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Student Loans Affect the Young’s Spending Habits, Future Goals

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willworkforstudentloanrepayments Student Loans Affect the Youngs Spending Habits, Future GoalsAs a graduate student and a personal finance blogger, I’ve thought a lot about the beast that is student loan debt. We all know that student debt is a problem in the country. That’s why I found this article on student loan debt and its effects on young people’s spending and aspirations very interesting.

Consider Shane Gill, a 33-year-old high-school teacher in New York City. He does not have a car. He does not own a home. He is not married. And he is no anomaly: like hundreds of thousands of others in his generation, he has put off such major purchases or decisions in part because of his debts.

“It is a new thing, a big social experiment that we’ve accidentally decided to engage in,” said Kevin Carey, the director of the Education Policy Program at the New America Foundation, a research group based in Washington. “Let’s send a whole class of people out into their professional lives with a negative net worth. Not starting at zero, but starting at a minus that is often measured in the tens of thousands of dollars. Those minus signs have psychological impact, I suspect. They might have a dollars-and-cents impact in what you can afford, too.”

My husband and I graduated college with $40,000 of student loans, in total. We’ve been chipping away at that loan for the past 5+ years, and now our balances are less than half of what we started with. Of course, I am now in graduate school, and CB will likely go to graduate school in the next few years, so we are not quite done with education or the financial requirements going to school entails.

My attitude has evolved through the years – I started with a very laissez faire approach: I’ll be able to pay back my loans and an educational investment is always worth it. Then I realized that student loans are forever and started calculating monthly repayments and the risk-averse, loan-averse, side of me got really nervous. I managed to graduate first year of MBA without taking on any loans, thanks to about $13,000 in scholarship, $25,000 from grandma’s estate, and $25,000 from personal savings.

So while I’m lucky enough that student loans haven’t really affected my day-to-day purchases, spending money to NOT have MORE student loans definitely have an impact on major purchases and life decisions. CB and I got married, but other life goals like houses and babies – and pets!! – have been delayed. If I didn’t go back to school and instead held on to my savings and money from grandma’s estate, I would have had ~$100,000 to put on a down payment. But pursuing graduate school isn’t 100% a financial decision, and I’m really happy I went back to get my MBA. So I believe this will all work out in the end. I believe!

Does your student debt affect your future financial, career, and life decisions (such as buying a home, getting married, having children, etc.)?

Summer Internship Finances

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summer internship pie Summer Internship Finances

What’s even cooler than a pie chart? A pie chart on an ACTUAL PIE. Yum.

What you see before you is my summer internship finances pie. Not quite as delicious as a pumpkin pie or an apple pie or a blueberry pie, but almost. Getting my internship means that I will finally be making money again after a year of a graduate student’s (income-less) life. It is so exciting that I’ll have cash coming in instead of going out.

After my Roth IRA contribution of $5,500 (paying myself first) and taxes (paying Uncle Sam his due), I estimate I will take home around ~$12,000.

Here is how I will divvy up that money:

  • New Car Fund: $4,000 <—- will write more on this later, but essentially, I will need to get a car before June.
  • Summer sublet rent + utilities: $1,400 <—- Housing is where I tried to save money the most. Instead of living right next to the office where rents go for $1,000+ a month, I managed to snag a place 10-15 minutes away for $600. I hope I won’t regret this decision, as most of the social life will be further away for me than for many other interns.
  • Food: $1,000 <—- I’ve decided to
  • Gas: $300
  • Auto insurance: $1,000 (I’ll pay auto insurance for the full six months. Still need to get quotes).
  • Travel and entertainment: $3,000 <—- I am doing some shorter, domestic trips before the internship starts (posts with budget breakdowns to come!), so I suppose I am taking an “advance” for myself right now.
  • What’s left: $1,300 – will go towards next year’s tuition.

During my last internship, which was back when I was in college, my rent was also $600 a month. Of course, my college summer internship was in a much more expensive area than my MBA summer internship, but it’s still a funny coincidence.

Are you interning / taking on overtime this summer? How are you divvying up your earnings? 

Graduation Present for a Young Woman

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graduation gift for a young woman Graduation Present for a Young Woman

That young woman in question is my cousin, who will be graduating from college this May. I am really excited for her, and though we have grown apart in these past several years, I’d love the chance to celebrate and recognize her accomplishment.

