After completing the prior podcast and discussing with the community, it became very apparent that not all parents can afford to help their children through college.  Many parents struggle to pay rent and keep food on the table and often times families can lose housing benefits when a child turns 18, so for many families providing room and board for the student isn’t possible, even though I’ve yet to meet a parent that doesn’t want to help.  For those individuals that also carry a family responsibility to bring in money to support others in their family, this is a great struggle and there are no easy answers.  It may be necessary to take on some small amounts of debt in this situation to contribute to the family responsibility so that a college education does not take more years to complete.  However, paying some rent and food bill to help the family but being able to be supported also has a lot of benefits.

Inherent in the decision to pursue a further education is opportunity cost.  Opportunity cost  is the money that you would make if, instead of going to school and studying, you took on a full time job.  For many students who do not work, this can be $20,000 ($10/hour) to $30,000 ($15/hour) a year in lost earnings.  For those that do need to work to support themselves, this likely means it will take longer to graduate than preferred, but there is nothing wrong with taking a little more time, as long as it doesn’t mean more debt. 

Trying to figure out how to balance making money to pay for all of your living expenses is difficult, which is why so many students resort to student loans, but here we will look at some fundamental ideas to help when family support is not available.

First, you might want to consider other options than going to straight to school that can help pay your bills and then pay for school.  The US Armed Forces has excellent benefits if you are willing to serve for four years and receive an honorable discharge.  Your state national guard can also provide an additional revenue source and tuition reimbursement.  The military is also a good place to land for young adults who don’t’ know what they want to do but need to leave home immediately.  While a gap year can also be a good idea to find a job with an employer that has tuition reimbursement.

Also, remember, Starbucks will pay for all of your education if you can get into Arizona State University online.  This would allow you to live almost anywhere (hard to find a place without a Starbucks), so you could find a place to live with friends and worst case, take out a small amount of debt to help pay for living expenses so you can complete your degree faster.

If your family can provide you no support then most people would assume that you would qualify for financial aid (not loans – that’s not aid), but we are not going to take that approach.  Any student aid you can get is a bonus, as are scholarships, so let’s try to hack this system for someone on their own trying to get a four-year degree.  What we will assume is that your parents will not claim you and therefore you will be eligible for Medicaid, so you should have no medical bills while in school.

The most important decision you’re going to make in this circumstance is where to go to school.  We have already discussed the idea that where you go to school is not as important as finishing with low debt, so the cost is our primary concern.  Preferably, you will choose a place with low cost of living and a community college and university in the same town, but moving between a community college in a low cost place to a university in a low cost place is also acceptable, it may make a few things more difficult logistically with finding roommates but it can be done.

What also needs to be considered before you choose a location and school is the job opportunities available that have tuition reimbursement.  This will be a key component to affording tuition while paying for your room and board.

Below is the budget we used to estimate monthly spending needs after school.  During school, you need to limit those expenses as much as possible.  The biggest places to save:  rent by having multiple roommates and eliminate car, gas and insurance if that is possible, though we understand that would be difficult with a job.   

   Adult Expenses                                                    College student expenses

Rent              $  900.00                                    Rent                            500.00

Utilities           150.00                                    Utilities                         75.00

Car & Gas     400.00                                 Car & Gas                   250.00    

Car Insurance   100.00                                     Car insurance            100.00

Cell Phone           80.00                                      Cell phone                   50.00

 Food                400.00                                    Food                            400.00

Entertainment   200.00                                    Entertainment            50.00

Clothing               100.00                                    Clothing                        $    50.00

 Total Monthly Bills    2,330.00                       Total Monthly Bills      $  1,475.00

 

To be able to pay bills of almost $1,500 per month, you’re going to need to earn about $1,800 a month.  Breaking that down at $15/hour that is 120 hours per month, or 30 hours per week.  That’s a lot of work to do and go to school, which is why many community college students take 3-4 years to get their Associates Degree. 

Let’s discuss a few things that you must do to help yourself reduce the overall cost of your living expenses while you go to school.

1.     Choose a low cost of living place to go to community college that also has employers with tuition reimbursement.

2.     Get a roommate.  Your largest expense in life is almost always housing

3.     Keep your car costs as low as possible.  Likely the best way to do that is to lease a car, that way you don’t have to worry about repair bills and you can get to work and school without worry.  Here’s an example of where you could find deals. Do your homework and it will pay off.

Because they currently offer the best tuition reimbursement plan, I’m going to show how I would make this decision on where to go to school using some basic research tools and choosing my preferred employer as UPS.  A quick look at the UPS website and not only do they let you search by state for jobs with tuition reimbursement, they also have another program if you’re willing to move to Louisville, Kentucky and work the graveyard shift in their Next Day Air hub.  This makes sense to me, UPS needs to retain employees to provide their service to customers and they are offering tuition reimbursement to keep employees longer.

I don’t want to say problem solved, but this is a great start.  Assuming I don’t want to move to Louisville, lets look at other options.  North Carolina has positions available for Greensboro (UNC Greensboro is affordable) and Charlotte (UNC Charlotte is also affordable).  The other locations have more expensive schools that would require too much debt.

Using UPS for a baseline, and choosing a school with a lower cost of tuition will allow you to graduate with the lowest amount of debt.  Maybe not zero, but low.  Lets see how the math works out:

Average wage for a UPS handler is $12/hour.

You won’t want to work much more than 20 hours per week during school.  So from September through April you will average 80 hours per month.  From May – August you can work full time, and this should be available as this is also typically when UPS hires part time workers to supplement while their long time employees take vacation.  You will probably need to work more in December to keep the boss happy with all the Santa Clause orders from Amazon, but we won’t include those.  

Earnings: Sept – April – 80 hours per month = $960 – less some taxes – take home of about $775.

Earnings: May – August – 160 hours per month = $1920 – less taxes – take home of about $1,536.

Total annual take home pay of about $12,344. (8 x 775 + 4 x 1536)

Total cost of living requirement = $18,000 ($1,500 x 12)

Difference in earnings versus cost of living requirements = $5,600.

 

So worst case, you have to borrow the difference to live and you graduate with about $23,000 of debt.  I don’t like it, but having to do it all on your own, this would be acceptable to me.  But remember, this is worst case scenario.  Under the assumption that you will be in school for 4 years – 48 months, anything you can do to reduce you cost of living will directly reduce your debt load.  Let’s look at our expenses we could potentially reduce, namely rent and car expense.

Current rent is at $500/month.  If you can reduce that to only $400, you will save almost $5,000 in debt over your 4 years of school. 

Car expense is $200/month ($50 is for gas) for a total of $9,600.  I take back what I said about a lease being a good deal, its really just an easy option.  Instead, you get a student car, which means a roller skate with wheels that costs about $4,000.  With interest and few dollars set aside for repairs, that should save you about another $5,000.

Food budget – I’ve come up with a Costco meal plan that should have you eating good and saving money.  Assuming you have a Costco or Sam’s Club you can access, you can reduce your monthly food bill to $250/month from our budget of $400/month.  That $150/month savings translates into an additional savings of over $7,000. 

So now we are down to $6,000 of student loan debt.  That’s a very manageable amount of debt and would result in a monthly payment of about $50/month for 20 years.  But the better idea would be to keep your expenses low when you get your better paying job and pay off the debt as soon as possible.