The Walls Street Journal had an unbelievable and scary article on the state of student debt in this country
A record $89.2 billion of student loans was in default at the end of June, New York Federal Reserve data show. Of the $1.48 trillion outstanding, 11%, or $160 billion, was at least 90 days behind on repayments—and the true rate is likely double that, because only half the loans are currently in repayment.
It never stops amazing me how students in this country can get into so much debt by trying to acquire education and the means to make ends meet. A high school friend of mine has a 6-figure student debt with monthly INTEREST payment of $500. I personally know people from my university in Omaha who accumulated debt and struggle to find jobs. Jobs may wait to meet us, but the bills and interest usually can’t wait to break us.
There is a proposal from some politicians to wipe out student debt. It’s impractical and what problem does it solve? The debt will fast pile up again for the next generations. I don’t think anything will change unless there are solutions to the issues:
Ridiculously expensive tuition fees for degrees that fast decrease in value
Laughable expensive books that benefit no-one but publishers and professors who work with them
Lack of knowledge on personal finance by students
Of course, the reality is highly complicated. Yet, I believe it would be hard to think of a worse scenario than what we currently face. Real solutions should be in place, yet the graph above shows that none has been since 2004. Else, the amount would have gone down instead of going up. If other countries such as those in Nordic countries, France or Germany or many other in Europe can get it done, why can’t the US?
I came across this tweet from a Twitter user that is known for passion and knowledge about the micro-mobility area
A bit of tracking down his comment section led me to this article which is likely his source
The figure doesn’t include other expenses such as gas, parking or insurance. A monthly insurance can go up to $100 easily and parking fees in my current building are $100 as well. Throw in gas expense and suddenly the cost of ownership can swell up to a significant amount. The estimate doesn’t take into account some ad-hoc expenses such as maintenance, decoration, paperwork…
If your income can easily cover the monthly expenses and a car is an absolute necessity every day; which is the case for many here in America, then owning a car is fine. The issue; however, is that there are many whose income isn’t stable or big enough to cover the expenses. They get themselves into debt and financial troubles for owning a car or upgrading one.
Buying a car is a big investment in my opinion and should be taken seriously.
I was a student for 2.5 years in a town where public transportation is horrible and have lived in the US for 3 years. I don’t drive and I can honestly say I survived quite well. If even I can do it, it’s possible.
I was talking to a friend who kept telling me that she didn’t have enough time for all she wanted to do: translation work, teaching, preparing curriculum, researching for PhD program and running a business of multiple AirBnb listings. Many of us have the same issue: day time job, workout, cooking, eating, socializing, reading, side projects, family, friends, 8 hours of sleep, transportation, you name it.
The 24 hour allocation every day isn’t going to change. The more we want to do and complete, the more we feel that there isn’t enough time. If time isn’t going to expand, I believe that the solution to this issue is to want less. If we decrease the number of activities, we’ll have more free time on hand.
The concept can be applied to personal finance as well. I came across a report on how Americans incur more debt for weddings
The Washington Post reports that these companies—amongst them Prosper, Upstart, and Earnest—are offering five-figure-plus loans with up to 30% interest. Unlike other types of personal loans (which, in 2019, typically have interest rates between 5% and 36%, according to personal finance site Value Penguin), these loans are specifically for brides and grooms to help pay for their special day.
According to the Post, these lenders say that, already in 2019, they have issued up to four times as many “wedding loans” as they did last year for couples paying for their own weddings.
What’s driving this trend? It seems to be the confluence of several different factors. First, the majority of those taking out wedding loans are millennials, a demographic that is under substantially more financial pressure than previous generations. Millennials are spending more money on things like education (or, rather, paying off student debt), healthcare, and rent; their average net worth is $8,000, 34% less than Americans of the same age 20 years ago. That leaves a lot less money to spend on extravagant nuptials.
