Congratulations to Ellwood, Riverside and other local seniors! One chapter of your life is over and another is beginning or insert your own generic motivational statement.
A generalized amount of you will be attending a four-year accredited institute of higher education. Good for you! Numerous graphs that bedazzle Lincoln High School halls indicate people with bachelor’s degrees earn more than people with only high school diplomas. Here’s a bar graph and a line graph you can look at right now.
Unfortunately, college is a costly proposition. From 1978 to 2008, the cost of tuition has increased at a much higher rate than the cost of living and medical costs.
From 1978 to now, tuition has increased at a far higher rate than the cost of medical care, food, shelter and the consumer price index. The percentage of college costs covered by Federal Pell Grants massively decreased from 1976 to 2008. From 1999 to 2011, the rate and percentage of student loan debt has more than doubled.
And the projected cost of college for the next 17 years is looking just as bleak.
Here is a brief essay by Ronald Ehrenberg, Professor of Economics at the University of Cornell, on why he believes college costs have exploded since the 1980’s.
How to control the costs of college has become a politically heated subject and regardless of what course of action will eventually be taken, it won’t help the current generation of college students for the foreseeable future.
You’ll soon be applying for the largest loans you’ll ever need in your life by filling out the FASFA, arguably the most forgettable part of modern life. It’s so forgettable that every time I filled one out, I didn’t remember the previous time I filled it out.
When I went to college, I didn’t have much of a grasp on how to manage college costs. You and your parents may be in the same boat, simply from a lack of experience.
The sneaky part of college costs is compound interest. For those who may not be aware, there are two main kinds of interest: simple and compound.
In simple, the interest is applied to the starting principal. In compound, the interest adds onto the principal and future interest is compounded. College loans can have interest rates up to seven percent, and here’s a fancy chart showing how terrifying compound interest is compared to simple.
The main goal of reducing college cost is to reduce the principal you accumulate while in college, so that your interest is less compounded by the time you get a job and can start paying in full.
So here are some pointers.
- Live off Campus
Once you have picked a college, the single most important thing you can do to control costs is not live on campus.
Depending on the school, up to 50 percent of college expenses is room and board. Here’s Slippery Rock compared to Penn State. Slippery Rock’s cost of room and board (approximately 10,000), ends up being $1,400 per month (assuming you’ll be living on campus for approximately seven months). Although Penn State’s tuition is higher, it’s room and board cost is the same.
It’s completely feasible to live off campus at a cost of $500 to $700 per month, including travel expenses. Even at the $700 estimate, living in an apartment for an entire year would cost only $8,400.
You’d have to be spending around $833 per month in order to match the cost of living on campus for two semesters.
Unfortunately, colleges tend to not allow freshmen (and sometimes sophomores) to live off campus unless they are commuting from a family household.
One of my roommates had a plan to marry his girlfriend of six months (she was a freshmen and he was 26 at the time) so she wouldn’t have to live on campus. Fortunately for the sanctity of marriage, that plan didn’t follow through.
If you pick a nearby college, just commute. You’ll save massive amounts of money, but you will be losing the adult lessons that living on your own provides. But if there’s any lesson I’ve learned, it’s that money is more important than lessons.
If you don’t go to a local college, get an apartment as soon as you can. Beyond saving money, it’ll give you experience paying bills, making your own meals out of Ramen and beer, and setting up an Internet connection, which is never as easy as it should be.
That way, you’ll have plenty of experience that you can’t use when you move back in with your parents after you graduate.
2. Don’t Buy Books from the Campus Bookstore
College textbook companies are one of the best examples of market insensitivity, when the demand for an item doesn’t decrease as prices increase.
Because students need college textbooks and only a few publishers print them, the companies can rack up the price as much as they want and students will still have to buy them.
Never, ever buy books from the bookstore. A brand new textbook on Amazon typically costs as much as a used textbook from the bookstore. This has been observed, but not documented, by me.
Instead, use Amazon or another online source. Sign up for Amazon Student and you’ll get free two-day shipping. Or buy used books from third party sellers on Amazon.
You can also make up to three-quarters of your money back by re-selling your books on Amazon.
The college bookstore does allow you to “sell” your books back. They’ll give you about $10 for a $100 book. I’ve sold $100 books for $75 on Amazon.
Also, the campus bookstore’s used books tend to be about as used as possible while maintaining the integrity of being a book. One of my used bookstore books had “sooo hot” carved into the cover, and my professor said to me, “Jonathan, control yourself!”
You may want to keep a few books, if you’re so inclined, but are you really going to use your Psychology 101 tome five years from now? For that matter, in some classes, you can get away with not buying the textbook, especially in those 101 classes.
Once into advanced courses within your major, your books will typically cost less.
3. Have a Job Throughout all of College
I’m not one to judge someone’s work ethic by how often they’ve been unemployed from 16 to now. God can judge you later. However, from a pragmatic standpoint, accumulating paychecks consistently is useful.
The sad truth is that working during college doesn’t do what it used to. One of my professors told my class that he worked in the summer in a mill and made enough to pay almost all of his tuition. I worked at a mill in the summer and made enough to buy my books, gas and additional foodstuffs for the year.
Regardless, be employed all year, whether you have a summer job lined up and work on campus or just work in retail year round.
Even with a retail job, you can earn up to $10,000 a year (assuming a rate of $8 per hour working between 20-30 hours a week), which can cover living expenses and allow you to make small loan payments.
4. Make Loan Payments Immediately
It might seem like an okay idea to wait until after college is over to begin paying off loans, but remember that compound interest doesn’t forgive weakness. Even if you just put in $50 a month throughout college, it’s a significant reduction in your principal.
5. Pay off Your Loans in Order of Interest
The loans with the highest interest rate need to be paid off first.
You’ll have mandatory minimum payments on all of your loans (you’ll end up having over a dozen with varying interest rates), but whatever amount you’re paying in addition to the minimum payment, put on the loan with the highest interest rate.
Since I’m not a math guy, there were a few things that confused me about that. On the surface, it might seem like it makes more sense to pay off a $5,000 loan with a four percent interest rate than a $1,000 loan with a seven percent interest rate, because while the latter is growing at a faster rate per capita, the former is growing more.
However, loan payments are per capita. If you pay $400 on a seven percent interest rate, that’s $400 that won’t increase to $428 by the end of the year (the interest is actually applied at a per second rate or something absurd like that so the loans will grow every time you look at them.)
Conversely, $400 of a four percent interest rate will only grow to $416 by the end of the year, so you’re preemptively saving yourself $12.
I didn’t touch upon the most important aspect of saving on college cost: the college itself.
In general, never go to for profit schools, avoid out-of-state public schools and private schools in general unless they have a really good program for your major, and if possible, go to a community college for electives (not all schools will transfer community college electives as readily as they should).
For Penn State majors, commuting to Penn State Beaver for electives and then transferring to another branch will eliminate most of that $10,000 room and board cost for two years.
Good luck to all the local future college students! Remember, 83% of a successful college career is going to class and paying attention while there.