Sunday, July 7, 2013

“E” IS FOR EDUCATION, SOMETHING POTENTIALLY INCREDIBLY EXCITING AND ELIMINATING DEBT

I was fully prepared to spend this entire blog entry on the topic of eliminating debt.  But a few days ago a friend sent me a Facebook link to a fascinating proposal and so…it got me thinking (again) about education.  This proposal is potentially incredibly exciting. 

So, once again, I hope you’ll indulge me as I start with the topic of Education and …something potentially incredibly Exciting. 

Education and something potentially incredibly Exciting
 

It all starts with the following headline “Plan would make tuition free at Ore. Colleges”.  That headline in and of itself is both intriguing and sounds a little like one of those “click here, hit the monkey and win a million dollars” kind of annoying pop-ups.  That’s pretty much what I thought when I saw the headline. 

But – being the curious person I am – I decided to actually read the article and several others, in an attempt to figure out if this was a bunch of B.S. hype or what. 

There may be a bit of hype in the news coverage, but as far as I can tell, it’s much more “or what” than any kind of B.S.  The following article has appeared in numerous online news links throughout the country.  I believe this topic is so important that I am providing both the website link and the complete article.
 

 

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“On college campuses across the United States, the eternal optimism of youth has been throttled out by a fear of crushing student debt. That’s certainly the case in Oregon, where the cost of tuition has soared as public funding for higher education has declined. 

But the state Legislature this week approved an idea that might ease the economic dread for future philosophy and art history majors. The concept — called Pay It Forward — calls for students to attend public universities tuition free and loan free. In exchange, students would have 3 percent deducted from their post-graduation paychecks for about a quarter-century. The money would go into a fund to pay for future students. 

The bill, which passed unanimously and is expected to be signed this month by Gov. John Kitzhaber, directs the state’s Higher Education Coordination Commission to develop a Pay It Forward pilot project for consideration by the 2015 Legislature. One question that must be resolved is how to fund the program’s start-up costs, estimated at $9 billion, since the initial students who attend tuition-free would be years away from entering the labor force. 

Though the timing was coincidental, the bill won final approval on Monday, the same day that federal student loan interest rates doubled from 3.4 percent to 6.8 percent.

“I feel as if the problem of student debt has reached a tipping point. It’s on legislators’ minds,” said state Rep. Michael Dembrow, D-Portland. “And I think it’s on legislators’ minds because it’s on their constituents’ minds. This is something we’re hearing a lot about — at the doorstep, through our polling, through our e-mail.” 

The Pay It Forward concept was originated by the Economic Opportunity Institute, a nonprofit policy group in Seattle, and is based in part on a model used in Australia. 

A classroom of students from Portland State University, along with the Oregon Working Families Party, successfully lobbied legislators. Supporters say the challenge is just beginning. They must ensure the commission comes up with a pilot program that helps students and clears the 2015 Legislature. 

“This is going to happen because students demand change; I believe that firmly,” said Steve Hughes, state director of the Oregon Working Families Party. “The conditions are just absolutely ripe for this. We’ve heard so many stories of student debt that are just beyond belief.”

If the plan does take effect, it would provide some relief to students who are unable to translate their degree into a decent-paying job. For example, a student whose adjusted gross income is $600,000 over a 24-year span would pay $18,000 for his or her four-year degree. A student who makes $2.5 million over that same timeframe would end up paying $75,000. Someone who makes nothing at all would contribute nothing to the fund. Someone who makes a billion would contribute an astronomical amount. 

“This is not a loan,” said John Burbank, executive director of the Economic Opportunity Institute. “You’re paying forward, essentially, so your contributions would enable the next generation of students the same free access.” 

Students who graduate from a two-year college would have 1.5 percent, instead of 3 percent, taken from their paychecks, according to the plan. Those who attend some college but fail to graduate would pay a pro-rated portion of their incomes. 

Oregon is the first state to take a step toward the Pay-It-Forward model. Burbank said other states, including Washington, Vermont, New York, Pennsylvania and Wisconsin, have expressed interest.”

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Wow…Wow and Wow!!! While this is very preliminary and nobody knows what the actual outcome will be, I am so excited that the topic of student loan and debt is being taken as seriously as it should be and…at least the Oregon legislature is entertaining a very innovative approach to higher education.   

To that I say “Kudos”.  I will be watching the progress of this very closely.  For more information, here is the website to the Oregon Working Families Party.
 

http://oregonwfp.org/issues/debt-free-higher-education/


Eliminating Debt

 
The Pay It Forward model would certainly provide a solution to eliminating student debt.  I’d like to concentrate on consumer debt (which can also be tied to student debt).  By consumer debt, what I mean is….credit card debt.  Swipe and forget about it debt, until the monthly statement comes in and you have to pay the minimum on your balance of upteen thousand dollars.
 
