Paying for College

A Proactive Approach to Student Debt

I was having a discussion the other day with a friend who was telling me about a mother she knew who was agonizing about her son’s college enrollment decision. The son had just been accepted to New York University but the financial aid being offered by NYU, plus the family’s financial situation, would mean that the son would have to accumulate almost $200,000 in student loan debt, assuming that he could graduate in four years, to attend NYU.

A four-year graduation cycle is becoming harder to accomplish these days due to any number of reasons. Regardless, graduating from college with debt approaching $200K is both absurd and obscene, in my view. One has to wonder how long it would take a young person just out of college to pay off that level of debt, if indeed it would ever be paid off.

I’m not aware of the young man’s (and family’s) final decision about enrolling at NYU. Keep in mind that NYU is legendary for its sky-high costs and inadequate financial aid. In a previous post, I cited NYU’s Tisch School, where current yearly costs exceed $75,000. The math is easy in order to see that a four-year tour at Tisch will cost more than $300,000. At that level, it’s also not difficult to calculate how one can get into miles-deep debt


Inspired by this real-life anecdote, I decided to do a little research about strategies for students to deal with debt while still in college. This proactive approach is somewhat unusual because the vast majority of college students focus more on getting through college rather than figuring out about how to pay for it.

 

The crushing reality of student loans hits about a half-year after graduation, assuming that the student has not gone on to graduate school and continued the cycle of accumulating loan after loan. The long arm of college loans is not unlike the long arm of the law. Eventually, the piper has to be paid.

So, my research led me to an interesting article: Crush Your College Debt — While In School, by John Wasik. I thought that current college students, aspiring college students, and especially parents might benefit from Wasik’s wisdom here. Let’s take a look at some of what he says.

I like Wasik’s opening:

It’s not true that you can’t reduce college debt while in school. There’s a number of things you can do.

He then cites Greg Deveault, founder of the consulting firm Modern Thought Management, who offers some specific points about a proactive approach to student debt.

– Track Your Expenses Closely and Maintain a Budget.

“From a budget standpoint, I was a freak in college. I kept an excel spreadsheet that tracked everything against a monthly budget so that I could see exactly how my money was being spent (during my senior year 7.39% of my spending went towards beer/alcohol, for example… I still have the files).  [This must be where “freak” comes in.]

If I maxed out a category early in a month I would need to adjust and borrow from future months in order to stay on track for the entire year. I personally think that strategy is a little overkill (I literally spent hours toiling away at my budget spreadsheets) but having access to the information and being able to see my spending was the only thing that really worked for me at the time.”

– Work and Save.

[The “work” part isn’t so tough. It’s the “saving” part that’s so hard.]

“I took a part-time job during the school year specifically for fun money that would help me stay social. The money I saved during summer vacations I would have to cover my basic livings needs- transportation, groceries, utilities, etc. Anytime someone would give me birthday money (thanks Grandma!) I would sock that away in savings.

Treating these three sources of money differently helped me compartmentalize and satisfy three different needs for money separately.”

– Establish and Maintain Interest-Free Credit.

“One of the best financial moves I ever made came in the fall of my freshman year when a banker sold me on opening a credit card. He probably did it just to get a commission, but what that did for me was it allowed me to establish credit very early on.

The credit line was around $400, and I would obsessively pay it off constantly so that the balance was always 0. I would make an effort to pay the card off even before the closing date so that the statement balance, once printed, would always show ‘zero.’

That kept me from getting too far behind or ever carrying a balance forward. Your credit score is partially determined based on your utility (i.e. the percentage of credit that is available to you that you are using), so the less credit you have (in my case $400) the more important it is to keep that balance extremely low.

Coming out of college with good credit opened a lot of doors for me, especially with buying a house, and starting my business.”

[This may be one of the hardest things for college students (and young people in general, to do — discipline themselves to “pay as they go.” The gravity of easy borrowing, either by credit card or student loans, rivals that of a black hole. It’s super easy to get sucked in.]

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Wasik comments:

A personal note: I also worked during college to pay my tuition (I lived at home, which saved a lot of money) and started a business when I got out. Greg is spot on with his advice. Get credit, but stay out of debt. Budget, but use it to save money. Know how much you’re spending and keep a lid on it. Live within your means.

If there’s an opportunity to earn and save money, that’s always helpful — if it doesn’t interfere with your studies. …

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You may be thinking something like, “Yeah, that was really great for youback in the day, but my situation is much different.” Well, your situation may be different, but the principles are still the same. You should be thinking ahead and not putting off budgeting your life until aftercollege.

As a final thought, here’s a starter page of links that might put you on the road to proactivism. Just keep in mind one simple truth: There is no law that requires you to spend the bulk of your adult life shackled to overwhelming debt. You have the luxury of intelligent, personal choice.

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Be sure to check out all my college-related articles at College Confidential.