Posted on 08/22/2012 3:49:59 AM PDT by Kaslin
Dear Dave,
I’ve been working the Baby Steps and doing a budget most months. But how does someone who is single stay motivated and focused with something like this? It feels sometimes like it would be easier if I had someone holding me accountable.
Rick
Dear Rick,
The first thing is to make sure you do a written budget each month. Not once in a while, not most months—every single month. If you don’t draw the out-of-bounds markers, there’s no way to know when you’ve stepped over the line, right? A monthly, written budget becomes your self-accountability tool, especially when you’re single.
Still, there’s nothing wrong with introducing a little accountability into your life. You don’t have to be married to be accountable to someone other than yourself. Ask a good friend or maybe even your pastor to have a look at your plan and see what they think. Just make sure this person is someone who knows a little something about money and finances.
Honestly though, Rick. I think doing the Baby Steps and following my plan can be easier for single people. Think about it this way: You don’t have to talk someone else into coming along for the ride. You also don’t have to come to an agreement with someone else on everything financial. All you have to do is get serious, look in the mirror, and say, “Quit being stupid with money!” In other words, you just have to do it.
Admittedly, you don’t have the built-in accountability in a singles situation. But on the other hand, you don’t have someone calling you a doofus when you mess up!
—Dave
Dear Dave,
My brother was killed earlier this year, and my mom is finalizing his estate. He had a couple of federally insured student loans through Sallie Mae totaling $8,000 at the time of his death, and the attorney probating the estate says mom now has to pay off those loans. Is that correct?
Callie
Dear Callie,
I’m so sorry to hear about your brother. But no, your lawyer is not correct. Payment for federally insured student loans is not due upon the borrower’s death. They are waived.
I’m going to give you two pieces of advice. The first is to fire your attorney. We’re talking about basic knowledge when it comes to probating an estate here. If he got that wrong there’s no telling what else he’s told you that’s off the mark.
Second, you can take care of this by sending a copy of the death certificate to Sallie Mae. I’ll warn you ahead of time that it may take a while to jump through all their hoops. I mean, you’re dealing with the federal government. They’re not exactly known for getting things right the first time. But once you’re declared permanently disabled or you pass away, federally insured student loans are discharged and not held against the estate. Don’t pay it!
—Dave
That’s the first thing I thought of. This attorney probably isn’t that stupid....mom probably cosigned.
So, it’s very simple. If you can’t afford that private college, don’t allow your child to attend that private college.
Now, I agree about the “punishing” part. As a responsible family with one child, the high school guidance department had meeting after meeting regarding financial aid. From the paperwork, we knew we would not be eligible. But, that’s not the point. My child could also not afford one of those “better private colleges”, so guess what? We didn’t even look at them. We looked at the schools we could afford and the schools with the curriculum we thought would match his goals. What a ridiculous strategy, huh?
What we SHOULD have done, the new American way, was to send him to the most expensive school in the country and then write the President a letter complaining that his entry level job won’t cover his student loans.
“... as a general proposition, financial aid policies at most schools are designed to actually punish responsible families.”
This is so true. Universities, whether private or public, have a voracious appetite for every penny you have, yet have no accountability for actually educating your child.
I am paying two kids tuition at the moment.
My sons university (public, local) announced plans to raise tuition nearly 10% last year. I complained - for all the obvious reasons. I got their budget, and I eventually met with the CFO.
He told me “Kids ‘demand’ the amenities” His biggest issue was another public university that stressed amenities over education - he literally stated “They are kicking our butt”
He indicated that they were sliding down SAT scores to get more students.
He blamed increasing tuition on state funding cutbacks - but I pointed out no obvious efforts to cut back on costs, regardless of funding sources. He accepts that regardless, state funding will not meaningfully rise in the future.
He indicated that he was going to be ‘forced’ to increasingly use Adjunct Professors rather than tenured/benefit consuming professors
I pointed out that “public private partnerships” for dorms were long-term drains on finances - and that I knew he was never going to repay them. I pointed out that administrative costs were not being controlled (He disagreed).
The interesting thing about looking at University budgets is that in reality all the money goes into one pot - Room, Board, Fees, Tuition....it’s a game to simply extract money from students and call it whatever necessary to get the money out of them.
This CFO realizes that he will not be able to raise tuition over a sustained period of time.
The bottom line: If you don’t want to drop your pants and show greedy university staff every asset and income source you have and have them punish you for being even semi-successful, (Look at the FAFSA form!) then you have to go it alone, like me and pay for your kids education - or let them slit their own throats and become a debt slave through student loans.
Acquiring student loan debt is the easiest path - deliberately so. It is the only way universities get to live to the next day. For how long can it continue? who knows...but not much longer according to one CFO.
