How to Pay For School | Tips On Saving Money For College
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How to Pay For School | Tips On Saving Money For College

Hey everyone, so college is one of the biggest
expenses you face as a young twenty-something. According to data from, the
cost of college is, on average, anywhere from $4,800 a year for a typical community college
to as much as $50,000 a year or more for a private four-year college. That’s quite a chunk of change to somebody
who’s just graduated high school. So it’s not surprising that the student
loan debt in America is over $1.5 trillion with the average person carrying approximately
$30,000 in student loans. Even with the additional income commanded
by those with at least a bachelor’s degree that amount of debt can really hamper early
progress toward financial success. This is especially true if you happen to graduate
during a time when good jobs are scarce as many people have in recent years. So that begs the question of how we can better
prepare ourselves for the costs of higher education? That’s what we’re going to be talking
about today. In today’s video, we’re going to be discussing
how to save money for college. There is no doubt that college is great for some
people. Higher education is downright mandatory for
certain career paths like doctors and lawyers, but it isn’t for everybody. You can create a very comfortable life for
yourself with or without a degree. So before we talk about how to save money
for college I want to briefly discuss some statistics and reasons why some of you may
not actually need college at all. According to the Bureau of Labor Statistics,
the median income for high school graduates in 2017 was about $37,300 per year. For those with bachelor’s degrees, it was
about $61,800. And for those with advanced degrees, it was
about $75,400. There’s certainly a pretty big leap between
high school graduates and those who have at least a bachelor’s degree, but we also have
to consider the time it takes to get that degree and the cost of college itself. According to the average
annual cost of a four-year college for in-state residents is about $25,000. For out of state residents that number increases
to nearly $41,000 a year. Private schools are even more expensive than
that with the average cost clocking in at over $50,000 a year. Those numbers include costs associated with
tuition and fees, room and board, books and supplies, transportation, and other miscellaneous
expenses. Judging by those numbers a four-year degree
at a school in your state may set you back about $100,000. That’s quite a chunk of change. Assuming that you put the full cost of that
degree on your student loans with a 4.5% interest rate and the standard 10-year term you would
be paying over $1,000 a month after graduation. That’s also quite a chunk of change. In fact, it’s about 20% of the median income
for those with bachelor’s degrees. John isn’t sure of what he wants to do for
work, but he’s been told that you need to get a college education to make it in today’s
job market so he goes to school. He pays about $25,000 a year for his education
and winds up $100,000 in debt by the time he’s wearing the cap and gown on graduation
day. He’s now 23 years old and gets a job earning
$60,000. He lowers his tax bill as much as possible
by investing in his 401K and IRA. After taxes, this would look suspiciously
like $4,200 a month. Not including the student loans he lives on
$2,000 a month. Since his student loans are costing him $1,000
a month, his total expenses are $3,000 a month. Therefore, John has about $1,200 a month left
over to invest. At an average 8% rate of return, John would
have $217,000 to his name when his student loans would finally be paid off at the age
of 33. This is certainly not bad and with his student
loans now gone, he will be able to start aggressively saving for his financial future. However, similar success can be achieved without
a degree. Jane also wasn’t sure what she wanted to
do for work, but unlike John, she decided to not pay for college unless she had a good
idea of what she wanted to do. She found a job at 18 making $36,000 a year
and just like John investing in her 401K and IRA to lower her tax bill as much as possible. After taxes, she takes home about $2,550 a
month. She lives on $2,000 a month just like John. She invests her leftover cash and has a net
worth of $167,000 at the age of 33. If Jane continued to invest like this she
would reach financial independence at the age of 45. That is a little later than John would be
based on these numbers but it is still far earlier than the average person, despite the
fact that she’s only got a high school diploma. Both John and Jane’s situation are good
ones to have. John had an idea of what he was going to school
for and was able to make it pay off for himself in a big way. Jane didn’t have a reason to go to school
so she saved herself from the costs by finding a good job that didn’t require higher education. She could, of course, decide to go to college
further down the road if she found something she really wanted to do that had a higher
education requirement. And with a full-time income, it would be much
easier for her to save money for the degree than it would’ve been in her youth. Bob’s situation is not as good. Like Jane, he didn’t know what he wanted
to do but he’s been told that you need to get a college education to make it in today’s
job market so he goes to school. He spends three years at college (racking
up $75,000 worth of student loans in the process) but never finds what he’s looking for. He doesn’t end up getting a degree and settles
into a job paying $36,000 just like Jane did. Like John and Jane, he lives on about $2,000
a month, but unlike Jane, he also has student loan payments to make. His payments are about $777 a month. That eats into the rest of his income and
then some so he is not able to invest at all. Unless something changes he’s just going
to go further into debt with time. And unfortunately for him, student loans are
incredibly tough to get rid of even through bankruptcy. Ultimately, this is the scenario we want to
avoid. That’s why it is crucial to have an idea
of what you’re going to college for. Your idea may change after you’re there,