I’ve decided on a budget of $100. Should I give her:

  • cold hard cash so she can do with it what she will?
  • an American Express gift certificate so she has to treat herself (but then I will owe a $4 or $5 fee).
  • a gift card to a place like J.Crew, Nordstrom, Banana Republic, etc, so she can get started on building a professional wardrobe.
  • a gift card to P.F. Chang’s, her favorite restaurant.

(…moving on to the physical gifts here!)

  • a leather purse or satchel, probably from a young-ish designer such Rebecca Minkoff or Foley + Corinna. I’m fairly confident that I can find those $300-$400 bags discounted to around $100.
  • jewelry – either a fair of pretty earrings or a necklace.
  • I can also give her a book on personal finance, but that seems like a less-than-fun gift. I could give her a personal finance book and then a fun gift.

Thoughts? What was the best college or graduate school graduation present you’ve gotten? 

Underwater basketweaving – it’s a real class

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“Underwater basketweaving” is probably the most maligned imaginary degree out there – a catchphrase for all sorts of classes and degrees that are deemed useless and unmarketable. (As a liberal arts graduate, I have heard of my degree derided a few times as such).

But does any school actually teach underwater basketweaving?

I would have thought no, but I would be wrong. Underwater basketweaving may have started out as a joke, but several schools now offer classes in the craft. Weaving baskets may be easy to do badly, but constructing a good basket takes skill, patience, the ability to follow directions, the willingness to try something new, and creativity. Oh wait, don’t those sound like skills that a good employee would have?!

underwater basketweaving Underwater basketweaving its a real class

University of California at San Diego offers a recreation class in Underwater Basketweaving. Apparently, the class first started in 1984 and has been going strong since. I found a class that takes place on in May 2013 – it only takes a few hours on the weekend and costs a pittance of $10 (the cheapest class at UCSD). Unfortunately, enrollment is full. Perhaps next year! Students who completed the class get a “diploma” in underwater basketweaving – I’d love one so I can frame it and hang it in our apartment. Reed College also offers an underwater basketweaving class, but I couldn’t find a live registration link.

If you are a diver, US Scuba offers you the chance to weave baskets… truly under water. The class description beckons students to “be one of the few divers in the world with this unique Specialty…and take home a memorable souvenir.” (I assume this souvenir is your very own basket).

Would you ever take an underwater basketweaving class?

Is Getting Your MBA A Smart Decision?

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A friend of mine is interested in applying to a full-time MBA program. We had a long conversation last night, and he asked me how I felt going back to school, and whether I think that was a good decision. I paused, and then I told him to “think REALLY hard about giving up your paycheck to go to school for two years so that you can find a job that has a bigger paycheck that will be mostly eaten up by your student loans.”

Of course, some of that is tongue-in-cheek. Some of it. The truth is that while I am happy and grateful and excited to be pursuing higher education, and that I am happy and grateful and excited to be making new friends, learning new skills, and taking my career to the next level, the process can be trying. But I am going to get through it, and I am going to do so smiling.

Here are the advice I gave my friend – and to anyone who wonder whether getting a full-time MBA is a smart decision.

1. Geography is important. I believe that all schools, maybe with the exception of Harvard and Stanford, are “regional” to a certain extent. This means that if you want to end up in San Francisco but you attend Columbia Business School, you are going to be facing an uphill climb. People have done it, but most companies recruit from Stanford, Berkeley, or perhaps UCLA for Bay Area positions. I would recommend going to a slightly lower-ranked school in the geography you desire over a higher-ranked school 1,000 miles away (unless that school is Harvard or Stanford).

2. You may be able to get into the school you want but not get the job you want. Do your research on how likely it is to make a career transition using an MBA. For example, if your dream is to go into private equity, your chances are very low unless you already have prior private equity experience, even if you attend Harvard.

3. The job opportunities for international students can be very different from (and typically more limited than) U.S. students. Many companies outside of financial services and consulting do not sponsor work authorization, so if you are an international student looking for an MBA who wants to work in the U.S., think carefully about which companies to target.

4. Don’t look at the MBA as a purely financial decision. If you make near or above $100,000 before school, an MBA probably won’t deliver a high return on investment, if at all (unless you go into consulting or finance). So I’d encourage anyone who considers an MBA to think about it as both an investment and a consumption – and be OK with the fact that you may not recoup your financial inputs for a long time after school. There are other, non-financial reasons to get an MBA – and make sure you are OK with those too: the chance to make new friends, build a strong network, round out your business education – all of these things may not necessarily result in a positive ROI but are financial “intangibles” that can enrich your life now and in the years ahead.