I see a wave of disabilities in my crystal ball.
A wave???...for the past ten years ...it's a continuous tsunami...the recipients already call it 'crazy money'.
Discern most media legal ads...they are for processing SSI disability claims (i.e. drugs/obesity/depression/falsified injuries (back/neck/shoulder/leg/sight...)/can't get of bed/can't seem to mind/can't hold on to that man of mine...ok last three a stretch...maybe!)
Amazing that once an individual processes a claim...they receive funds (Federal Order). Then it's not until the SSI Hearings and Appeals judge renders a decision that the funds are made permanent or disallowed...quite the (DIS)incentive for the individual to show up /schedule / reschedule /reschedule / reschedule their hearing. Quite the ongoing scam.
Thanks for the 411. Is SSI mental impairment considered a permanent disability for the purpose of discharging a federally insured student loan? I mean, oncest in a while the crazy are cured. Knowing that there’s an 80K + interest loan waiting for you certainly provides a disincentive for gettin’ better.
Another issue would be prohibiting funds for being used to buy a car, take Spring Break trips or use for “enrichment” activities.
Because it's not their responsibility.
My parents (and my wife's also did the same) were quite firm that high school graduation marked the end of their assuming total responsibility for me. If I wanted college, "I" had to pull the wagon. They might throw some money into the wagon occasionally, but "I" had to provide the majority of it.
And by a combination of scholarships, student jobs, and "living within my means", I did precisely that. My wife wasn't as lucky scholarship-wise, but she worked summers in high school (and later in college), and paid her way through. She lived at home and commuted as an undergrad to save on expenses.
The Government needs to budget funds for an increase for investigators/examiners to pursue, to examine, to uncover these ever increasing entitlement scams. The Hearing's offices are simply too swamped to process the current workloard much less revisit previosu cases.
Have a brother-in-law diagnosed being Bipolar...received disability most of his life, but continues to work 'under the table'. But being Bipolar and taking your meds...one soon feels uplifted, great, normal...thus proceeding to quit taking meds...soon to fall under the depressive mode once again. Sometimes an unavoidable vicious cycle.
There are true needed cases for disability, but far too many are taking the easy way out and applying for the aforementioned 'crazy money'.
Note this little gem in there & then consider obamacare: “ I’ll warn you ahead of time that it may take a while to jump through all their hoops. I mean, you’re dealing with the federal government. They’re not exactly known for getting things right the first time.”
Dave Ramsey ping!
Thank you Kaslin for posting Dave’s articles and I am sorry I wasn’t very quick with the ping..
Dave Ramsey Ping!
“Why didn’t parents SAVE for their children’s education? “
Many people have little to save since the government taxes us half our incomes. Most people find even $10 a paycheck too much to put away and that is without spending anything. Let’s not forget we might not be talking just one kid to save for.
My parents had five kids and were military. There is no way on that paycheck could they have saved more than maybe one kid’s tuition at best.
Misleading headline.
“Don’t pay the loans” is here applied to a very narrow situation: death of the borrower. By law the loans expire when the debtor expires.
Persuade the kids to work hard, be flexible, and research options: cheap unto free education may be had if one seeks it. If you’re paying list price, you’re doing it wrong. Good inexpensive schools exist (if you’re willing to relocate), free money is available for all kinds of reasons, employers will often foot much/all of the bill, and a growing range of free online programs can help jumpstart that education.
And make sure the kid knows WHY s/he is spending time & money at university.
“If you’re paying list price, you’re doing it wrong. “
Without question that is true. So many pay way beyond their means or the paper’s worth because student loans became easy for anyone to get. There simply isn’t competition for quality education anymore.
He should have said “if your mom didn’t cosign them don’t pay them”.
Dave Ramsey has some good ideas (actually, he’s just spouting common sense but plenty of people need someone to do their thinking for them, apparently) but he’s a big blowhard and his legal advice, as it were, is usually wrong.
"Why didn’t parents SAVE for their children’s education?"
You gotta play the hand you're dealt. For most folks, between providing a decent living, paying taxes, saving for retirement, there already isn't enough money. Saving $200K to go to a private university, or even $100K for many public schools per child isn't in the cards.
I own my own business and am entirely responsible for: Both sides of payroll taxes; my own health insurance; my own health savings account contributions; my own disability and life insurance; my own retirement savings. For many years, I maxed out my retirement account contributions at 15% per year of my income. Between that and all the payroll and income taxes, health insurance premiums (which only became fully-deductible for the self-employed in the late 1990s), life insurance, disability insurance, etc., well, I was able to save a few bucks on the side, buy a nice house, keep a couple of decent cars in the garage, and send my kids to Catholic high school (we homeschooled through 8th grade, so we gave up hundreds of thousands of dollars in second income over the course of 10 years - best investment we ever made).
