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Succes Online Financial Education Newsletter

 

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College Degree: A good investment or a waste of money?

By Tanisha Warner, MMI Communications Manager

According to a study by The Pew Research Center, 75 percent of Americans think college is no longer affordable.  Over the past 25 years, tuition costs have increased more than 400 percent; much higher than regular inflation.  A student pursuing a bachelor's degree at an in-state four-year school and living on campus will need to budget more than $20,000 a year, according to CollegeBoard.com.  And that number is expected to continue to increase. 

(Source: InflationData.com)

So the question becomes – Is it worth it?

There is no arguing the cost of a college education – it is an expensive investment.  However, a college degree is still a big incentive and should be carefully considered.  More than 60 percent of professional jobs in American require a degree.  According to the Census Bureau, the average salary for a 25-year-old with a bachelor’s degree is $45,400, compared with $25,900 for a high school graduate.  Over an adult’s working life, someone with a B.A. earns an average of $2.1 million, compared with $1.2 million for high school graduates. Those with a master’s degree earned about $55,641, or $2.5 million over a lifetime. 

With the cost of education continuing to increase, it’s important for students to understand their options.  The following are a few important considerations when preparing to pay for college.   

Choose the right school.  According to a recent study by Princeton, there is a big misconception that a “good” school will earn a better return on your investment.  The study notes that for equally talented students, the choice of college does not award a long-term economic benefit. Ten to 20 years after graduation, the income level for a state university graduate is roughly equal to their Ivy League peers.

Look for scholarships. Scholarships are the best resources because essentially they offer free money.  There are several online sources to find great scholarships, such as FastWeb, FinAid, the College Board, and the Financial Aid Resource Center. These websites offer a variety of scholarships based on need, merit, academics, affiliations, and career aspirations.

Apply for federal grants. Grants are another great way to pay for college because it is also free money. To secure federal grants, complete the Free Application for Federal Student Aid (FAFSA).

Finally, consider student loans as a last resort. If you take out a student loan, opt for a subsidized loan. The government pays the interest on these loans until after graduation or the student is no longer in attendance.  For more information and resources regarding tuition cost and payment, visit FASFA.ed.gov.

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MMI offers tips for understanding the CARD Act

 

While only 10 percent of respondents in a recent Money Management International (MMI) Back to School survey believe students should use credit cards to finance college costs, many students get their first credit card while they are in college. In fact, 84 percent of undergraduates have at least one credit card, according to a 2009 Sallie Mae study of how undergraduate students use credit cards. Since the Credit Card Accountability Responsibility and Disclosure Act of 2009 (CARD Act) goes went effect, college students find it much harder to get credit.

The CARD Act establishes new provisions for extending credit to underage consumers:

  • Consumers under the age of 21 must have a cosigner or an independent means of repaying the debt (such as a job). Before the cardholder reaches age 21, the cosigner is required to approve any increase in the credit limit in writing.
  • Unsolicited, prescreened credit card offers to consumers under age 21 are banned by the CARD Act.
  • Credit card companies are no longer allowed to give away promotional items on or near college campuses or at college sponsored events. With permission from universities, credit card companies may still set up tables on campus, but may no longer give away freebies (t-shirts, hats, blankets, etc.) to entice students to sign up for credit cards.

The CARD Act takes measures to protect underage consumers, especially the undergraduate crowd.

MMI recommends the following tips to college students and their parents on the responsible use of credit.

  • Think before you cosign. Cosigning carries many risks because the primary borrower’s mistakes will end up on both signers’ credit reports. If you want to help your child build credit, first set some ground rules and discuss the responsible use of credit before you sign.
  • Students should take a lesson in personal finance. Many colleges are now offering classes in personal finance. These classes can be applied in the real world when it comes to making smart decisions about retirement, savings, and credit.
  • Check your credit report. Whether your credit is well established or you are just starting out, regularly ensuring your credit report is accurate and error-free is smart. Request your free credit report at annualcreditreport.com.

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About Money Management International

Money Management International (MMI) is a nonprofit, full-service credit counseling agency, providing confidential financial guidance, financial education, counseling, and debt management assistance to consumers since 1958. MMI helps consumers trim their expenses, develop a spending plan, and repay debts. Counseling is available by appointment in branch offices and 24 hours a day, 7 days a week by telephone and Internet. Services are available in English or Spanish. To learn more, call
866.530.9869 or visit MoneyManagement.org.

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