Checking in…

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So, I have survived my first term at business school! Fortunately, I did pretty darn well academically – I even managed to eke out a high B in my statistics class, which was the subject I was most concerned about. Recruiting is going reasonably well (knock on wood): I suit up most nights of the week for presentations and am genuinely excited about summer internship prospects. And last but not least, I am making great friends and having a lot of fun.

On the other hand, it has been much more difficult to keep up this blog than I had expected. It’s not so much the time (although it is somewhat the time – I am at school from 8am to midnight most days) and it’s not so much that I don’t want to write – I miss the personal finance blogger community terribly. Unfortunately, I have sunken into a huge writing rut. Not having an income means that I can’t really blog about saving or investing money, and not having a budget means that I can’t really blog about, well, a budget.

WHY don’t I have a budget, you may ask?

That is indeed an excellent question. Here are my reasons, none of them very good, but all of them very good at stopping me from having a budget….

  • My biggest expenses are ones that I can’t change: tuition and rent. I try my best to pay the former without loans and minimize the latter, and so there is low motivation to save on the other, “littler,” things.
  • Though I aim to cook at home, sometimes I just get sick of eating frozen dumplings for the 3rd day in a row. Other times, I just really need a café latte, for sanity’s sake. So I have been spending…. <ahem> more than I should at school cafeteria.
  • A big part of school is about making friends and building relationships, and so if I have the chance to spend a nice evening at a wine bar or going out to sushi with friends, I am going to do ­­­­so, even if it cost $30.
  • Travel costs add up. Not only because I am in a long distance relationship, but also because of job conferences, company visits, etc., that require plane rides and hotel stays.
  • I still don’t have a car. I was pretty adamant that I need a car, and I still strongly believe that a car is right about an 8.5-9 on the Necessity Scale in my city. Life has been so busy, however, that I’ve had no time to look for a vehicle. Somehow I’ve figured out ways to get by, but we will see how it goes once winter comes around…

How are you guys doing?

MBA experience thus far: a list

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What I love about business school

  • Living within 15 minutes of all of my friends at school
  • Meeting so many new, cool, interesting, smart people, who also want to be friends with me!
  • Becoming a student again… and feeling that moment of clarity when I FINALLY UNDERSTAND that statistics or microeconomics problem
  • I am never bored. Seriously, I am never bored. There is always something to do, something to study for, someone to see, or some event to attend. It’s incredible.
  • Opportunity to redefine myself and transition to a new career

What I don’t love about business school

  • No money (enough said)
  • Not enough time to do everything I want to do
  • Not enough time to attend every event I want to attend
  • Not enough time to hang out with friends
  • Those moments of clarity in statistics and microeconomics are much sparser than I’d prefer
  • Finding a job

In sum, I am having an enriching, educational, stressful, fun, busy, awesome time of my life. icon smile MBA experience thus far: a list

How are you all doing?

To Cancel Student Loans in Bankruptcy, Your Future Must be “Hopeless”

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There is nothing like being a graduate student who is potentially taking on a lot of loans to appreciate all those student loan articles that surface every fall. New York Times just published a great piece on what it takes to cancel your student loans. As many know, student loans, unlike almost any other type of loans such as home loans or credit card debt, are rarely discharged in bankruptcy. If someone wants to have his loans canceled, he would have to enter a completely separate process than normal bankruptcy and then prove to the judge that his situation is hopeless and his prospect for improvement is nil. The article describes it as such:

Most [judges] have settled on something called the Brunner test, named after a case that laid out a three-pronged standard for judges to use when determining whether they should discharge someone’s student loan debt. It calls on judges to examine whether debtors have made a good-faith effort to repay their debt by trying to find a job, earning as much as they can and minimizing expenses. Then comes an examination of a debtor’s budget, with an allowance for a “minimal” standard of living that generally does not allow for much beyond basics like food, shelter and health insurance, and some inexpensive recreation.

The third prong, which looks at a debtor’s future prospects during the loan repayment period, has proved to be especially squirm-inducing for bankruptcy judges because it puts them in the prediction business. This has only been complicated by the fact that many federal judicial circuits have established the “certainty of hopelessness” test…

Through my blog-life and real life, I knew a small handful of folks who have filed for bankruptcy. I have never, however, known anyone who has managed to get his or her student loans discharged. In fact, when I signed up for loans in college, a very colorful counselor described the loans as something we’ll have until: (1) we pay them off, (2) we die, or (3) we are so horribly maimed that we might as well be dead, which ever comes first. Not a speech a high schooler forgets.