I’ve already discussed how we have eliminated (most of) our debt.  We pay off our credit card each and every month.  We’ve been doing that since the day we received our credit cards, many, many years ago.  So for us, it’s a habit and therefore it’s relatively easy for us.  AND – because we live this way, we DON’T have ANY consumer (credit card) debt.

It would be easy for me to say “Just do what we do.  Just pay off your balance each month.”  One, if you’ve never done this before, it maybe be very difficult to all of a sudden develop this new way of paying your bills.  But – aside from that, if you’ve always just paid off the minimum and if you use your credit card on a regular basis, like most Americans do, then most likely your credit card balance is quite high.
 

Current as of June 2013

U.S. household consumer debt profile:

  • Average credit card debt: $15,216
  • Average mortgage debt: $148,443
  • Average student loan debt: $32,054

http://www.nerdwallet.com/blog/credit-card-data/average-credit-card-debt-household/

 
I’ve already talked quite a lot about student loan debt, and I’m not going to get into mortgage debt right now.  Perhaps your credit card debt is lower, or perhaps it’s higher than the US household average.  Nonetheless, it’s probably high; much higher than it should be.
 
I know that this doesn’t sound like much fun at all (but I do guarantee that it is much more fun than living with so much debt and in the end…it WILL be much more fun), but I do want to stress what you can and what you SHOULD do to reduce your credit card debt  -- and eventually get to minimal debt.  You can do an internet search and get oodles of suggestions on what to do.  I’m guessing you already know what to do…and it’s just a matter of doing it.
 
Reducing or eliminating debt is a bit like exercising or starting a healthy diet plan.  We know it’s good for us, but starting it up and sticking with it (at first) is really challenging.  So, just like having an exercise goal or a weight-loss goal, you need to have a goal for your debt reduction/elimination plan.  You need to write it down in a conspicuous place and look at it each day:
 
“By such-and-such date, I will have “X” amount of my credit card debt paid off.”  Whatever kind of statement works for you.  It should be ambitious…but do-able.  Stop reading…and start writing.

Now that you have your goal, you have to figure out the steps to get there.  Let’s say you’ve given yourself six months to half your credit card debt (may that’s too ambitious, or maybe that’s do-able).  Now you back forecast so at the ½ point, or at 3-months you’re half way to your goal.
 
That part is easy…that part is just math.  The difficult part is the behavioral changes you need to make, in order for it to happen.  What kinds of behavioral changes?
 
1)      Stop using your credit card until you’ve reached your goal.  Yep, put it away in your underwear drawer.  You can still use your debit card – just not the credit card.  Say good-bye, have a going away party – whatever you need to do to separate yourself from your card.
 

2)      Next, you need to figure out how much extra (above your minimum balance) you will need to pay each month, to get to your goal.  In order to be able to free up the extra money to pay down your credit card balance, you may need to make adjustments to other areas of your spending. 
 

3)      You may recall that funny exercise I asked you to do where you collected receipts and took a close look at your weekly spending.  If you haven’t already done so – please go back and read that blog entry and do that exercise.  If you want to change your spending habits in order to free up funds to pay down your credit card.  If you don’t do this, you’re going to say “But I don’t have any extra money to pay down my credit card!”  To which I say, your job is to find ways to find the extra money….spend less or generate more…to pay down your debt.
 

4)      Don’t give up!  It will be difficult to change your spending habits and to pay down your debt.  Once you see your debt level start to drop, you will begin to feel really empowered.  Again, it’s a lot like starting a new exercise program or healthy diet plan.  It can be a real chore and a real bore sometimes…especially at the beginning when you don’t see instant results.
 

It isn’t easy to be discipline.  It isn’t easy to give up something  you are used to having…at least not at first.  But, it is worth it and at the end, when you’ve reduced your debt, it is an incredibly liberating feeling.  It is so worth it. 

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Next week, is “F”.  Frugal living.  This ties in nicely with eliminating debt.  What else is on your mind?  Any comments?
 
It's time for a disclaimer:

I’m not a financial planner, nor am I a business guru. What I am is a very practical person with (as my mother always said) “a good head on her shoulders”. I have good common sense and am old enough to trust my inner core and follow my instincts.

1 comment:

  1. It looks like a couple of the web links aren't working. You should be be able to copy and paste into your browser.

    ReplyDelete