Posted On: 2005-12-12Length: 29:58
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Good Monday December 12, 2005 this is the Financial Aid Podcast episode 135, my name is Chris Penn welcoming you back after a lovely weekend with lots of snow, lots of other stuff. What a good weekend though, very good weekend, my family and I celebrated; what we do is we celebrate Christmas early before having to go on to-over the actual holiday to our various families, houses and things like that so we had a little early Christmas this weekend got some very nice gifts from my wife. I got a geek FX Lightsaber which is just an amusing toy, so much to play with, you really could just sit there and play with it all day. The other thing was the Bose Noise Cancelling Headphones thanks honey. They are really nice in the office because our office is a fairly noisy office, all things to consider, we have a lot of air conditioning and a lot of-just background noise, it's not even the call center, just background noise that just sounds annoying. The noise cancelling headphones sound great, and they're just terrific in the office. Great starts to the holidays, early start to the holidays too. We have a lot to talk about today, got some-talk about the financial aid, well really the cost of college and it's return on investment, a bit of a rant about the Supreme Court decision, the All Inc, $10,000 scholarship and some mailbag stuff as well as Podsafe music. So let's kick it off today with the news.
www.thestreet.com asks a very valid question in one of its headlines stories today. Is the cost of college worth it? Here are some numbers from The Street about the average cost of colleges for prestige school, well regarded school, and a state university which is kind of unfair because there are actually some state universities that are equally well regarded even prestigious come into mind. Places like Rutgers University in New Jersey, The Pennsylvania State University all very good schools, Virginia Tech another one, these are so called Public Schools, is Virginia Tech a public school? I think it's a state school, if its' not then I think Radford next door is, but either way. Here are the numbers for these schools. The prestige school, ivy league, tuition is around $31,644, room and board, $9,873 plus other stuff like books and supplies, total cost for a Prestigious School around $45,000 a year. So figure that over a four year period and you are talking $180,000 of investment in education. A well regarded school which I guess would be everyone else who is not an ivy league school, tuition about $16,000, room and board $7,000 then there's books and supplies, your total is around $26,500 a year. Over a four years that's a $104,000 a year give or take. State universities, $9,000 tuition about $7,000 and change for room and board putting it all together with supplies, fees and things like that you are talking about $18,500 a year. The question they ask is, is the cost of college worth it? If you are looking at $18,500 a year at a minimum for states schools and then $45,000 for prestigious schools you are paying close to a $25 million when it comes to some of the most prestigious schools in the country. Are these schools worth it? It depends on what you mean by worth it, but its generally regarded that people who hold a college education tend to do better salary wise with the exception of people who hold Liberal Arts degrees, but definitely the math, the science, the engineering fields, medicine any of the hard science field; college graduates do much better than their peers salary wise, benefit wise, and things like that.
According to the census bureau, over an adults working life period, which I guess is from when you get out of college at the age of 21 to when you retire at 67 or there abouts, high school graduates earn an average of $1.2 million over their life time and the census bureau isn't actually clear whether that's before or after taxes but I'm going to guess based on the lowness of that number it's about after taxes. An associate's degree holder earns about $1.6 million, so just that little two year degree earns you another $400,000 over the span of your working life. Bachelor degree holders earn about $2.1 million in salary, they don't go on to talk about graduate and terminal degree holders but that's all right. When you think about it; if the difference between high school and a college degree is about $1 million over your life time, that's a pretty good return on investment even if your initial investment is $200,000. Granted that's 500% increase then you have to spread that out over 40 some odd years, let's do some quick math here 500% increase over 45 years, you are still talking about an 11% return on investment from a top degree holder from a prestigious ivy league school. If you want to go down the middle road, $26,500 a year, 26,500 times four years $106,000 you are looking at roughly about a 21% return on investment when it comes to figuring out, so you are figuring out $1 million divided by the $106,000 then spread that out over the 45 years. The 21% return on your investment is a spectacular return on investment. Show me any other investment that has appreciated as consistently as a college education; 21% year over year for 45 years that is a tremendous return on investment, you will not find anything else I think on the market that is that consistent, that is that bankable. Certainly there are things that you invested in Google at the beginning of it's IPO and things like that you would be looking at a pretty impressive returns but there's no guarantee that kind of return is sustainable, certainly when you compare it to 21% nearly very rock solid 21 % return on investment. That's a really good return for the mid-ranged school. We can do the math real quick for the states school here. Let's do $18,500 times four years so you're talking about $74,000, so take that $1 million divide it by 74,000 and divide that by 45 years, you are talking about a 30% return on investment for state school degree holders.