Has anyone gotten their student loans canceled in bankruptcy? Do you think our current system for discharging student debt is too onerous?

Student Struggling With the Student Budget

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Before I came back to school, I thought living like a student would be, well, not a piece of cake, but it wouldn’t be too hard. After all, I always been a saver (albeit with a shopper trapped inside!). It’s been two-and-a-half month since my last paycheck, and I have to be honest: it’s been a little difficult making the transition from income-generating young professional to poor graduate student. One day, my friend made a joke that we forget we don’t have an income anymore. That comment was said in jest, but it rang a little TOO true for me. I know I don’t have an income and cannot spend like I do, but it’s hard to actually put that knowledge into action…

First, there was all the expenses of setting up house. Now, I am planning to buy a car in the next couple of weeks. Interview season is coming up, so there are attending wardrobe and travel expenses for that. And of course, there were those bags…Even though my living expenses are quite reasonable at $650 per month and I try to bring my lunch to school everyday, all these little and not-so-little expenses (books, flights, interview prep materials) are relentlessly boring a hole into my budget. Instead of wrapping my head around this concept of “all cash outflow, no cash inflow,” I felt as if I’ve purchased every stylish dress I’ve seen at J.Crew, Banana Republic, and Ruelala. Productive? No way.

No matter. It’s time to finally get back on track and remind myself of the personal finance blogger I used to be! Speaking of blogging, I’ve been missing in action lately because of all the school stuff. But I’ve realized that I need this blog (and you guys!) to keep me accountable. So I’m committing to a 3-times-a-week posting schedule, and hopefully that discipline will translate to my budget as well.

Any returning students out there struggling with the student budget? Do you have any tips?

Money Attitudes at Business School

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Before I got to school, I was curious about what my classmates’ attitudes toward personal finance would be. Now that I’ve been here for  few weeks, I’ve noticed that money-related tidbits slip into everyday conversation, and many times I’m pleasantly surprised by how financially-conscious my business school classmates are.

It’s easy to paint a picture of MBA students as people who spend recklessly or who party it up in exotic locales, but everyone I’ve talked to have been very down-to-earth. After all, most of us have worked for several years before we gave up our salaries to go back to school – we know the value of a dollar and we understand compounding interest and student loans. There are folks who are sponsored by their company or have full-tuition scholarships, but these folks commiserate with us all the same about the opportunity cost of attending school.

Of course, this doesn’t mean that everyone has the same lifestyle requirements or after-MBA compensation expectations. But I’ve never heard anyone say they don’t worry about money because they are going to make millions on Wall Street after graduation (though statistically, a good percentage of them will!).

Instead, I’ve heard several classmates talk about choosing to rent somewhere because it’s more “value for the dollar” or wanting to “minimize their loans” or trying to be “financially prudent without sacrificing a social life.” A few students have even made real estate purchases near the school (the rent-to-buy ratio is pretty favorable in the area) so that they can generate rental income after graduation. Many students have goals of going into the nonprofit/social entrepreneurship sectors or figuring out a way to “do well and do good” at the same time. All this fiscal responsibility and social awareness make this secret personal finance blogger very proud of her classmates.

Student Loans…. for Kindergarten?!

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When we normally think of student loans, we imagine loans for post-high school education: community college, a bachelor’s degree, graduate school, professional programs, etc. But for some, that is no longer the case. Parents are now taking out student loans for their kids to attend KINDERGARTEN. I am usually 100% do-what-works-for-you, but this just strikes me as a little… extreme? strange? unwise?!

According to a March 2012 Smart Money article, pre-college loans are on the rise.

It used to be that families first signed up for education loans when their child enrolled in college, but a growing number of parents are seeking tuition assistance as soon as kindergarten. Though data is scarce, private school experts and the small number of lenders who provide loans for kindergarten through 12th grade say pre-college loans are becoming more popular.

Despite the risks, experts say many parents are intent on making private education a reality for their children no matter the cost. Robin Aronow, an independent educational consultant to families in Manhattan, says parents believe that private schools will give their children a higher quality of education and will help them get into a better college, which is why they’re willing to stretch.

