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Money Matters

Hands down, lack of funds is the biggest bummer when planning life after high school. If money were no object, only lack of imagination, grades, test scores, and family expectations would get in the way of doing what you want to do after graduation. Unfortunately, money is an object. A big one. For most high school seniors and their parents, it’s the stratospheric cost of college that causes a reevaluation of what is possible. Even if you don’t go straight to college, you will still need money to pay your expenses, whether you travel, live abroad in an overseas program, start a business, or live at home and take online courses. The only difference is how much you will need.

Does this mean if you have no money you can’t do anything but shelve your dreams and get a menial job? A resounding no! Thankfully, you have a ton of options—and I’m not just talking about a handout from your parents or relatives (although that can certainly help). Because of your age and your individual promise, financial aid, scholarships, fellowships, military benefits, work/study programs, friendly investors, and day wages are all possible contributors. You just have to track down these options and convince sponsors that you are worthy. The less money you have and the poorer your grades, the harder it will be to get support (hello, adulthood!), but it is doable— and infinitely more so if you are specific about how much you think you need and what you want to spend it on. So let’s break it down.

LIVING COSTS

First things first: Let’s find out what it will cost you to live in the big, bad world on your own, whether you travel, work, start a business, volunteer, or hang out and record your first album. These are baseline expenses, so remember that educational costs are extra! From where you are sitting now, it might be hard to estimate these costs, but give it a shot. Ask for help from your folks, too. If you have no idea what rent might be, use the local online classified ads or Craig-slist listings as a guide—or you might consider speaking with a local real estate agent. Look at the rental ads for studio or shared apartments, and plug in that number as your estimate. These numbers are not real quite yet—you are simply trying to get a basic idea of living expenses. On the following pages is a budget worksheet that will help you start working out the details.

Once you add up everything, you may find you can’t afford to live on your own—and even that is useful (if disappointing) information.

You can also use this sheet to help estimate your personal annual expenses if you decide to apply for financial aid to go to college (but if that’s the case, remember to subtract room and food and utilities).

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EDUCATIONAL COSTS

College graduates are predicted to have an income about 83 percent higher over their lifespan than people who do not have a college degree. That’s a lot of cheddar, I know, but it doesn’t come free. According to the College Board’s Trends in College Pricing, the average total annual costs for 2011–2012 (including tuition, fees, room, and board) of a two-year public college for commuting students not living at home was $12,000. For a four-year public college or university, the annual cost was $17,131 for in-state students and $29,657 for out-of-state students. It was a whopping $38,589 for students at a four-year private college or university. For the most selective and elite schools? A jaw-dropping $52,000 annually! And that is before adding the recommended $4,000 per year for textbooks, supplies, transportation, and other expenses (not including personal items). So here’s the bottom line, per year and rounded up for inflation, based on data from 2012:

Two-year public college for commuting students not living at home $16,000
Four-year public college or university for in-state students $22,000
Four-year public college or university for out-of-state students $34,000
Four-year private college or university $43,000
Four-year, most selective private college or university $56,000

Colleges, universities, and private study programs—be they two or four year, whether here, overseas, or online—have the same categories of basic annual expenses. The total will vary widely depending on where you go, where you live, what you want to study, and for how long. When calculating costs, start with the maximum and then figure out where there’s wiggle room. (For example, maybe you can go to an in-state school, rent a room off-campus that’s cheaper than the dorms, or do a program in Vietnam instead of Paris.) For planning purposes, I’m giving you the average numbers for a traditional domestic four-year college experience. When you narrow down your options to specific schools or independent study programs, go to the individual websites and research costs, then plug in the real numbers.

NET PRICE CALCULATORS: THERE’S AN APP FOR THAT!

Hundreds of educational institutions across the country are federally mandated to have websites where you can calculate the real-world price tag and compare programs. According to the Institution of Educational Studies: “As of October 29, 2011, every postsecondary institution that participates in the Title IV federal student aid programs is required to post a net price calculator on its website that uses institutional data to provide estimated net price information to current and prospective students and their families based on a student’s individual circumstances.” And with these calculators you can then obtain—without too much hassle—a real-world estimation of the cost for whichever institutions you’re interested in.

