What Will $400,000 Buy?

| August 22, 2013

I met Mariah just two weeks ago, a week before she was departing for her first year of college. I had just finished giving a presentation titled “Getting Out, not just In” to a group of high school students who were attending a week-long summer residential business camp. As I wrapped things up, she shared her plans which included studying Pharmacy at an out-of-state university. Her college costs are expected to be $45,000 a year, so she was thankful her parents qualified for a Direct Plus Loan.

Me: “Do you know what your entire degree will cost when you are finished?”

Mariah: Shrug … “No.”

Me: “Pharmacy is a 6-year degree. $45,000 x 6 is almost $300,000.”

Mariah:  Pause… “I’m expecting to earn a starting salary of $70,000.”

Me: “That is a fabulous starting wage. Going into college with a goal is one of the best strategies to getting out, not just in. But I want you to know what your total cost of the degree is so you are not surprised by the number when you finish your education.”

Our conversation was short, but I encouraged Mariah to understand a few of the basics:

  • The loan her parents qualified for was an unsubsidized loan meaning the interest would start accruing the day the loan was dispersed.
  • The fact that her parents were “allowed” to roll the origination fees into the loan was not necessarily a benefit.
  • When she completed her degree in 6 years, the loan with interest would amount to almost $400,000.
  • The loan is not transferable and would be in her parent’s name until it was paid off.
  • The estimated monthly pay off would be at least $3,000 a month.*

Cost benefitMariah was surprised that anyone would choose an unsubsidized loan, not understanding that there were qualifying factors which determined those who qualified for a subsidized versus unsubsidized loan. She was a week away from moving into her college dorm. The fact that the numbers were astronomical would do little to change her course now.

*The actual amount according to the calculator on financialaid.org for a $45,000 a year loan for 6 years with a 6.41% interest rate and 4.2% origination fee is $382,493 with monthly payments of $3,187. An estimate to share with your students is: For every $10,000 in debt, a repayment of $100 per month for the next 10 years.

Most of us approach the idea of going to college the same way, asking: What do I need to do to get in? versus What do I need to do to get out? The traditional college-prep path focuses on the application process (vs. the graduation process). Our students stress over taking and retaking the ACT to improve their scores; applying to multiple colleges just in case they don’t get in to their top choice; hoping for those coveted scholarships to cut the cost. Little time is actually spent discussing goals after graduation. If we did, we would not allow our sons and daughters to mortgage their futures and accumulate $400,000 in debt. Even for their education.

Perhaps, like me, you are looking for an avenue that opens doors for your student, not burdens them or you with a lifetime of debt. If you want something different for your student, help them cast a vision that reaches beyond admission. Focus on how their college education will advance them toward their goals after graduation. College admission is not the goal. What you can do having obtained a degree is where the real party starts.

Here are some ideas to help your students think about directing the next four years of their education toward a vision of opportunity without debt:

  • Expensive colleges do not equate to a better education. What makes a difference is how a student applies himself. Read this article by Higher Ed for insight into a recent study.
  • Calculate the Return On your Investment (ROI). Research the numbers. Look at the total cost of a college degree, not just the first year tuition. Choose a path you can afford to complete. Check out Payscale.com for ROI information.
  • Don’t wait until you are in college to consider a career path. Starting in 10th grade, focus on answering this question before you select a college.
  • Gone are the days when students can attend a 4-year university of their choosing, expect to start as a freshman and finish four years later and pay their way through by working a summer job. Affordability starts with getting educated in the process early (while your student is in 7/8th grade) and creating an individualized approach that includes dual enrollment, credit-by-exam, and community college.
  • Ask yourself, “What If?” What if you were to only spend $20,000 on a degree and invest the rest in a business? or travel? or a home? Where would you be in 10 years?

My morning inbox contained this email: “My daughter and I attended one of your workshops probably 4-5 years ago now, and she has since gotten 60 credits via PSEO and CLEP/DSST for under $1,000. So – thanks for your inspiration and so many great tips and resources!

My goal is to provide parents and their students with the information and resources they need to determine their own high school and career or college path. If you have students in 6th grade and up, consider attending an upcoming Credits Before College Workshop. I hope I see you there!

Please share this article with friends and introduce them to Credits Before College.  

Copyright©2013 Cheri Frame – All Rights Reserved.

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Category: College, Creating a Plan