which is fine, but we don’t want to just go to college to find our reason for pursuing
higher education. At tens of thousands of dollars a year, that’s
just too expensive of a risk to take. So first thing’s first, try to get an idea
of what jobs you might want to do by shadowing people in the fields you’re interested in
throughout high school (or earlier if you have the chance). If you find that you would love doing a job
that doesn’t really require a university education then you have saved yourself tens of thousands
of dollars if not more by forgoing the pursuit of a degree. If you end up finding a job that does actually
require a University degree, then you can start looking into ways to save on college
costs. This could include many things such as going
to a community college to get your two year degree before transferring to a 4-year University
to get your higher degrees, looking for scholarships or grants, looking for part-time jobs you
can do while at school, and saving early in things like ESA and 529 plans if you have
the time among others. These strategies can make a pretty big difference
in the cost of college and the amount of catch-up work you’ll have to do after graduation. For example, according to ValuePenguin’s
data, the average annual cost of a community college is just $4,864. Heh, and I say just $4,800 as if that’s
not also a lot, but it significantly cheaper than the 4-year university. If you got your two-year degree from the community
college it would run you about $9,700. You could then transfer to a 4-year university
and finish your bachelor’s for an additional $50,000. In total it would cost about $60,000 compared
to going to the 4-year university from the beginning and shelling out six figures. ESAs and 529 Plans are both ways to save for
educational expenses. ESA stands for education savings account. The 529 Plan gets its name from the IRS Code
number that it’s based on. Both the ESA and 529 Plan allows for tax-free
growth and withdrawals as long as you are withdrawing the money for qualifying educational
expenses. While contributions to the ESA are not tax-deductible,
they can be withdrawn tax-free for qualifying primary and secondary expenses as well as
college. You can choose just about any type of investment
you want and can contribute $2,000 per child, per year. ESAs must have a beneficiary listed and that
person must use the money by the age of 30 to avoid any taxes and penalties. If they aren’t going to use the money before
30 you can transfer it to another beneficiary as long as they are related to the original
beneficiary. This is really cool because it means that
if you’re saving for your kids college and they end up deciding not to go you can transfer
the account to your grandchildren! However, there are income restrictions with
the ESA. The restrictions begin with incomes between
$95,000 and $110,000 for individuals and $190,000 and $220,000 for those who file jointly. 529 Plans are offered by most states and are
a little more restrictive with their investing options than the ESA. For most states there are a few portfolios
that you can choose from when investing your money and you can reallocate your investments
twice a year. To make up for this the 529 Plans do offer
higher contribution limits of $14,000 per year and the money is still withdrawn tax-free
for qualifying expenses. There is no age limit for those using the
money. So if you’re beneficiary decides they want
to go back to school in their forties they’re free to do so with this money. Withdrawals can be used for college expenses
including tuition, room and board, and textbooks and supplies. However, they cannot be used for primary and
secondary school expenses like the ESA can. Unlike the ESA, there are no income restrictions
with most 529 Plans. And finally, just like the ESA, you can transfer
from the original beneficiary to someone else as long as they are related. With both of these plans, it’s important
to consult a financial professional as there are sometimes some differences in the fine
print, but this is generally how the options look. But as you can imagine these options can give
your son or daughter a massive head-start when it comes to saving for college. Assuming an 8% return and that you begin putting
money away for your child’s future educational costs when they’re born you could have an
ESA valued at over $80,000 by the time they’re 18. This could grow to as much as $120,000 by
the time their graduate college. The 529 Plan, due to it’s higher contribution
limits could be a great way to play some catch-up if you are starting later on in the game. At $14,000 a year, you could put away over
$110,000 in as little as 6 years assuming an 8% average annual return. However, if neither of these strategies work
for you there are still other options such as summer work. It’s great to be able to work during the
summer to earn money to pay for school. If that’s not enough though, there’s no
shame in working part-time during the school year as well. Your 30-year-old self will thank you for it
someday. Consider if you went to a community college
to get your two-year degree. It costs you approximately $10,000. If you then went to finish your bachelor’s
at a 4-year school you’d be paying about $50,000. In total your educational expenses are around
$60,000 over the course of 4 years. If you worked a full-time job in the summer
(13 weeks) that pays $12 an hour you would earn about $6,240. If you also worked 20 hours per week during
the school year (39 weeks) you would earn an additional $9,360. In total, you would have an income of $15,600. After taxes, this would likely be about $14,000
a year in income. With $15,000 a year in educational expenses
that would nearly pay for your entire degree! Within a few months of graduation, you could
be debt-free and off to the races building your investing portfolio. This may not help you save for college early,
but it will certainly help limit the damage excessive student loan debt can do to your
financial picture going forward. So those are some strategies for saving and
paying for college. Have you used any of them to help pay for
your or your children’s education? If not, what strategies did you use? Let me know in the comments section below.