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For more information on estimating and sticking to a budget, there are a few good online resources. I like BalanceTrack.Org for their quick and easy explanations. If you want something more in-depth, the National Endowment for Financial Education has a website at hsfpp.org, where students and parents can download programs (for free) to help with money management. For the personal touch: If your parents have a financial advisor or a customer service person they like at their bank, these professionals are usually more than willing to work with you.

WHAT ARE YOU PAYING FOR?

Tuition and Fees Tuition is the cost of instructing you for a year (fall to spring) at the institution or program you want to be a part of. Fees are standard additional costs, such as for library and computer use, ID cards, social activities, parking/lab/studio access, and diploma and graduation. They are all considered part of the academic experience, but not part of the actual instruction. Tuition and fees are usually lumped together for estimation purposes. Annual tuition and fees at specific schools are pretty easy to find because most institutions have a website that explains the fee structure in detail. Just for kicks, I recommend getting numbers from four different kinds of schools: an in-state public university, a private college or university, an out-of-state public university, and your local community college. It is interesting to see the difference. Note that going to a private four-year college is often much more expensive than attending an in-state four-year school.

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When you estimate cost of tuition, keep in mind that some programs have a per-credit-hour rate that is charged by the semester. If money is going to be tight, and you don’t want to take on debt, you could decide to take fewer classes per semester and graduate in five or six years, instead of four, which will free up some time to work and save while you study.

Room and Board This is what it costs to keep a roof over your head and food in your belly for the academic year—if you live on campus or on-site and eat on a meal plan. According to College Board, the average cost of room and board in 2012–2013 ranged from $9,205 at four-year public schools to $10,462 at four-year private schools. Some institutions break out housing and meal expenses, while others keep them together. The most up-to-date yearly expenses can be found on individual websites. But there is a lot of wiggle room here. You can live off campus and eat at school or, better yet, live at home and pack your lunch. Still, for planning purposes, estimate the maximum and then adjust.

Books and Supplies This is often a surprise expense because textbooks are costly! Most colleges will publish the average costs for required books and supplies. Additional supplies include printed class materials, required reading materials, reference books, and the usual pens, pencils, and notebooks. Depending on the program, lab supplies and/or computer and copy charges may be lumped in. The College Board reported that the average cost for books and supplies for 2012–2013 was $1,200 at public colleges and $1,244 at private colleges—a good enough estimate to use for now.

Personal Expenses/Transportation Go back to your budget work-sheet to estimate your share of the family’s annual miscellaneous expenses without room and board or any of the attending costs, like utilities. Don’t forget things like seasonal clothing, parking, bus/transportation, laundry, cell phone, entertainment, and any splurges, like new skis or a fancy meal out, and add this number to your total. You may be surprised at how much these extras cost, even if you are living in campus housing. The College Board published that personal expenses ran from $2,527 at four-year private colleges to $3,201 at four-year public universities in 2012–2013. If you would like to study abroad, this figure should include the cost of travel and plane tickets home.

KIND ANNUAL
ESTIMATED COST
Tuition and Program Fees $
Room and Board $
Books and Supplies $
Personal Expenses/Transportation $
Other $
Total $

Do you have sticker shock? I don’t blame you. It’s pretty mind-boggling to look at the bottom line of higher education—but there is good news. There are a lot of grants and scholarships available, plus the Feds are doing what they can to make higher education more accessible by providing direct student loans to help with expenses. Taking on debt is a scary proposition, and one I am going to caution you about over and over again; however, there is such a thing as reasonable debt. Graduating with a BA and $15,000–$20,000 worth of total debt is reasonable (by total, I also mean credit cards and car payments!) because there is a high likelihood you will be able to earn enough income to pay it back, even in this economy. Graduating with $150,000–$200,000 in debt is not prudent, unless you are darn sure you will walk out of school and make a bundle.

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Instruction and program fees and travel and transportation costs will be relevant to nonacademic programs you might be interested in. Many (but not all) independent study, volunteer, and internship programs have scholarships that can reduce fees for qualified participants. Compare and contrast pricing when you look at the individual sites for these programs.