I understand the desire to make sure your children get a good education, but it’s so risky to start taking on debt even before college. I would much rather have my kids attend public school from K-12 and then save the money for college. After all, you can go to school for free before college. Free higher education, on the other hand, is much harder to come by.

Fess Up Friday: take my money NOW!

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My fall semester tuition ($20,000) isn’t due until classes start in August. But I have this urge to just send over my money to the school RIGHT NOW. Just so I wouldn’t have all this money sitting in my savings account and make me feel richer than I actually am.

I want to adjust my mindset to a new state of, er, reduced circumstances. Maybe then I will stop buying so. much. stuff.

Do you ever want to pay a big bill early?

The Beast That Is Student Loan Debt

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There’s a big $1-trillion dollar elephant (or, beast, depending on your perspective) in the room.

student debt The Beast That Is Student Loan Debt

Sometime in the past months, student loans became the biggest non-mortgage consumer debt out there – bigger than credit card debt or auto debt. New York Times recently published an article headlined “A Generation Hobbled by the Soaring Cost of College.” An ABC News segment reported that some parents are delaying retirement to repay their kids’ student loan debt. Most of these articles focus on undergraduate debt, but the cost of graduate education has also skyrocketed. I didn’t realize how much until I talked to a mentor who graduated from the same business school I will be attending. His tuition in 2003 was half of mine. Disregarding the impact of inflation, tuition increased by 100% in 10 years. Ouch.

Then I received my student loan letter, which details what I have been approved for for the 2012-2013 school year:

  • $20,500 in Federal Stafford Unsubsidized Loan, with a 1% origination fee and a 6.8% fixed interest rate.
  • $44,000 in Federal Direct PLUS loan, which has a whopping 4% origination fee and a 7.9% fixed interest rate.
  • That’s almost $65,000 for ONE year! And I even got a small scholarship. If you had to pay everything out of pocket, cost of attendance would be somewhere in the high-$70,000 to low-$80,000 range.
  •  With both loans, interest would begin accruing on Day 1 of disbursement (i.e. when I receive the loans).

Even though I’m planning to rely on savings for this year, morbid curiosity got the best of me and I plugged in the numbers into the FinAid loan calculator. For the Stafford Loan, borrowing $40,500 means that I would have to pay $476.00 per month for 10 years. I would have paid $57,191.20 in total and $16,191.20 of that would have been purely interest. The Plus Loan’s higher rates mean my monthly payment is $1,102.51 ($132,300.47 over 10 years, with $44,300.47 going toward interest).

This means that if I took out all the loans I am able to, I’d be paying over $1,500 per month for 10 years. By the end of the decade, I would have paid $60,000 in interest.

That’s a sobering, sobering reality check.

Truth be told, without the personal finance blogosphere, I think I would have been much more sanguine about student loans. After all, almost every recent graduate – law, medicine, business – I know have them. We are all going to make enough to service those loans. We are all going to be fine. Or so the thought goes. A few years back I thought that I’d be satisfied if I can graduate with under $80,000 in loans. Then I crunched some numbers, drank the PF kool-aid, and thought, why the h-e-l-l am I taking out ONE penny more of debt than I have to?  My “comfortable number” moved down to $50,000, and now, to $10,000, and maybe even to a hopeful number of $0. I love my money too much to give it all away to Uncle Stafford or Auntie PLUS!

In fact, a Harvard MBA just paid of $90,000 of his student loans in less than a year. I’ve been following his blog since the beginning and it has definitely inspired me to not only pay off my debt sooner, but also to minimize the loans I’d have to take out in the first place.

Are you hobbled by student loan debt? Is it from college or graduate school?

Cost of Getting an MBA: An Analysis

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I think I’ve come to a decision on business school. In the end, it came down to two schools, one that will cost me ~$27,000/year in tuition and the other will cost me ~$40,000/year in tuition. Over two years, that would be a difference of $26,000.

This isn’t an easy decision. I hashed it out with my friends, I talked to my mom (important as she will be footing part of the bill), I thought long and hard about what this debt will mean for my career path and life post-MBA. Thanks to personal savings and family assistance, I can graduate from the $27,000/year school debt-free. Then the question becomes: do I like the $40,000/year school enough to pay an extra $26,000?

The answer is yes.