About James Carlton

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8 thoughts on “How to Pay For School | Tips On Saving Money For College

  1. So important of a conversation due to the student debt crisis in America. People need to start saving more before attending

  2. Daniel, thank you for this video. I love it as I love all of your content. I went to college debt free thanks to working very hard in high school and getting academic scholarships that covered 90% of my tuition and my parents generously paid cash for the rest. I am sure they wish they had known about ESAs etc because they cash flowed it but had no savings ahead of time.

  3. I worked part-time all throughout college (two year degree spread out through three years due to wanting to take more classes), which definitely helped pay for tuition and education-related expenses BUT I also ended up breaking up with my fiance after the first year, and lived alone for the final two years, which really took a hit. I also used a large chunk of my student loans to help out a friend who was struggling financially and medically. So I am now $33 000 in student loan debt, making $38 000/year after taxes at a cafe as a cook (since my field is very hard to get into), with $5000 in savings, hoping to one day get repaid the $12 000 my friend owes me, and waiting for my boyfriend to find a job in the city and move in with me (to offset housing costs).

    So I initially planned on graduating with about $8000 in debt but that didn't happen lol.

    Now I have decided that I want to change career paths and go back to school for accounting. I have always debated between accounting and technical arts (animation/game design/graphics), and initially chose the latter. I am grateful for what I have learned but would like to keep it as a hobby. So now I'm giving myself two years max to save up as much as possible for the second round of college. Good luck to me.

  4. Here's what I did for both my bachelor's and post graduate degree:

    I got a job at the same university I studied at in a related field. The university provided staff subsidies for study, an office for my day job and flexible hours. I could step out for a short walk to my lectures. I paid my fees up front with my income. To satisfy my employer, and educator, it added a year to complete.

    Left with savings, no debt, and the best bit, relevant skills in the industry I studied in.

    The last point was gold and I can't stress that enough.

    A lot of graduates who don't get employed in their field of study burn IP and intellectual capital the longer they stay out of that field that eventually reduces their IP and waste all those years of study.

    Edit: linked study in a relevant field and paid employment to 'gold.'

  5. I’m an advocate of learning and college but agree it is not for everyone and it doesn’t make you “intelligent.” It does make you a well rounded and better prepared to address issues with critical thinking, etc. But not all education is equal – so I agree you really need to have focus and purpose for going to college. STEM is so important but we need those with English, philosophy, history and other majors that focus on critical thinking. I worry that some in this community are so focused on the cost and resulting wages of an education that others overlook the less tangible value of a higher education. Regardless cost is a huge issue! My son is studying physics and is looking to fund graduate school. Many programs are self funded but not all.

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