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Financial Planning Tip August

As college students return to campus this time of year we are reminded of one of the biggest financial regrets people often have: too much college debt. Student loans are as common as mortgages these days, but should they be? We think not. One of our favorite maxims in financial planning is “be kind to your future self” and student debt is never kind. Young people graduate with enough debt to keep them paying well into middle age, taking away money that could go toward a house, retirement savings, even college for THEIR kids. People often delay saving money until they pay off their student loans, making retirement savings difficult or impossible. The average student debt payment is $5000 per year for 10 years. That same money invested in the stock market starting at age 23 would be worth more than $1 million by age 65. That’s a lot of money to give up.

There are many ways to attend college without debt (talk to us if you need some ideas). Yet college students rarely think critically about this debt because colleges do a great job of selling their wares. Somehow the message of “debt is OK” is now acceptable in a way that it wasn’t for earlier generations. Data show that college students earn 67% more than high school graduates, on average. Therefore, colleges argue, the $37,000 in debt that the average student graduates with is easily worth it. But that is the wrong comparison. Paying back debt means making sacrifices. That money is the down payment on a home, $5000 per year in retirement savings, or start-up costs for a business. It is also means sacrificing opportunities to do things that don’t have high starting salaries: teacher, musician, entrepreneur, or just traveling around the world with your backpack. Many indebted college grads are belatedly realizing that they can’t buy a house and won’t be able to retire till age 75. Don’t be among them. Get smart about paying for college before stepping into those ivy-covered halls.


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