being debt slaves.
Many political conservatives have complained about the cost of higher ed. Like Charles Murray, who wrote in Real Education that only 15% of entering freshmen eventually use the hard skills they learn in their careers. The others either don't graduate, or use only soft skills like keeping a schedule or writing a coherent paragraph, that could be taught and certified without spending tens of $K. Some might question the sincereity of Murray's motives, suggesting he doesn't like tax money being used for something that primarily helps people not like him. His political allies, though, point out that a lot of the cost of college goes to requiring liberal and multicultural indoctrination of little educational value. Do you agree with any of these positions?
I don't agree with the idea that students shouldn't get an education after high school. I think we need to expand that definition (so that we're not only talking about 4-year colleges), but the economy is changing at such a speed and requires higher level skills than anyone can get in high school.
I also think that we need more alternatives on the pathway to college. Not everyone is ready for college at 18. We need more apprenticeships and work possibilities for students to learn more about careers.
If you want to see how most people pay for college and other trends in financial aid, the College Board puts out a very detailed report every year that you can find here: http://trends.collegeboard.org/sites/default/files/student-aid-2012-full-report-130201.pdf
This is also a link from Jeff.
I have one word of caution. Be careful when you look at these reports and the "averages" that are presented. Some spend less, some spend far more. And be sure when you look at college expense numbers you include room, board and fees.
My daughter got enough scholarhips money to pretty much cover all her tuition costs at the University of Maryland, College Park Honors College (Go Terps!). But her room, board and fees were just as much (actually a little more) than tuition. And yes, believe it or not, I'm letting her stay on campus. Can't have two woman trying to run my house. She has got to go! But we have the savings for that luxury. If we didn't she would be commuting and I would be adding extra therapy sessions to deal with a teenager who thinks she's grown!
P.S. You are grown when you are paying ALL your expenses.
Michelle, I know you're not a political columnist, but I'm wondering what basic advice you would give our federal leaders on setting up a budget. As a federal employee, I'm frustrated by the back and forth because it negatively impacts my ability to plan and implement my office budget and get the work done. Any common sense for those knuckleheads?
Such a good question. Wish I had a year or two to answer it.
It's funny how people think governments and companys should budget differently than individuals. Like some how there is a different method to budgeting for them. But there isn't. You can't and shouldn't spend what you don't have. You have to live below your means, save and cut the watse. Works for individuals, companies and governments.
Hi Michelle, No question, just my insight... While your letter resonated with many (including me) who have been through this, there's one important difference - The Washington Post is an institution that, while it may change, it won't go away. When my company was bought by a competitor, within 1 year they took our clients and closed our building. I learned two lessons: 1. never work in the same company as your spouse. I still remember the tears I saw that day from the wife of one such couple, and this was nearly 10 years ago... 2. always be prepared to leave, because something like this can happen..
Thank you for your question and tips. Very, very good.
But honestly, I don't take anything for granted. I hope you are right about the Post and I think you are.
However, I too always have a plan B, C, D and E. Let's why I stay out of debt and don't burn any bridges if I can help it.
I'm the aunt who wrote in a couple weeks ago about helping my niece. We have contacted the Financial Aid office at the university. It is trickier than one might think to pay the university directly for part of the student's room and board and/or tuition without negatively affecting the need-based scholarships she already has. We are working our way through the maze, and are glad to be able to do it, but it isn't a straight-forward process at all. Wish aunts and uncles could claim a tax credit! There is no hope of that, is there?
Probably no hope of that, but not everyone does take advantage of the tax credits or loan repayment plans that are available. Indeed, the federal government does have a income-based repayment plan for student loans. See details here: http://studentaid.ed.gov/repay-loans/understand/plans/income-based
Your niece is very lucky to have you. Keep working the system to help her.
For the person who asked if it's possible to go to college without loans - if is if you qualify for enough grants/scholarships to cover all your costs or if there's enough money saved to pay for at a minimum your tuition (and room and board if there are no schools within easy commuting distance). When I went to school, I had to take out loans to cover most of my costs. My parents hadn't made enough money for most of my childhood to save for college (and I was the first in my family to go to college so wasn't really expected), but when we filed financial aid paperwork, they made enough money when I was in high school and college that I didn't qualify for need-based aid for in-state schools. I lived in an area where there were no public in-state schools within commuting distance, so that wasn't an option. So in the end, I took out just under $20,000 in loans for college. When decided where to go to school, the financial aspect did factor in heavily, as I couldn't see going to somewhere like Duke where I was going to owe significantly more money after graduation, and I'm glad I was wise enough as a high school senior to realize that.
The reader mentioned Duke. Don't be turned off by a school's sticker price. Like a car, very few people pay that tuition price. At wealthy schools like Duke, it's possible to graduate with very little in debt because of generous financial aid programs they have for low- and middle-income families.