THE PROBLEM WITH DEBT

Media reports regularly address what is going on with student loan debt, and things are changing so fast that what I tell you today probably will be out of date tomorrow. But here is a very general picture.

First, some economics 101. There are two kinds of debt: good debt and bad debt. Good debt is money you borrow for a specific amount of time to help you do something that will allow you to pay the money back in that time span (a return on investment) and help you move on to bigger and better things as well. It is, in a very real sense, seed money. Bad debt is like credit card debt. It goes to fund a purchase or a lifestyle choice that is unlikely to reap any return. Both kinds roll over and can go into default if you don’t make regular payments, which can wreck your credit and trigger bankruptcy. For much of this country’s history, educational debt was considered good debt, but that’s not necessarily the case anymore.

A 2012 Bloomberg accounting found that college tuition had risen 1,120% since those amounts began to be tracked in 1978. During the same period, inflation rose only 115 percent. Inflation marks the increase in the cost of living and is the reason why a bus fare in 2013 costs $2 but was only 75 cents twenty years ago even though the bus is driving the same route. (The same thing goes for the cost of a slice of pizza over roughly the same period.) Nicer bus, higher gas prices, bus driver pay raise, and changes in the value of the dollar all contribute to that rise, and other commodities and services experience comparable increases. Except for colleges and universities. Their prices are totally out of whack with what people can afford.

Many college students and grads (even not-so-recent grads) are shackled by debt and the inability to get a job with a high enough salary to pay off that debt. According to a 2011 report by the Project on Student Debt, two out of three college seniors had an average loan debt of $26,600. As of July 1, 2013, student loan interest rates doubled to 6.8 percent. Repaying that debt will take a serious chunk of change. For example, if you graduate with $15,000 of student loan debt, you would have to shell out $295.60 monthly to be able to pay it off in five years.

If you want to pay off the loan in ten years, your monthly outlay would be $172.62, and that’s if the government doesn’t monkey with the interest rate again. The rate is tied to what is called the federal funds rate, so if that goes up, your payments will go up, too.

The bottom line: Take on as little debt as possible to pay for your education—even if this means needing more time to get your degree and working. Or going to a state school instead of a private college. If you do get a loan, read your contract carefully.

Also, remember that your debt must be paid whether or not you graduate (which is the point, right. Degree = higher income). If you take on debt, be prepared to go all the way and get that degree.

EXPECTED FAMILY CONTRIBUTION

This is a fancy name for something super simple: how much money the government or a certain institution calculates that you and your parents can afford to contribute toward your education. Financial aid rubrics vary from institution to institution, but all use the same basic numbers to figure out how much assistance you will need. The formula takes into account all of your family’s assets, the taxes they pay, and the value of real estate holdings (not including your house). Some calculators even include your siblings’ assets! To estimate what your family contribution might be, you can go to the College Board website, BigFuture.CollegeBoard.org, and walk through the Board’s calculator.

FAFSA: If you’re beginning the process of figuring out how to pay for college, you’ve probably heard or seen this mysterious acronym before. Guidance counselors, teachers, friends, and the internet use FAFSA when talking about paying for school. But what does it mean? What is it?

Well, FAFSA stands for the Free Application for Federal Student Aid. This form, which can be found and completed online at FAFSA.ed.gov, is the means by which you become eligible for federal student loans, grants, and work-study jobs. Basically, completing FAFSA is the first step toward gaining access to the nearly $185 billion available in federal, state, college, and private funds.

There is an incredible amount of information out there on everything FAFSA related, whether how to fill it out and when to file (hint: as early as possible!), or accounts of others’ experiences with it. Here are a few places to start looking:

SCHOLARSHIPS AND GRANTS

If you have talent, drive, and stellar grades, you can probably get a scholarship to help you pay for school. There are thousands out there, and some aren’t academia based: Scholarships are awarded to people who come from a certain state, or are immigrants, or are a certain ethnicity. There are also grants for artists, for tinkerers, for community service, for environmental stewardship—or for the kids of parents who work in a particular field. The two things they all have in common are eligibility requirements and the need for a candidate to have a distinguished record. Many of these one-of-a-kind scholarships are school or organization specific. Listed on the following page are databases to begin looking. (A word to the wise, however: Most of these databases have been scooped up by education lenders, so by giving them your information you are going to become part of their lending database and it is possible you could receive some spam as a result.)