To show you all what a nerd I am, I even constructed a simple Sources & Uses chart. Crunching the numbers made me feel a little better.

mba cost analysis Cost of Getting an MBA: An AnalysisAs you can see from the chart, I will probably leave school with $35,000 in debt (in the form of a personal loan from my parents). That means that I can potentially pay back this debt within two or three years, depending on what kind of job I get and my cost of living post-MBA. Even if I get a job that is below the median salary of $100,000 that most graduates receive, $35,000 is not crippling. It’s going to be a low-interest (or maybe even no-interest) loan, and I will be able to pay it off as long as I can get a job. In an ideal scenario, I would pay back this loan within 2 years, while maxing out my Roth IRA, 401K, and supporting the bulk of CB’s living expenses for his final year in grad school. If I can get a typical MBA-track job, that’s not out of the realm of possibility.

Of course, this chart doesn’t take into account the opportunity cost of going to business school. The two years I’m taking out of my career is probably worth $140,000 to $150,000 in lost income. But. But. The chance to be a student again. To kick my career into a higher gear. To learn from the best and with the best. To attend a really good school in a part of the country I love. I am excited. Despite the massive cash outlay.

And my parents are excited too. In fact, they encouraged me to choose the higher-ranked but more expensive option, and even used the “your grandmother would’ve wanted this” card. >.< (Maybe they got a raw deal – a daughter who is a strong enough candidate to get into well-branded, expensive schools, but NOT so good as to get a big scholarship. Ooops).

I suppose NOW is the time to start really counting my pennies. Every dollar I can save now is another dollar I’d have to pay for business school.

What kind of financial analysis / thought process did you go through when considering a graduate degree?

GMAT Prep Now Course Giveaway

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If I have any business school applicants or alumni among my readers, you’ll share in my angst over the dreaded GMAT, a 3+ hour long test that seem rigged to bring you down and confound you. I was so happy when I finally got a score I can hang my hat on and move on to the other parts of the application. Aside from the anxiety-inducing qualities of the GMAT, test preparation preparation is NOT cheap. In fact, many courses go for thousands of dollars. But if you don’t have to spend that much, you can save those dollars for the even-more-expensive application process. That’s why I was so excited when the founder of GMAT Prep Now contacted me about the possibility of doing a giveaway.

GMAT Prep Now is an online test preparation course that includes free and paid modules. If you are just beginning to learn about the test, check it out a free module here.  The full GMAT course combines over 400 premium videos with a step-by-step learning guide to guide you through your GMAT preparation.  The program was created by Brett Hanneson, who has been teaching for over 20 years (and who has a 99th percentile on the test).

gmatprepnow course GMAT Prep Now Course Giveaway

Please use Rafflecopter below to enter the giveaway. I’m guessing I don’t have many folks who are going to take the GMAT in the next 12 months (although I could be wrong!), so I’d say the chances are good. icon smile GMAT Prep Now Course Giveaway

Giveaway ends at 12am EST on Friday, March 30
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What Should a Personal Finance College Class Look Like?

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The lack of financial literacy among young people is a perenially hot topic. Who is responsible for teaching young adults the basics of earning, saving, and investing their money?

personal finance school class1 What Should a Personal Finance College Class Look Like?

Some colleges are taking up the challenge. My cousin, who attends one of the Seven Sisters, told me that her school offers a week-long personal finance class during Spring Break. (Huzzah!). So instead of flying home, she is going to stay on campus and attend the class instead. I was so excited to hear this – personal finance is a sorely needed subject, but most colleges don’t cover this at all. I received an excellent education from my school and took several semesters of accounting, macro-economics, and micro-economics. When I graduated college, however, I knew NOTHING about credit card rates, basics of asset allocation for personal investing, where to set up my cash accounts, etc. And let’s be honest, not everyone has to learn about the Argentine peso crisis, but everyone needs to understand how to manage their own money.

Fortunately, I fell into the world of personal finance blogging. So my deer-in-the-headlights period wasn’t as long as it could have been. Still, it would have been helpful to have a personal finance class before graduation, as part of a comprehensive education to launch young adults into the real world. I’ve discussed in the past whether schools have a responsibility to teach money management to students, so I’m glad that my cousin’s school is taking proactive steps to address this issue.

