Credit And Debt

College Without Debt – Is It Possible?


With the cost of college rising every year, the possibility of attending college without debt is starting to seem like a fantasy.

But given the harsh realities of carrying large amounts of debt after graduation, every effort needs to be made in order to keep student loan debt to an absolute minimum.

The Big Picture Problem of Student Loan Debt

The student loan debt issue is rapidly becoming a national crisis.

Not only are high levels of student debt interfering with the financial progress of college graduates, but the evidence is beginning to mount that it’s also taking a toll on the whole economy.

According to a Wall Street Journal article, Congratulations to Class of 2014, Most Indebted Ever, the following debt statistics apply to the college class of 2014:

  • In 2014, the average college graduate owed $33,000 in student loans.
  • That’s more than double the average graduate’s debt 20 years ago (adjusted for inflation).
  • 70 percent of all bachelor’s degree graduates have at least some student loan debt – compared to less than 50% in 1994.
  • Among graduate-school students (Masters and PhDs), 15% graduate with more than $100,000 in student loan debt. This means that some of the most highly trained people in America are also among the most indebted.

Other Disturbing Findings:

  • Young adults in America (aged 39 and under) now have a collective student loan balance of more than $700 billion.
  • More than half of all student-loan borrowers are now delinquent in their payments, and borrowers who left school in back in 2005 have paid down just 38% of their debt. 10 years after graduation they should have paid down something close to 90%.
  • Earnings imbalance – from 2005 to 2012, average student loan debt has increased 35%, adjusting for inflation, while the median salary has actually dropped by 2.2%.

Even worse, new student loan records are being set each year, by virtually every successive graduating class. These debts have a negative impact on career choices, quality of life, and graduate’s ability to own a home.

Minimizing The Damage From Student Loan Debt

Given the high cost of a college education, some reliance on student loan debt may be unavoidable. But at the same time, every effort should be made to minimize the amount of debt that the student will carry upon graduation.

Here Are Some Strategies:

Community Colleges. Most areas of the country are served by a network of community colleges. Freshman and sophomore years can typically be completed at these institutions. Total costs are generally below $20,000 for a two-year program. The overall cost of a four-year education can be reduced dramatically if the student attends a community college for the first two years.

Public In-State Colleges. Completing your education at a public in-state college can generally be done for half (or less) of what it will cost to attend either a private college, or an out-of-state public university.

Save Money in Advance. The rapid rise in the cost of higher education should make saving money for college a strong priority. Fortunately, there are various ways to do this, including:

  • 529 Plans – These are tax-sheltered savings plans operated by individual states and universities that make it easier to save money for college. They’re something like a Roth IRA in that contributions are not tax deductible, but investment earnings are not subject to federal or state income taxes as long as the money is used in connection with higher education.
  • Coverdell Education Savings Account – These are similar to 529 plans in terms of tax treatment, but annual contributions are limited to $2,000 per year. But since they are not state specific, you have many more investment options.
  • UTMA’s – The Uniform Transfers to Minors Act is an extension of the Uniform Gift to Minors Act (UMGA) that provides for building tax-advantaged savings for minors.

What ever plan you choose, it’s important to establish some sort of savings/investment plan to accumulate money that will reduce reliance on student loans.

Adopt Some Version Of Work/Study.

While the preference may be for a student to attend college without working – in order to devote 100% of his or her time to studies – it may no longer be practical, given the current college cost structure. Working during the summers may be a way to save up money toward tuition, books, and fees. Working part-time during the school year may offer a strategy for reducing at-school living expenses.

It may be necessary to combine several of these strategies in order to minimize the amount of student loan debt that will be needed in order to complete a degree program.

“Diplomas Without Debt”

One investment firm – FutureAdvisor – has decided to specifically take aim at the student loan debt crisis. FutureAdvisor’s College Savings Plan tool, Diplomas without Debt, offers various savings programs that will help aspiring college students and their families save at least part of the money that will be needed to pay for higher education.

They believe that every kid in America deserves a shot at higher education, without being financially crippled for decades.

FutureAdvisor is an internet-based investment platform that automatically manages your portfolio for you. It provides direct management of your investment accounts for you, using modern portfolio theory, or MPT (this is an investment strategy that emphasizes asset allocation over specific investment selection). Your portfolio is comprised of low fee index funds, and includes automatic rebalancing, and tax harvesting in taxable investment accounts.

Tax-Deferred And Tax-Advantaged College Accounts.

For parents who want to save money for their children’s education, FutureAdvisor offers the full range of education related investment accounts, including 529 plans, ESA’s, and UTMA’s as described earlier. Some of these accounts are tax-deferred, while the ones that aren’t can be set up as tax advantaged. Either way, your college savings investment returns will be higher as a result of the strategies used by FutureAdvisor.

No Management Fee.

FutureAdvisor offers accounts with no management fee. This will not only save you money, but it will increase your effective rate of return on investment, and allow for a more rapid buildup of an account’s value.

And though there are fees associated with investment transactions and fees within individual funds, FutureAdvisor keeps these to a minimum through use of the lowest cost investments available.

Help In Choosing The Right Mix Of Accounts.

FutureAdvisor helps you come up with the best strategy to invest in college-related investment programs. There are different programs, and different rules and limits attached to each. This can be extremely confusing if you’re trying to go it alone. But FutureAdvisor will help you to sort it out, and they will do it for free.

Whatever type of account you choose to use for your children’s college education, it’s important to get started as soon as possible. By saving steadily and methodically – using the most tax advantaged accounts – you will have the best chance of maximizing your investment account value. This kind of investment strategy will help your children go to college without incurring debt – or at least a lot less than would be the case otherwise. But since kids grow up so quickly, you need to get started as soon as possible. The sooner that you do, the more money that you will have saved, and the less debt your kids will have on graduation.