I had to prioritize my savings. After accumulating a little cash as a cushion, I first funded my retirement accounts. Did my best to max them out.
After that, I tried to save to make sure that we've always had a cash cushion, especially for tough times.
I never saved for my kids' college educations, and have nowhere near enough money in our general savings for them.
But I do have decent retirement account savings, and with a little luck, and recovery from the Obamadepression, my wife and I will retire comfortably.
From my own perspective, one should never put a dollar into a formal, tax-deferred college account or fund.
The key to what schools will charge you is not the official rate of tuition, room, board, etc., but your Estimated Family Contribution (EFC). Most schools try to charge a family no more than the EFC, or at least to try to get near to it. Some schools provide 100% of demonstrated need, meaning, you're only on the hook for your EFC. Some schools provide a smaller percentage of demonstrated need. The more prestigious a school, generally, the more generous the need-based aid.
So, the goal should be to minimize one’s EFC.
Each school has its own formula for EFC, but they all derive from the federal guidelines, which are based on data submitted through the FAFSA.
Your EFC will comprise several parts. First: A big chunk of your annual income. The more income you have, the bigger the chunk they look for. At the top end of the financial aid range, some schools are essentially adding to your EFC at a marginal rate of 35% - 40% of marginal dollars. Ouch. Next, approximately 5% of your general savings. But generally, unless you're well into seven figures, NOTHING of your retirement accounts. Next, 25% of formal, tax-deferred college accounts, and 25% of your kid's assets.
So, maxing out retirement accounts minimizes EFC.
Putting money into formal college savings accounts MAXIMIZES EFC.
Putting money into regular savings accounts or financial investments ahead of maxing out retirement accounts increases EFC.
No matter what you've saved or haven't saved, whether in college-specific accounts, retirement accounts, or the passbook account at your local bank, your EFC will be large enough that you will likely not have enough money, while your kids are in college, to continue to fund your retirement accounts. Unless you're rich or you live very frugally.
Thus, maxing out your retirement accounts will reduce your EFC, but it also makes sure that you will have had some chance to fund a decent retirement before your kids get to college.
I followed my own advice. I make a comfortable, upper middle class living. I have money in the bank as a cushion. I've done my best to max out retirement contributions, and have a modest retirement fund (more modest than it was a few years ago, LOL, but I'm hopeful it will recover before I retire).
I have no college-specific savings.
I don't have anywhere near enough money in savings to pay for my two sons to go to college without loans, except maybe at the local community college.
But my son applied to college last year (he's a freshman at his chosen school this year), and we filled out the FAFSA and all the supplemental forms asked for by each school. He was accepted to most of his schools, and received offers of financial aid or merit scholarships at all of them.
Because our EFC includes no contributions from savings, and only contributions from current income, and because my son chose the school with the most generous need-based financial aid package (although he turned down a full merit-based package at another school), I should be able to pay for my son's college education out of my current income, without any loans. And although I won't be contributing to my retirement accounts for some years (my other son is a high school junior, so he's up next), because I focused on saving there through my 30s and 40s, I should be okay.
If you have kids whom you think will eventually go off to college, you should fund retirement savings first, general savings next, college-account savings never.
sitetest
Thank you very much for that detailed explanation. I ran my own company until becoming an employee at a larger company recently. I maxed my SEP IRA then and I never opened a college saving account thinking there was hook.
My oldest is going to be a high school sophomore. I’m starting to look in earnest at how to approach college financing. Your post has given me a great leap forward!
Dear Incorrigible,
The post just scratches the surface of the topic, but I’m glad you found it helpful!
Thanks,
sitetest
This is what’s wrong in our country right now.
You can’t afford a 200K private school. You’re not alone, most can’t. So, here’s what you do. When your child starts visiting colleges, in that summer before their junior year, or during their junior year of high school, don’t visit the private schools. Visit the schools that are affordable in your own situation. Tell your child to *gasp* work during college, attend part time, or get a job after high school to save a little for college. There are just so many ways to have your children attend college. There’s also absolutely nothing wrong with community colleges.
If your child received a full ride at a school and didn’t take it, well, you’re in great shape. Attending college has become a political football with the democrats, telling people that they should attend the most prestigious university out there and don’t worry about those darned student loans, Obama will forgive them!
I just think that as parents, it’s up to US to teach our children responsibility. I still have little sympathy for parents who claim to have no savings for their children’s education, yet are running around with the latest iphone, acrylic nails and brand new cars in the driveway. It’s just priorities, but I do fear this country has lost its way.
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