General Scholarship Databases:

If you already have an idea of what school or schools you want to attend, call up the financial aid offices and ask about additional scholarships you can apply for. You’ll be surprised with how willing to help admissions officers and financial aid folks can be. You’ll be even more surprised by what other opportunities you’ll learn about. A great many of these school-based scholarships are partial and won’t cover the entire annual cost of attending their school. So keep in mind all the expenses we’ve covered and don’t get seduced by what may seem like a great offer. Crunch the numbers (all of them), then look at what is being offered. Like I said, if you need to take out a modest Federal student loan to cover the rest (like $2,000–$4,000) per year, then you should be okay. If you have to go much higher than that, you might need to reconsider.

And, finally, ask your parents to check with the human resources department at their job about scholarships. Many companies have grant or scholarship programs for the children of employees. Here are a few companies that offer these opportunities:

FINANCING THE ALTERNATIVE DREAM

What about those of you who are thinking about not going to college right away, if ever? The good news on the financial front is that you will have all the time in the world to work and make money—if you can find a job. Your chances of doing just that increase the more education you get, as will your income (see page 82). If you already have a job, you may be able to expand your hours or trade up to a better position or pay raise once you graduate. I encourage you to set a goal for yourself and work toward it. Your work will be much more meaningful if it’s part of a larger investment in yourself and your dreams.

If you are saving to finance the dream, living at home and cutting back on spending will help significantly. If your parents know what your goal is, and that the current situation is temporary, subsidizing you with free rent and board as you make money won’t be as much of an issue. But if it is, remind them how much education costs today. Money saved is money earned, right?

If you have a business that you want to start right away, you may need an adult with proven credit to cosign a bank loan or give you a personal loan. You will have to set out your financial projections in a business plan (for more on this, see page 191), which will help both parties understand their obligations and rewards. Starting a business is financially risky and takes time, so be prepared to keep your expenses very low and work or intern somewhere in the meantime.

FINANCIAL WORKSHEET

We’ve gone over a lot of numbers, I know, but let’s try to wrap it all up in a tidy package that gives you a bottom line to work with as you plan. Use this end-game worksheet to combine all the possible sources of income you might receive after graduating, and all of the possible expenses, totaled from all the worksheets. These numbers can be based on annual or monthly income and expenditures.

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Barack Obama Jr., 44th president of the United States of America

President Obama was born in 1961 in Honolulu, Hawaii. His mother, Ann Dunham, grew up in Kansas. His father, Barack Obama Sr., was born in Kenya, Africa, and he earned a scholarship that allowed him to move to Hawaii to study, where he met and married Dunham. The couple divorced when President Obama was only two, and Obama had no contact with his son. A couple of years later, Dunham remarried and the family moved to Indonesia, where President Obama’s stepfather was from. President Obama was ten years old when his mother sent him back to Hawaii to live with her parents, where he would be educated and safe from the civil unrest she witnessed where they were living. President Obama was elected President of the United States in 2008 and inaugurated in 2009. He is the first truly multicultural president: white, black, American, African, and Indonesian. He did not grow up with much money and relied on scholarships, loans, and contributions from his family to fund his education.

In the fifth grade, Obama attended an elite private school in Hawaii, thanks to a scholarship. He was an excellent student, but writes in his books, The Audacity of Hope and Dreams of My Father, that he struggled to find his social identity (and come to terms with his father abandoning him) as one of only three African-Americans at his school. During high school, Obama won a scholarship to study at Occidental College in Los Angeles, where he stayed for two years (with financial aid from his grandparents). He then transferred to Columbia University and took out student loans. He graduated in 1983 from college with a degree in political science and went on to get his law degree from Harvard University in 1991. After working on the white-collar side of things for two years, Obama moved to Chicago’s South Side and took a job as a community organizer, before being elected to Congress. The rest, as they say, is history.