College in 18 years…

In 18 years, the average sticker price for a private university could be as much as $130,428 a year (See chart.) The situation isn’t much better if you go the public route. Sending your child to a state university could set you back at least $41,228 a year.

Seems unreal. But…

I remember looking at one of my old spreadsheets from the early 2000s where I used $13,000 as the cost of one year at the University of Texas. It’s now around $25,000 a year. Unbelievable.

Maybe it might be wise to consider some college alternatives.

In light of the post I put up yesterday, this is a timely article. I love this point (bold mine):

Anthony Carnevale, the center’s director, explains why students need to pay attention to their earnings potential when picking a major.

Think about it…

If you become a petroleum engineer, you’ll earn $90,000 out of college. If you become social worker, you will make $35,000. The differences are huge.

This was the point I was trying to make yesterday. You have to look at your life as a business and perform some sort of due diligence and cost/benefit analysis when picking a major and a school. It makes no sense to go to a private school, accumulate $100,000 in student loan debt in order to become a teacher making $35,000 a year, and then complain to the rest of us about how hard it is to pay off your loans.

Granted, not everyone is engineering material. Not everyone is teacher material either. Go to school to become whatever it is you want to become. Just be sure and understand the costs/benefits of your desired degree.

Tracy Paulsen, a 34-year-old lawyer from Wenham, Mass., said she recently moved in with her aunt, has put off marriage talk with her long-term boyfriend and depleted her individual retirement account—all so she can get a handle on more than $200,000 in student loans outstanding, most of which paid for law school. “It’s a noose around my neck that I see no way out of,” she said.

Wow.

I feel for this woman. I can’t imagine having that kind of debt hanging over my head.

I don’t have an easy solution in mind. Maybe freeze the debt so that it incurs no more interest. Stretch the payments out, possibly.

The article doesn’t mention how much the original debt was That Miss Paulsen had accumulated. But, even if it were $100,000′ her monthly payment would be $277 for thirty years with NO INTEREST. That’s a pretty hefty obligation.

The bottom line is that college students need to do some due diligence before they take out these massive loans.

As many state legislatures debate double-digit percentage cuts in higher-education funding, presidential pay could become a sensitive subject. In Austin, for instance, University of Texas Chancellor Francisco G. Cigarroa is asking lawmakers to limit proposed reductions in the state’s funding of higher education, even as his compensation was third highest, by total cost of employment, among public-university leaders in America.

Last school year, Dr. Cigarroa was paid $750,000, with perks such as deferred compensation bringing the total cost of his employment to $813,892, the Chronicle survey said.

A University of Texas spokesman said Dr. Cigarroa has received no pay increase since taking the job two years ago. In a statement, Gene Powell, chairman of the University of Texas System Board of Regents, said the vast majority of the chancellor’s compensation comes from an endowment rather than from taxpayers.

Did you catch the first sentence of that last paragraph? “A University of Texas spokesman said Dr. Cigarroa has received no pay increase since taking the job two years ago.”

I always find it funny that executive pay is always defended by, “But he hasn’t had a raise in X number of years.”

Even with a 3% inflation rate over the last three years, this president’s purchasing power is still over $684,000. Not too shabby if you ask me.

It’s no wonder college is so expensive.

I can think of one good reason to group the two together: to hide the inflation rate of education. To see what I mean, take a look at this graphic I put together that shows the total and average annual rates of inflation for each of the categories:

Wow. Look at the three subcategories for education compared to the subcategories for communications. Then, notice the the numbers for the education and communications category as a whole. No wonder why the BLS puts these two in the same category.

Now, here’s that same loan with a 5% interest rate:

If you graduated from college with a $200,000 student loan, and you wanted to pay it back within 5 years, your annual payments would be over $45,000. If your goal is to pay it off in 10 years, your annual payments are around $25,000. That’s a lot of money at a time in your life when you don’t have a lot of money.

Of course there are variables in these numbers. The amount borrowed is pretty high at $200,000. Many college students will get away borrowing much less than that. Interest rates will also vary. It was my goal to give an estimate.

Every college student should take a good hard look at those two graphics BEFORE they accept a student loan. I’m planning more college-related posts in the future.

Being on the topic of student loans, I’m curious what your position is on student loans and government involvement in education. I’d imagine you’d prefer less involvement than we currently have, but I was hoping to you could elaborate a little on your thoughts.

Although I’m far from an expert in this area, I can say that I think government involvement has helped make college more expensive. Colleges and universities have basically been able to put any price they want on the cost of education. They can do this because they know that the whatever the cost, the government will provide the funding. Had this source of funds not been there, colleges might have had to do some belt-tightening. Am I correct? I don’t know. It’s my opinion of the matter.

Regardless, government involvement in education in an effort to make college more affordable has had the opposite effect. What they should have done instead was force colleges to post their budgets online for all to see and scrutinize. Put some heat on the university to show us exactly why the cost of an education is outpacing inflation. That information would go along way towards keeping college costs in check.

What say you, AFM readers?

I chose to attend a top 70 school — and why not? It had everything: prestige, great location, typical campus, every major under the sun… the full college experience.

Five years later I am $200,000 in debt, as my education did not lead me to the career that would help pay off my loans. Also – I am only 23.

What’s even more, Sallie Mae [student loan corporation] won’t allow me to consolidate my loans, repay the loans based on my income, or defer again (as I’ve already deferred for 6 months).

My monthly payments to Sallie Mae are at a cool $891, and next November, 2011, will rise to a mere $1600. Not to mention the 5 other lenders [including federal] that I pay per month…

They got their fancy education and now they expect/want people to help them pay off their massive loans.

Did this person not put pencil to paper and perform a couple of calculations first before they decided to attend this particular school? Judging from their “It had everything: prestige, great location, typical campus, every major under the sun…” statement, I’m going to say no.

I’m sorry but I have a hard time feeling sorry for this person.

Would you borrow from your 401(k) to pay for your kid’s college education?

I would ONLY do this if I had a lot of money in my 401(k). But, it would have to be A LOT OF MONEY! Seriously, I think this is a bad idea. Parents who do this are jeopardizing their future because they have a limited number of years to replace those borrowed funds. The kid, on the other hand, has a career in front of them . At the very least, parents could help pay for the loan after the student graduates from college.

So, my answer is: no way. I would not borrow from my 401(k) to pay for my kids’ college.

What about you?

The main points from her piece:

• Early graduation is a big money-saver. Test out of classes if you can.

• Pick a solid school that’s also affordable.

• Tuition is a bill, so pay it — but not all at once. Pay as you go.

• You can work while in school.