On top of that, the average cost of a wedding is rapidly rising. According the Brides‘ 2018 American Wedding Study, a wedding in 2017 cost around $27,000. A year later, in 2018, that number nearly doubled to $44,000.
Adding to that cost is the so-called “wedding tax,” the premium that party vendors—such as photographers, caterers, and florists—place on a product or service when its meant for a wedding.
A colleague of mine once shared his financial concerns about his upcoming baby and wedding. Apparently, he would have to care about paying for the wedding, the baby’s birth, a new car as his current one isn’t friendly to babies and day care. All of them are significant expenses. In many cases, many of us have only one income and a lot more expenses. As the number of expenses increase, the disposable income left shrinks and debts can rack up. Either we have to grow more income sources or expenses have to be cut down so that there is more free money in case of emergencies and more freedom. Obviously, having a secondary or third income besides a day job is more difficult than eliminating unnecessary expenses. So again, to have more, we should want less
Here’s How TurboTax Just Tricked You Into Paying to File Your Taxes. I used Turbo Tax this year to file my taxes and ended up paying $100 or so for the service. Though the service is advertised as free, there are numerous hidden fees that will end up on the final page of your application if you are not careful. Plus, several weeks ago, companies like Turbo Tax successfully lobbied Congress to stop IRS from building an online portal, which is a terrible decision.
I came across some disturbing facts today. According to the USAToday, below are a few ramifications from the most recent shutdown:
Almost a quarter reduced or eliminated spending on health or medical expenses for themselves or their family
One in four visited a food bank
Forty-two percent took on new debt to pay for day-to-day expenses and bills. Two in five turned to family or friends, while one in five borrowed from a bank or credit union
Meanwhile, the Federal Reserve Bank of New York released the following:
Auto loan and student debts reach 1.265 and 1.442 trillion dollars respectively. Trillion with a T and one trillion is a thousand billion. Astonishing numbers. Clearly, something is horribly wrong right now when many Americans are living paycheck by paycheck and saddled with debt for things that are supposed to make their life better, namely education and cars. That’s not to mention mortgage or healthcare in emergency cases yet, but you should get the picture.
The facts above mean that many Americans will have little to almost no safety net. If a paycheck stops coming, all hells break loose. Debt payments wait for no one. Food must be put on the table. Utilities bills must be paid. Consequently, all the best years of our lives, theoretically, namely our 20s and 30s, are dedicated to just work and pay our debt. I mean, if we have to spend hours to just survive with little freedom, how is it different from modern slavery? How sad is it that we can’t afford to take time off to enjoy life because of the debt over our head? Or how frustrating is it to not have the freedom to choose and do what we want for the same reason?
I am no policy expert and I understand that it’s complicated to fix any of those issues. But there are things that we can definitely do, in my opinion, on an individual level because I totally believe that some efforts and adjusting our lifestyle can steer us away from a giant amount of debt.
Avoiding a high tuition tab
I met a few guys at UNO who dropped classes after already committing tuition fees for those classes’ credits. Two people in particular considered dropping out after two years into their degrees at the time. Understandably, there are some cases in which we all consider changing majors and hence, future career paths, but such cases are not the majority. Dropping out of classes is just an irresponsible use of money and time. Hence, finishing out classes and degrees will help us avoid getting more debt
I came to the US in 2016 with a graduate assistantship at school. In exchange for 20 hours working at school, I had all tuition fees and around 70% of my insurance waived. At University of Nebraska at Omaha, it meant around $7000 a semester, including summer courses. In total, I saved $49,000 of tuition fees after 7 semesters at school, let alone the insurance subsidy on top of that. If you don’t have a better alternative (a paying job), such a position can mean a lot of money saved and debt avoided.
Lower your textbook expense
High textbook prices are ridiculous in the US and Canada. Brand new textbooks which are usually required by professors for 4-5 courses a semester can amount up to $1,000. Being smart about how to spend on books can lead to significant savings. I wrote about two ways to save on book expense.
