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Are colleges and universities pricing themselves out of the market? There is more to consider than just tuition, room and board.

Cost of 4 Year Degree Over $900,000

October
07
2013

DegreeI was doing a seminar and a young lady approached me in tears. She explained that she was about to graduate with an advanced degree in psychology. She was the first person in her family to ever attain anything higher than a high school diploma, and her family was very proud of her and had encouraged her every step of the way. Obviously, since these were not tears of joy, I was intrigued and had to probe just a bit deeper. She then explained that she had over $100,000 in student loans and was quickly coming to the realization that her education had narrowed so much that it was virtually impossible to find a job in her specific field. Quite frankly, she was at the point where she saw her future as very bleak and possibly in a hole she felt unable to climb out of.

The $100,000 debt is really just the tip of the iceberg. In reality, this young woman is in a much deeper hole than she realized. Don't worry—I didn't share that with her at the time. I can only handle so many tears at one time.

Recently I was preparing for a series I would be teaching that touched on student loans and came across this article written by Jack Hough and published by MSNMoney.com. It is an eye-opening article that I encourage you to read in its entirety. There are a number of charts and a whole bunch of numbers, but in summary here is what Mr. Hough said. He compares two hypothetical men (Bill and Ernie) on their financial journey from high school to retirement. While in high school they both saved $16,594 for college by working summers. (Good for them!)

However, their paths differ at this point since Bill goes to college and uses the $16,594 to pay for part of his four years of college. Since Ernie is not accepted at his favorite college, he continues to work without a college degree and takes the $16,594 and invests it in the stock market in mutual funds that track the broader stock market averages. Ernie never does go to college and he continues to work until he retires at 65, adding 5% of his income each year to the $16,594 he had saved for college. When Ernie reaches 65 he has over $1.3 million dollars in his retirement account.

Bill, on the other hand, has a normal college experience which includes working, getting a few grants and receiving some help from his parents to pay for his education. But at the end of four years he has $17,450 in school loans (which is less than the national average). Bill, like Ernie, is a hard worker and is now making more money than Ernie. However, for 12 years Bill will need to take 5% of his income and pay off his student loans before beginning to build his retirement account. After 12 years of paying off his student loans he will then use the 5% of his income (like Ernie) to build his retirement nest egg.

As a result of starting later than Ernie with nothing in the bank and the need to pay off his student loans first, the net result is Bill will end up with less than $400,000 in his retirement account when he reaches 65. This takes into account that Bill will be making more money because he has a degree. Bill's $400,000 retirement account is about $900,000 less than Ernie's $1.3 million.

The Bible is clear in that, although not a sin, debt is very much discouraged. (Read Debt is not a sin!) The cost of college is spiraling out of control to the point that in many cases it does not make economic sense. There are many advantages to college other than the education, but please prayfully consider all options—especially the ramifications of college loans—before making the decision to attend college or to send a child to college.

The Bible is full of wisdom, and even when it does not match up with the world's wisdom it is the only option we as believers have to follow. Be very careful of all debt, including student loans.

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