Why Does the CPI Put Education and Communication in the Same Category?

I was looking at the CPI numbers this morning and noticed something interesting. For some reason, the CPI puts education and communications together in the same category:

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.

Read This Post BEFORE You Take on a $200,000 Student Loan

In light of my recent posts, I thought I would take an opportunity to take a look at a student loan. The situation I looked at recently was a woman who owed $200,000 in student loans. What’s mind-boggling about that amount is that EVEN with no interest financing, her monthly payment would be…

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.

Follow-up to Yesterday’s Post – Government Involvement in Education

Reader and commenter, Veritroth, left the following comment on yesterday’s post, This Would Be Funny if it Wasn’t so Pathetic:

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?

This Would Be Funny if it Wasn’t So Pathetic

One of my facebook friends posted a link to a person’s website asking for donations to help them pay off their nearly $200,000 in student loans. I visited the website and found their story on their About page:

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.

Question of the Day – Would You Borrow from Your 401(k) to Pay for Your Kid’s College?

Here is today’s Question of the Day:

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?

Graduating From College WITHOUT Debt! (It Can Be Done!)

Donna Freedman has written a great piece over on MSN Money titled Finish College with Zero Debt, in which she profiled three students that will graduate from college with zero debt. That’s pretty amazing this day and age. It should also be inspiration for those who have college in their future.

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.

A Brief Look at Obama’s Student Loan Overhaul

I’m watching The Willis Report. She opened tonight’s show by talking about student loans (Part 1 and Part 2). She displayed a graphic with a few of Obama’s ideas for overhauling student loans:

• Cap loan payments at 10% of adjusted income.

• Forgive remaining balances after 20 years of repayment.

• Provide $2.6 billion for minority serving institutions.

• Appropriate $500 million annually for community colleges

• Provide $750 million for state education grants.

I don’t like the first three suggestions at all. Cap loan payments? Seriously? Forgive balances? Special treatment for minority schools? When I went to a state school in the mid-90s, there were lots of minorities on campus. I can’t imagine why colleges that specifically serve minorities should receive special aid in this day and age. I don’t think we should use taxpayer funds to keep them in existence.

Sadly, except for the community college support, NONE of the above suggestions address the real problem:

College is too expensive in the first place!

We don’t need help affording college, we need college to be cheaper.

How do we do that? Transparency! I see nothing wrong with colleges publishing their financials for all to see. Colleges should be held accountable for their budgets. It shouldn’t just be accepted that college costs will rise annually.