Why do we believe that college debt is a burden to the graduate?
At Allgen we adhere to the principle that a college degree is a great thing if it is in a career that requires a degree and the student can graduate without debt. Why are we so adamant about this? One reason is that we have heard too often that the student did not realize how much the monthly loan payment would impact his/her cash flow and therefore lifestyle once graduated. We want to take a moment to share some averages for you that will hopefully make you and your child do a double take before taking on debt.
Average student loan debt for graduate in 2016 $37,0001
Monthly student loan payment (@4% interest) $374 for 10 years!
But $374 a month doesn’t sound like a lot with a starting salary of $50,000
Trying to work that into a budget based on an average 2016 graduate’s salary of $50,5562 can be difficult. Here is a breakdown of average expenses in Orlando for a single person.
Net Salary on a $50,000 gross salary = $39,600/yr or $3,300/month
(after 5% contribution to 401k, $150/mo medical premiums, and taxes)
Rent in Orlando for a 1 bedroom ($1 ,000)
Utilities/Internet/Phone/gas/tolls/auto insurance/clothing ($630)
Car payment3 ($608)
Groceries & Dining Out ($600)
Student loans ($374)
Total Expenses ($3,212)**
Remaining funds $83
**this does not include vacations, entertainment, gifts, pets, gym, credit card debt, savings, etc.
Financial aid comes in many forms, the 2 most common being grants (free money that does not have to be paid back) and student loans (these do have to be paid back). Just because you are approved for a student loan doesn’t mean you need to accept all of it. We hope that the above demonstration will make you think twice before accepting the loan.
But How Can We Afford College Without Financial Aid?
1. Scholarships – there are so many of these in unexpected places. There are books written on how to find them. If you start early, you can make it your goal to uncover free money that may end up paying for the student’s entire education
2. Remain in state or go to a community college for the first 2 years – remaining in state is a fraction of the cost of an out of state college. The same goes for the community college. While the cost of going away to a Florida University is $20,000 a year (tuition, room, board), the community college cost is about $4,500 a year (tuition only.)
3. Work part time (or full time!) – This not only can help offset the costs, but can teach other life skills such as time management and work ethic. And some employers will pay some of the tuition! A student working 20 hours a week at $8/hr will gross $8,000 a year (not including the increase in summer hours).
The bottom line is that too many people automatically default to taking on student loans without much thought to the long-term consequences. We want to inspire you to be creative when it comes to paying for higher education costs. Contact us for any questions or more information.
3 $20,000 car loan @ 6% for 3 years
Written By: Paul Roldan, Chief Executive Officer Allgen Financial Advisors, Inc.; Ana Fernandez, CFP® and Teresa Talton, CFP®
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