The Power of Time: Higher Education edition

There are examples everywhere on the inter webs about the power of time, specifically when it comes to compound interest. The problem with compound interest is that it can only be harnessed when you have money to invest. Otherwise, that power is working against you, and it is working hard.

Too often I see people truly wake up to money (if they wake up at all) when they are hit in the face with their student loan bill at graduation. Graduation is not the time for financial awareness. For ultimate success, you must start earlier.

In hindsight for most of us, but hopefully not for everyone, What can you do?

1. Pick the Right School

Where you go to college is a major decision. You are going to spend the next 4 years of your life there. It better be somewhere you want to be. However, too often, emotions are the driving force behind the decision. State schools are typically more affordable than private schools. Community colleges are cheap. The cheapest option may not the be best choice for you, but you’ll save a lot of anguish after graduation if you carefully consider the costs up front.

2. Do Well

When I tell people how much student loan debt I graduated with, their first question is always “Did you have a scholarship?” Oftentimes, I don’t even get a full question, simply “Scholarship?” with a grumble on their face. Yes, I had a scholarship, but I worked my butt off to get it. I was at the top of my class for my undergraduate degree and I was deliberate with where I applied to law school.

I am lucky that my hard work was rewarded, but most scholarships come from hard work. Give the scholarship committee reason to say yes to you.

3. Spend Wisely

No one expects you to have money while you are in school. Take advantage of it! There are so many opportunities to eat for free and to have an active social life for next to no dollars. Use this time to be creative and truly live like a student. No one will fault you for it.

If you must take out loans, spend them wisely. It isn’t “free money.” It is actually really expensive money typically subject to 6.8% interest. It’s even worse if you are charging your life on a credit card. 19% interest…  eek!

My biggest pet peeve in school was “student loan dispersement day.” Many of my classmates treated the money like a tax refund or lottery winnings. They would go and blow a huge chunk of their dispersement on lavish dinners and extensive bar tabs. I doubt any of them understood the financial ramifications of what they were doing.

Math Time!

$100 fancy dinner, paid for with student loans. x 6.8% interest compound daily + over the life of the loan (10 yrs) = Total Potential Cost of that Dinner =$197.

-or-

$4 Latte x 3 per week for 9 months of school ( 144 Lattes) = $576 x 6.8% interest x life of the loan (10 years) = $1136

$1136 / 144 Lattes = nearly $8 each!

Ain’t no body got time for that!

Were you deliberate about your spending in school?

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8 comments

  1. I’m kind of embarrassed at how little I thought about what the loans I was taking out would *actually mean,* mathematically speaking. I did have enough common sense to only take out subsidized loans so when I used loan money to buy a latte, at least it wasn’t accumulating interest at that very moment. But STILL. Sigh. It’s weird; I’m super smart, right, and I’m not a “math person” but I certainly could have sat down and said “ok, you’re taking out $19K, that’ll mean you need to pay X a month in order to….” and I just never did that until I actually graduated. Human beings are strange, man. Anyway, I definitely agree with you about only taking out loans you absolutely must have to pay essential expenses and if I’m in a position to give advice in the future that’s one of the things on my list!

    1. The Govt changed the rules half way through my degree so what was mostly subsidized with a little unsubsidized turned into all unsubsidized. That hurt. Seeing the 1% origination fee plus instant interest charges was no fun at all.

      It’s pretty scary how much debt we are allowed to accumulate without having any knowledge of what is going on. Also, financial literacy is a funny thing to teach. It seems we only learn when we fail or when someone close to us fails. Hopefully, I’m close enough to someone so they can learn about this stuff without taking out a mountain of their own debt.

  2. Despite my student loan debt, I was extremely frugal in college. I only took out what I needed and used all of it towards my tuition, food and board. I worked part-time during college (freelancing and subbing later on) in addition to working during the summer. That ended up being my fun money (and I used some to pay loans in college).

  3. Kate,

    Even though University isn’t nearly as expensive over here as it is in the US, I was very deliberate about spending in school. Every summer I’d get a job to be able to afford my university lifestyle (parties were cheap, but lots of them do amount to a ton of money). On top of that I was lucky in that my parents payed for my housing and groceries, which I tried to keep as low as possible.

    Best six years of my life though, wouldn’t trade them for anything!

    Best wishes,
    NMW

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