The lesson there of course is that if a state school actually offers the same quality of degree the same quality of education that a prestigious school offers then obviously your return on investment for state school-a 30% over 45 years is a much better investment than the prestigious ivy league school at 11%. Not to mention the fact that you will not have nearly as much debt. The $74,000 a year versus $180,000 for over four years. The lesson there, college education certainly is worth it in the long run, in over your working life period, but its also worth while looking at what type of college education. If a four year degree holder from a state university is not significantly likely to have a difference in return, then that's ... Ivy League school, and we've talked about that in our previous podcast. That is the case, people who hold degrees from state universities are not statistically likely to have any change in income owed compared to their Ivy League cousins. Then obviously a state university, if you are just going by the numbers, is the best investment of your time, your money, your effort, when it comes to improving your earnings. The other benefit of a college education according to the Census Bureau is that college graduate are half as likely to be unemployed compared to high school graduates to any given time period in the economy. Clearly a college education, you can make a very strong case that is a great investment in yourself and in the society around. For people who do say that college costs are getting out of control, certainly increasing at twice the rate of inflation that is a valid concern, but at the same time the value of a college degree is still very high. A 30% return on investment on 45 years, you will not see those numbers anywhere else on Wall Street.
Once last piece of news, kind of a bit of a rant; I was reading a reaction to the Supreme Court decision that the government can garnish things like Social Security Benefits to reclaim student loan debts and there is one Op-Ed in a piece in a fairly small paper, you know I'm not even sure which paper it was now, but they were saying the Government shouldn't take money away from the elderly to pay for student loan debts. That seems to be the wrong way to go. The rant is this, if you have this opinion that's great that you have an opinion that the Government shouldn't take the money someone needs for food or health care or whatever to pay for debts. What's the solution? The whole Op-Ed talked about how this was unfavorable, unfair, it was uncivilized and so on and so forth, but what are you going to do to pay that debt? If you have a $7 billion debt and we do in delinquent student loans, nationally that money has to be serviced by someone, the debt has to be serviced by someone, if the debt holder is not the one servicing it, meaning the borrower is not the one paying it, then because it's a government loan, a government debt guess who picks up the tab, everyone else who does pay their taxes, everyone else who does make a living, everyone else who does follow the rules. When you sign on the dotted line for student loan, private, Federal-when you sign on any kind of loan, there is usually a nice thing in big bold letter that says, I understand that this is a loan I must repay, that makes it enforceable that makes it an obligation. If you are not comfortable making that obligation, don't sign the loan. If you have to defer college, if you have to defer the new car, if you have to defer the mortgage, the new house for some odd period down the line so you can get that without having to take out a loan, maybe that's what you have to do. If you are not willing to take on the obligation don't sign the paper work and then expect everyone else who is following the rules to pick the slack for you. That is both unfair and equally uncivilized, we call them moochers, leechers or whatever you want to call them but the reality is if you are not comfortable with the debt, don't sign on the dotted line. Find a different way find another way, there are other ways to pay for college besides student loans, which I've said in the past, this sounds weird coming from someone who works with Student Loan Network, hey scholarships are a great way to go, if you can build up enough scholarship money you don't have to pay for school and then you are also not incurring debt on yourself and your not putting an undue burden on the rest of society if you are unable to pay for a debt that you can't afford. Scholarships are a certain way to go, grants certainly a way to go, raising money; there is plenty of room in the Socio-Economic ecology or whatever you want to call it for people who want to just ask other people for money. There are websites out there for people who are doing internet panhandling and while that may take a nasty ding against your dignity, if you can pay off $25,000 in credit card debt like a couple people have, more power to you. You serviced the debt and you did it without putting a burden on people who don't want the burden placed on them. That is my rant for the day. Let's wake up things on this Monday morning with Jill Parr's, "Do You Hear What I Hear." One of my favorite Christmas music piece so far this season.
I'd say we heard it, that was Jill Parr "Do You Hear What I Hear," from Podsafe Music Network at www.music.podshow.com a terrific Christmas song, I love it just little bit of Trans-Siberian Orchestra kind of feel to it, a little hard rock Christmas. All right scholarship updates time; let's talk about the All Ink. $10,000 scholarship. This is a scholarship being given by www.allink.com which apparently is a internet printer's supplies site, but like I always say when it comes to scholarships a dollar's a dollar no matter who it comes from. AllInk.com is committed to helping students pursue their goal of higher education All Ink.com is offering up to $10,000 in scholarships to qualified students who are enrolled or who are planning to participate in a four year program for 2006-2007, students who apply must be a United States citizen or permanent resident with a minimum of a 2.5 GPA on a 4.0 scale in addition students applying are required a 200 word essay on who has had the greatest impact on your life and a 200 word essay on what you hope to achieve in your personal and professional life after completing college. Presumably it's about anything so its not to sell printer's supplies online. More power to them. If you have family, friends or others that you know could benefit from the AllInk.com scholarship let them know online application takes about 15 minutes there are two essays listing any honors and awards that you have won, and what schools that you intend to go too. One submission per student, deadline is December 31, 2005. Winners will be notified by February 20, 2006; looks like a great scholarship, looks like a cash scholarship. It doesn't say here whether it's a disbursement to the school or disbursement to the student. Reminder of course that if a scholarship is a disbursement to the student rather than the school, you may be liable for taxes on it, because it maybe considered a source of income. Today's scholarship update is the AllInk.com's $10,000 scholarship; you can find more information about this and many other scholarships at our free Scholarship Search site at www.studentscholarshipsearch.com. All right next up a quick piano piece by Doug Bolt, I found him on the Podsafe Music Network. Really terrific, a little more Christmas music for you, "Deck the Halls," and "We Wish You a Merry Christmas."