Do you think there should be loan restrictions on for-profit colleges and even non-profits that have very low graduation rates? It seems that many of the problems that I read about with student debt are because students don't end up graduating from these types of schools. As a human being, I think it is unfair to the students -- who are generally ill-informed about what they are getting into. And as a taxpayer, I resent having to subsidy these places who don't provide decent educations.
The federal government does not allow colleges to limit student borrowing by academic major or even by tuition level. As a result, some students borrow way more than they need for their tuition bill (and then get the refund as cash to spend) and others borrow too much for programs that will not lead to high-paying jobs. So, yes, I do think that the government should be allowed to limit the amount of loans going to students at certain schools and with certain majors.
Hi Michelle, I have a basic question about Emergency Savings that you've probably addressed a million times: I am trying to build up to 6 months of savings in my Emergency fund. What do I include in that budget? Specifically, do I assume I'll stop contributing to my Roth IRA and to charity if I get laid off, so take that out of my budget for planning purposes? Also, I just wanted to let you know that in addition to a "life happens" fund and "emergency fund", we have started a "house happens" fund for general maintenance, and stuff like replacing our sewer line (which looks like it could happen sooner rather than later based on our neighbors) Thanks for your help!
I love the addition of the "house happens" fund. You can do that with the life happens fund but hey, I love having different pots of money. For the emergency fund, if you can afford it, then sure add up all the household expenses and include retirement and charity. If things get really bad you can always pull back from putting that money toward retirement or giving.
I'm glad that Mr. Selingo is here today for the chat because paying for college without going into (much) debt is a subject close to my heart. As a former adjunct instructor, I want to show my support for community colleges. The smaller classes and highly engaged instructors make it a great value. (Underpaid adjuncts are another topic but I'll skip that rant for now!) I was pleasantly surprised to see how much my students were enjoying their college experience because I had this (incorrect) perception that life on campus at a four-year school is so much more exciting. However, students were taking full course loads, working part-time, spending time with family, *and* doing things like going on dates or parties after class (at 10 p.m. at that!) College is what you make it and community college is no different!
Indeed, some intro classes at community colleges are much smaller than those at big public 4-year colleges and the research shows that students engaged in those early classes go on to graduate.
Is there any hope that FAFSA will adjust the EFC for families in the near future or make some allowance for what area in the country you live in that costs more (we're in Massachusetts)? Expecting a middle class (less than 90K) family to pay 20K of its gross income hardly seems plausible.
While the EFC guidelines are set in law, it's not necessarily the amount of money your family will have to pay for college. Individual institutions can give as much or as little financial aid as they want.
I am SO elated right now, I KNEW it. I'm the poster who asked about your church ministry. I visited your church for the very first time last week and I intend to join this week I was so moved by the experience. Imagine how happy I was to find out that it's YOUR church that I have found. I'm so looking forward to joining the congregation and your Prosperity Ministry for 2014 and getting back to being financially responsible and healthy!
Wonderful. Glad to have you. And you can start coming as a guest to the monthly meetings if you like. In fact, Sept. is going to be a fun topic "Love and Money." So come by or you can wait until the new session starts in Jan.
And f0r those not in my area, again I encourage you to find a similar financial program. Many are not just for people with financial challenges. It's an opportunity to stay on top of personal finance issues.
Single mother 40+ Thinking of going back to college to get BS in Information Technology with two kids entering college at the same time. Is it wise for me to go back to college now with the cost of college for three people entering college at the same time. And Iove you and so happy I found you forum again. I use to listen to you all the time when I lived in the DC area your advice and passion for what you do speaks volume.
I think it's great that you are trying to boost your skills. But do so without any debt. And if that means putting off your going back a bit, then that is what I would do. I just would hate to see you get financially overwhelmed trying to pay for three college educations. If you must, start taking some community college courses that affordable. Or look for some free training in your community. Just don't do too much. Take your time. I say 40 is the new 20!
How do you recommend splitting your 529 budget once you have additional kids? Doubling it is not a possibility, but then my older child will have had extra contributions for two years before his brother was born. We could pool it all together in one 529, but then how to decide how much to give each child? How do you help ensure fairness among multiple kids when it comes to college finances?
I have two kids as well, so I've always wondered this, too. Of course, the second child will have two years of additional contributions once the first goes to college.
We set up three 529 plans for our kids. I suggest you do the same. Then look at your budget and see who much you can afford to fund each one. You could add a little more to the oldest child's account since he or she is going off sooner. Or you could just split downt the middle what you have. Life is hardly ever fair. So don't worry about that. The most important thing is to save as much as you can for the kids. When the times comes for them to go to college see what you have and then have your kid go to the school you can best afford given the money you've saved. If one kid needs less you can transfer the portion of money he or she doesn't need to the sibling.