Take advantage of disruptions in education
Recent developments in the industry bring about more opportunities for affordable education for students. I wrote a bit about Lambda here. Basically, Lambda allows students to have intensive courses in IT with no down payment in advance. Upon graduation and after securing a job paying more than $50,000/year, students will pay back 17% of monthly salary for two years. The cap is $30,000 and if for some reasons, you get fired, no payment is required until you are employed again.
George Tech offers a $7,000 Master degree in Computer Science while WSJ reported the rising popularity of free college programs in certain states. If possible, take advantage of these affordable options. In fact, if you are an American or a permanent resident, you are luckier than immigrants like I am. The option above from Lambda is only available now to US Citizens or US Permanent Residents or EU Citizens. The rest has to make a down payment of $20,000.
Hold off on that new car
I traveled to Philadelphia last summer. A friend there told me about her roommate getting an auto loan for a new car on top of her 6-figure student debt. While I don’t think the story is typical of every student, it’s not an outlier either. It just doesn’t make sense to get a loan on something that doesn’t create value and instead diminishes in value over time. If a guy like Warren Buffett can live well and happily with an old car, I think broke students or graduates should be fine with driving used cars.
Study personal finance
It’s a pity that we don’t get to learn much about personal finance at school. I personally believe that it’s one of the most important things we should get out of college. Nonetheless, it will be immensely helpful to learn it in your free time and apply it to our life. A lot of our financial trouble comes from the lack of knowledge on personal finance and financial planning.
As I am preparing to graduate, there are a few loose ends that I need to tie up, in addition to all the final presentations and papers. One of them is books.
Even though I rarely have to buy physical copies of the books, there are still a few that were gifted to me by friends who were exchange students or graduated before me. Looking at the pile of books in my possession last night, I was hit by the idea of selling back books to get some money. There are two obvious choices: the school’s library and Amazon. The comparison is the point of this post. Below are a couple of comparisons that I ran.
On my school’s bookstore:
The difference between the two is about $14 for the same two books in used conditions. Regarding logistics, I’d have to carry books to the school’s bookstore while a label would be sent by Amazon for free mail. I am glad now that I wouldn’t leave $14 on the table. Personally, I prefer trade-in with Amazon to becoming a 3rd party on their marketplace and taking care of the logistics of selling books myself.
If you have books from your classes that you want to get rid of, you may want to consider different buyback vendors to get the best deal for your books.
I felt pleased with myself that I didn’t buy anything from the Thanksgiving, Black Friday and Cyber Monday madness. Not that I didn’t have any reasons to. My phone is 5 years old with multiple cracks on the screen protection. My Mac is 6 years old with some cracks on itself as well. And who knows what kind of needs could have hit me the seconds I browsed those websites? We all want another pair of shoes.
Some of the people I talked to didn’t buy either. I think that we live in the time of surplus supply. Manufacturers keep producing in quantity and variety. To shorten the sales cycle, they cut the time to market and also the price to get a bit deeper into our wallet. Hence, it seems that discounts are all year around. Personally, I wasn’t impressed by any discounts during the very last holidays. The discounts seemed like any that I had seen before. Plus, I resisted the temptation to buy things that I didn’t actually need. It was not easy!
Imagine the money you saved from not spending on things you didn’t need during the holiday. Instead, you invested the money in the stock market. For the past month, a lot of tech stocks plummeted. Apple lost almost $200 billion in market valuation, for instance. Some turned around and recovered pretty fast such as VMWare. As a result, the investment could have netted you a reasonably good amount of money. If you invest in the stocks and hold them for a long time, the compound interest can lead to an even bigger return, provided that, of course, the stocks perform well.
I stated before that personal finance should be mandatory at schools. The earlier kids can learn about it, the better. Look at this tweet below and you’ll know what I am talking about. Even if you are suspicious of the figures, do your own research on poverty in the US or student loans.