Doug Bolt from the Podsafe Music Network, that was "We Wish You a Merry Christmas," blended with "Deck the Halls." A great piano piece. All right let's move onto the mailbag. Couple of interesting pieces of mail here; the first one we'll do is an easy one Benita Brown writes in saying, "Where can I find the Federal Stafford loan Master Permissary Note form to file out?" That's easy, go to www.staffordloan.com but remember before the Stafford loan application is complete you must have filed your FAFSA. So make sure you've done that and you can do so at www.fafsaonline.com once you do receive your student aid report back then and only then can file for a Stafford loan. If you need education money and you don't have time to wait for the Department of Education, you may want to consider an Alternative Student loan and you can find those at www.alternativestudentloans.com or www.acteducationloans.com either will get you where you want to go. Second piece of mail from Harold McFaden, write in, very interesting piece, "My step-daughter Eva had a Stafford loan when she attended the University of Rhode Island in the early '90s, she's not yet paid off the loan, she's getting married in a few months and I'd like to pay off her loan as a surprise wedding present. I don't know how much she still owes or how to go about paying it off any information you could give me would be appreciated." Provides a Social Security Number and all that stuff. "Thank you in advance, Harold."
Harold this is a very interesting question and very interesting because it's extremely difficult to answer. The reason it's difficult is that generally speaking when ever you call a student loan company of any kind, you can not get another person's financial data. The reason for that is pretty simple; there are a lot privacy concerns and things like that. I don't even know how to get started with this except to say maybe if you have access to your step-daughter's financial records, maybe take a sneak peak at them or something like that, but anyone you call, if they are an ethical and reputable student loan company they are not going to give you her information because you are not her. You can't give out borrower information for someone else. Privacy concerns, ethics concerns and things like that. It's considered an invasion of privacy even if it is for the most noble reasons, which hey a wedding present like that is terrific. Now having said that, there are loan limits to the Stafford loan, $2,625 the first year; let's crack out the calculator here. 2625 for the first year, $3,500 for the second year, $5,500 for the remaining years. That brings a total of $17, 125, that's the maximum amount that a student could have in a Stafford loans over a four year period at least on the subsidized portion. There is an additional $4,000. If you know whether she was an independent student at the time she was attending school or not, you could judge whether she would have the unsubsidized portion or not. Anything between $10,000 and $20,000 would probably go a long way to paying off that plus any other education she's got, assuming that she hasn't been making payments. If she has been making payments then-we'll go to www.studentloanconsolidator.com here and we are going to use the average of-- $17,125 the average Stafford loan rate over the past few years over a 10 year average around 5.5% give or take. So you are talking about $186 a month is probably about what she has been paying. If she attended school in the early '90s she's probably almost done with her student loans. If she was in school from say 1992 to 1996 then she's probably got one more year or so on her student loan. There won't be much left on them, so if you are considering a wedding gift of a certain dollar amount rather than paying the student loan debt which is a nice and noble thing, you might just want to consider giving a cash gift or something or a gift certificate or some other form of payment because it's really hard to figure out what her student loan balance would be. Obviously I can't give that out either because the whole invasion privacy plus she would be really mad if we did it on the air with 1,200 listeners' everyday. You might want to consider the alternate gift and let her finish servicing the loan, because like I said if she attended school in the early'90s there is probably not much left on that loan at all. Certainly not the full $17,000 if she's been making payments regularly. Great question though and well worth asking. Congratulations to Eva, you are getting married and you have very nice step-father. All right let's finish off with Beatrice Erickson, "In my Heart."
"In My Heart," by Beatrice Erickson from the Podsafe Music Network. And that is going to do it for today's show, it is a nice sunny Monday morning going to try and get the office up and running. Reminders show notes are at www.financialaidpodcast.com you will be able to find all information about the various websites that we've talked about and all sorts of other stuff at the site as well as links to the scholarship, the Podsafe music artists and so on and so forth. If you have feedback, or comment e-mail me at firstname.lastname@example.org I will be more than happy to take a look at anything you want to send my way. Finally, let me go to my FAFSA website here, if you are looking at filing for the FAFSA you have 20 days and 16 hours until FAFSA filing for 2006 is available. You can file online at www.fafsaonline.com I strongly recommend that you go over to the site, everything on it except for the professional help section is free. Try filing out the sample FAFSA, try filing it out and getting all your paperwork together so that when it comes time to file that FAFSA, that is something that you are going to be doing in January you can get it out the door as quickly as possible and get early access to the really good Federal Aid. Until next time if you are not subscribed, get subscribed it's very easy at www.financialaidpodcast.com get a friend subscribed, get two friends subscribed, that would be just great. We'll talk to you next time, take care.