So, what SHOULD be in a week-long personal finance class? Here are my suggestions:

  • Setting up a budget and understanding real-life expenses. Or, a discussion of where does your gross pay actually goes to before you are left with your net paycheck, and then your discretionary income. Making $60,000 or doesn’t mean you HAVE $60,000 to spend. Sounds like a simple concept, but the first time I got my paycheck, I was shocked at the big discrepancy between my gross salary and my net income. I believe my reaction was along the lines of “Who is this FICA and WHY is he taking my money?”
  • How to pay for car / transportation. This should include discussion of car loans, down payments, auto insurance, etc.
  • How to handle student loans and possibly, prepare for graduate school financially. The class should talk about under what conditions can student loans be discharged (almost none), how long it will take you to pay off a student loan if you stay on a 10-year, 20-year, or 30-year payment plan, talk about the different types of student loan payment plans available and discuss the pros & cons of each, and map out what is the income you will need to earn to service your debts.
  • How to use credit effectively and responsibly. Over the course of a lifetime, those with an established, strong credit history save tens of thousands of dollars thanks to lower interest rates on everything from a mortgage to car financing to private student loans. So no discussion of personal finance can be complete without talking about credit. I am a big believer that credit cards can (and should) be a part of one’s financial tool kit. I’d like to see a discussion on credit card interest rates, impact of minimum payments and effective interest paid, how to manage your credit score, where to get your free credit reports, etc.
  • Investing for long-term goals and retirement (a thorough discussions of 401Ks / 403bs, Roth IRAs, IRAs, and SEP-IRAs, etc. would be very important here). Also, there should be a conversation on risk, rewards, fees, and impact on performance.
  • Insurance needs – talk about disability insurance, life insurance, types of insurance and places to do more research.
  • Teach them why personal finance is sexy. Seriously! What can be better than taking charge of your own financial life?
  • Where to go if you need more information or help about personal finances. Books, nonprofit classes, etc.

What do you think should be included in a personal finance class for college students? Would you have found such a class helpful when you were going to school?

Live Like a Student

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Many readers suggested that I can save money by “living like a student” when I am in school and after I graduate from my MBA program. This might be harder for MBA students than other professional students who have gone straight from college to graduate school, and who haven’t had the chance to “inflate” their lifestyle. In fact, Cornell University’s financial website specifically extols MBA students to live frugally while earning their degree.

Pursuit of an MBA is an investment in your future. It will most likely require you to take on some educational debt. There are ways to limit the amount of education debt you accumulate as a student. The easiest way to reduce your overall debt is to reduce your discretionary expenses. It is much easier to live like a student when you are a student than to live like a student when you are earning $90,000 annually.

live like a student Live Like a StudentSo what does “live like a student” mean? Is it strictly a diet of ramen and eggs? Or driving an old beater? Or living with 3-4 roommates? Or working a part-time or even full-time job while going to school at the same time? My cousin, who is in medical school right now, lives with a roommate in an apartment very close to the school and leads a frugal lifestyle, but otherwise drives a paid-off car courtesy of his parents and doesn’t work. My other cousin is a junior in a liberal arts college much like mine and while she holds down a few part-time jobs on campus, she doesn’t worry about paying for tuition or books. Her room and board are all covered, and so any money she makes is her spending money.

Another friend of mine who recently graduated from law school lived in a cramped apartment which she described as “on the outskirts of drive-by territory”, close enough to hear the gunshots sometimes, but far away enough that your friends aren’t afraid to come by during the daytime. When my dad was in graduate school, my parents lived on his teaching assistant stipend (meant for ONE person), renting a room in a basement. The only time they enjoyed fish was when they could buy discarded fishheads from the market. At the liberal arts college where I graduated from, you can see BMW M-6s and even a Maserati dotting the parking lot. Obviously, “live like a student” can run quite a spectrum depending on your expectations, resources, and background.

Here’s what I think of as living like a student:

1. Cooking at home most nights. It might be hard to do, but I am going to make a concerted effort to put together meals that are nutrious and cheap. Think canned beans, omelets, and peanut butter & jelly sandwiches. What I will not do, however, is eat ramen every night.

2. Have a wardrobe that fits and flatters for what I need… going to class, networking, interviews, etc. What I will not do is over-buy in quality or quanity, especially not both. For example, I’d need a nice leather purse to carry resumes and folders, but I do not need that purse to be Prada or Chanel (or even Longchamp!).

3. Live with roommate(s). Housing expense is probably the biggest fixed expense most students have, and living with a roommate is a sure way to save the budget. I am going to embrace shared living… every $100 I can save is another $100 in debt that I don’t have to take out and that I don’t have to repay (with interest).

