Tag: student loans

Is Employer Matching Going Toward Student Loans a Good Idea?

smbaccari

At the beginning of 2024 there were some changes to the employer side of the 401k contribution and student loan repayment. Well, for some companies that now allow an employee to get their “match money” to not go into the 401K, but to go toward matching what the employee paid toward a student loan that year. EX. If an employer’s match for say 4% each year would have allowed you to have an added $3,000 contributed to your 401K, assuming you too contributed the $3,000 at a minimum, you could have that employer match of $3,000 go toward the student load debt instead. Of course, you too would have had to put $3.000 at a min. toward that debt as well. Remember it’s a match. Not every company will allow this, because I am sure it’s a human resource challenge this early on with this new rule. Regardless, is this a good thing?  There are several people dealing with huge student loan debt, and we hear a lot of conversation around it, like it’s not fair, its right and the government should forgive student loans for people taking jobs like teachers and social workers…

Hey, I get it! But we hear very little about “educating” people about financial literacy while in High School and how to make better choices as to the schools you go to. If you want to be a teacher, WHY would you go to a private college, assuming you are tsking out large loans.  They will not pay you more because you spent more. Remember State Colleges are supplemented with tax dollars, that’s why they are less money. Don’t think that makes them less of a school. I also know state colleges are pricy too these days, but at least in most cases they are half the cost. If you need to piece it together and start at a community college for 2 years, that’s OK! But to sacrifice those early years of funds in your retirement account earning compound interest? I’m not sure about that. Most people are what experts say “behind” on their retirement savings. Do most people not understand the  power of the longer your money is IN the market, vs the amount of money you PUT in the market? “The Money Guys” (Great podcast) https://moneyguy.com/  tell us for every dollar a 20-year-old puts in the market = $88 when they are 65! That’s AMAZING! I wish I was drinking that cool-aid when I was getting out of school! Of course, back in those days you had to give a blood and urine sample and swear on bible to get a student loan vs today. When my daughter was in school every Fall, she would get a “credit” on the bill which matched the Federal Student Loan amount each year. I would LOSE IT, and tell her, “Get down to that Bursar’s office and get that off!” I never checked that box on the FASFA! Here I am killing myself to fund that 529 plan for years, and they are giving “her” loans like candy! Thank God I was paying attention….Bottom line here, we need more education on the front end so people can make more informed decisions. Hey if you want to put blinders on and spend, spend, spend, in the early years and pick the most expensive college, Go at it!  But maybe while you are picking that high-priced college you can also decide what bridge you want to live under in your golden years. Just saying… Make good choice and control what you can control.

The price of college

smbaccari

Paying for college….

If you’re like most of us parents, figuring out how you will pay for your kids to go to college is stressful! Back in the 80’s a full-time college student could work part-time during the school year and full time all summer, to pay for a year at a state college. If you lived on campus, maybe you had to work a little more or get some help from your parents, but most of us did not have huge loans hanging over us when we got out.

If you went to a private school, you probably had some loans, but unless it was something like medical school, your loans were “manageable”. I did not know anyone that had to take the full 10 years to pay for those loans, and the loans were at 8%.  The average student debt in 1983 was about $5,500. The average starting salary for a college graduate that same year was just under $18,000.  In 2023 the average federal student loan after graduation was over $37,000, according to the US Dept. of Education, in this article published by Best Colleges; Average Student Loan Debt: 2024 Statistics | BestColleges  Additionally private student loan debt was just shy of $55,000. The interest rates can be anywhere to 4%-15%, for a private loan with a low credit rating, but on average is at 5.8%. The statistics tell us on average it takes most people closer to 20 years to pay off their student loans, vs the ten years you are given to start. This tends to be due to things changing in your life, like the loss of a job, starting a family… The student loan “crisis” IS a crisis. BUT, does it have to be? Look we all want the best for our kids and for them to have all the things they want and more than we had, but come on, its four years of their life, that they might end up paying for 10-20 years! College is a BUSINESS! They do not care that you have debt when you leave, they want you to drink the cool aid! It’s not about “oh this school, just feels right”! This is where I belong. No 18-year-old knows where they belong… and as parents we need to make sure they understand the financial side as well. Some student loan debt is fine, but not double what your first-year salary out of school will be.  Money math must be discussed. There are on-line calculators to show them how interest works. You know like when you buy a house and say you borrow $100,000 from the bank with that 30-year mortgage and then at the end of 30 years, you say “thank you Mr. Banker, here is your $100,000 and another $200,000, for letting me borrow that $100,000! Ya, that’s how interest works! The on-line calculator will tell you exactly what your monthly payment will be and what your total bill will be if you take the full ten years. No excuses! NO forgiveness! SORRY.

The plan has to be in place before the first tuition payment. Get creative, be an RA as an upper classman, FREE housing at most schools, is how they pay you, START paying the loans WHILE you are a student, vs allowing interest to add up. Pick a state college, meaning the state YOU live in, not another state. When you get your first job, they will not pay you more than the other guy, because you have more debt. And parents, we CAN NOT use our retirement savings to pay for college. You cannot finance your retirement. College is an investment and, in most cases, very much worth it! But be smart about it. You’re paying for an education, don’t get lost in the amazing campus.  Schools are pricey now, because of the “facilities” not the education. Make smart choices, school was fun back in the day when we had no all-night dining halls and amazing gyms. We met lifelong friends, played sports, did everything else that college kids do, and got a great education that allowed most of us to move out of our parent’s house 6 months later. Preparing for college is a giant step into adulthood, managing money and understanding how it all works, is part that process.