As it turns out we have more than we need for my oldest. But rather than transfer the money to her siblings, we are going to let the money stay in the 529 plan to help her pay for a graduate degree. BUT... if the time comes and we don't have enough for one of the other two kids, we will transfer what we need. We've explained this all to them so they all understand, ultimately it's our goal to get them all through undergraduate without any debt.
".... The federal government does not allow colleges to limit student borrowing by academic major or even by tuition level...." Why not? If the government is insuring these loans or providing a lower than market interest rate, why can't it make some rules? Surely borrowing more than the cost of tuition and expenses should be a red flag.
The idea is to give students flexibility for their other expenses beyond tuition. But given the focus on student debt now, the feds are beginning to question this policy and there is a pilot program going on to test limiting borrowing by academic program.
Back in the early 80s, I attended an Ivy League professional school. My student loans (at 12% and 14%!!) were made through the school, from its endowment (which is where the interest went), and were not government-guaranteed. I'm curious whether such so-called "private" loans actually exist today or whether all college loans are through the government. Thanks.
Private loans still exist as the government does have limits on how much students can borrow.
We are very much in the middle of the middle-class. Not rich, not poor, just grateful. I heard a college financial aid officer once say to go where they actually want you. So my science-minded daughter went to a small, private liberal arts college that loved having another science student on campus. They met our full financial need., and only cost $1K more than Big State U.
Families should find out as much as they can about the financial aid typically offered by a school before they get too emotionally invested in it. Take a look at collegerealitycheck.com or at an individual school's Net Price Calculator (every school has to have one on its Web site).
The calculators allow you to put in your finances and get a general idea of what you might get in financial aid. The biggest problem with how we have designed financial aid is that you need to apply to schools before you know how much you will need to pay in tuition.
Workers need higher level skills that even colleges are not teaching. What do you recommend as an alternative?
Depends on what higher-level skills you mean. My belief is that every student needs the basic building blocks of learning -- the ability to learn how to learn -- and that comes with a good liberal-arts curriculum that is well connected to the needs of the work force.
Still, I understand that a four-year degree is not for everyone and that you might need skills for a specific career. Often those programs can be found at community and technical colleges.
But increasingly you can find them at alternatives like massive open online courses (MOOCs) such as Coursera, edX, or Udacity, or places like General Assembly and SkillShare.
I'm sure some of the readers of your column are Post retirees (some voluntary, some not so much). Is the Post's pension plan outside the Bezos deal, or could he make changes regarding the fund or the payments?
Bezos took on the libablity of the Pension Plan although there are none since the pension plan is overfunded. The assets will be transferred to him. Beyond that we have to wait to see if there are any other changes.
Michelle, First of all thank you for your work on encouraging all of us to deal with our debt. I am proud to say that after 5 1/2 years my wife and I have paid off our law school loans ($340K). It was not easy - and we were lucky. We graduated from a top 5 law school and got great jobs after graduation. But we really got lucky by being able to hold onto our jobs during the recession. Many of our friends were laid off through no fault of their own - and essentially have no chance of paying off their loans. During this time - we also bought a house and started a family (two kids). We know how lucky we are to have a home we can afford and kids that are healthy. Now the question is what should our next financial priority be. We are maxing out our 401(k)'s, and have started 529 savings plans for both kids. I would like to start paying extra towards the mortgage - but we probably also need to put more into the kids college funds. Right now we are saving $1750 a month total - and the calculators say that we should be putting in $3000 a month. Would love your advice on this.
You are indeed fortunate and I'm happy to see that you see that. Many people don't.
Frankly $1,750 seems like more than enough to me but guess it depends on what school you think your kids will attend.
Keep running the numbers. I would keep the focus where you have it. Well funded emergency fund (aim for 1 year given your type of jobs since if you lost them, you might have a tough time replacing that level of income.) A good life happens fund, then retirement savings, college funds as you are doing. If the higher amount for college is your target go for it. Then pay off the mortgage.
I'm probably a bit late but I went to college (,MAJOR university in Wisconsin) and had ZERO loans. I worked my butt off through college to graduate with none and I'm so thankful for that. My parents taught me early to not accept on debt and if you cut back and work at it you can get your bachrlors degree with no loans. I'm now 3/4 of the way into my masters and still haven't taken a loan. it can be done.
Yes it can!
Do you have a one-sentence explanation of why higher ed is so expensive, when learning is so cheap?
People. Technology has made other industries use fewer people to make their products. Face-to-face education still takes one professor to teach X number of students, much like it did in 1980 and 1880.