4. Get by without a car. I am going to make a concerted effort to not own a car while I am in school. No car means no insurance fees, no car payments (as my 16-year-old Honda cannot survive a cross-country move, I’d have to lease or purchase another car), no gas money, and no danger of getting tickets. Outside of getting a roommate, this move will probably save me the most money.

What does “live like a student” mean to you?

Looking Ahead… At Student Loans

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Congratulations! Now please hand over $100,000 and your first-born.

I have heard from my second and third business school. I got in! Now that business school is really going to happen, I am also figuring out what it means to be a full-time student again. The MBA programs I applied to cost around $150,000-$160,000 for two years: ~$50,000/year for tuition, books, and supplies, and an allowance of ~$25,000-$30,000/year for living expenses. No one ever said graduate school was cheap.

How do I plan to pay for this educational elephant? Fortunately, I’ve been able to save up and I am able to count on some family help. $50,000 comes from my personal savings from post-college work, $40,000 comes from inheritance from my grandmother, and my parents will probably help me out with another $10,000. So that’s $100,000 of tuition. The other $50,000 in living expenses will likely come from a combination of loans and freelance earnings during business school.

student loans1 Looking Ahead... At Student Loans

School #1 did not offer me any scholarship, so if I go there it will be for the full sticker price. In that case, I will probably have to take out $40,000-$50,000 in loans. They might be loans from the Bank of Mom & Dad with a Dear Daughter Discount, but it’s debt nonetheless. $40,000-$50,000 of repayment will require pre-tax earnings of $60,000-$70,000 to service, which is no small sum. This is a great institution and I feel very lucky to be accepted, but it will be a struggle to pass up the money offered by.. School #2.

School #2 is offering me a not-insignificant-amount of aid. Thanks to a scholarship, the tuition drops down to $27,000/year, and the total cost of attending business school falls to $105,000. If I choose this school, I have a very good chance of graduating debt free if I live frugally and make some side income during school. I don’t even have to fill out a FAFSA! What a coup that would be… if I can graduate from a great MBA program and still have ALL of my income be mine afterwards. Well, mine and Uncle Sam’s. This school’s reputation may be a little bit more regional than the other schools I have applied to, but I believe that all busines schools, with the exception of Harvard and Stanford, are regional in some ways. Bottom line, this school is a solid choice, with a strong alumni network, very down-to-earth people, and a robust recruiting pipeline for the industries I am considering.

School #3 is an Ivy (though the mere fact that it is an Ivy shouldn’t make my parents any more glad about the acceptance, it will. And I am happy because they are happy), and will tell me whether I get any scholarships in a week or two. School #4 will inform me of their acceptance decision in about a month.

CB has also applied to graduate school. He will hear back within the next month. If he gets in, he will have to take out some loans (which will then turn into our loans. Ah the joys of marriage). If he doesn’t get in, he will keep working and support me financially for a year so I can take out fewer loans (ah the joys of marriage) and reapply next year. I think he has a pretty good shot at acceptance, so I am planning as if we will BOTH be in graduate school, BOTH not making much money, BOTH taking out student loans. In that context, I am forced to think about my student loan situation much more carefully than I might otherwise.

How my attitude toward student debt evolved

Even a few years ago, I had resigned myself to taking on $80,000+ in student loans. It’s what almost everyone does and most graduates of top schools can find a job that will service that debt. According to the MBA website Poets & Quants, the average MBA debt load is north of well north of $70,000 (incidentally, all of my schools are on that list… not sure if that’s a good or bad thing).

But the more I thought about it and the more I calculated, the more I realized that I don’t want to graduate with a mountain of debt. Student loan debt doesn’t have to be a fact of life for me. Even if I do take on loans, I want to err on the side of conservatism. I’d like to be able to pay off my graduate loans in 3 years after school. My limit is $50,000 in loans for an MBA. Assuming a family loan interest of 5%, it’d take me $1,500 a month to be able to pay off the loan in 3 years. A big chunk of money, to be sure, but not impossible. If I can keep the loans down to, say, $25,000, I’d be able to pay it off in a little more than a year.

I truly love all of the schools I applied to, having made a decision very early on that I would not submit my application to a school unless I know I will be happy and excited to attend. So I have three great choices right now (hopefully, I will have four great choices once I hear back from School #4). Money is definitely a factor, but how big of a factor? I don’t know.