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forward to a friend. ______________________________________________________ This week's focus is education. ______________________________________________________ quote of the week: "Education is the passport to the future" - Malcolm X level 1: the big payback.
this is America: escaping those student loans. The cost of college jumped 68% over the last 10 years, so it's no surprise that student loan debt also doubled to over $1.5T during that same time. It has now surpassed all other forms of consumer debt, except mortgages.
Black college grads have $25K more in student debt than white grads, and black women have more student loan debt than any other group. This is a problem because college is the most reliable social mobility vehicle: college's influence on mobility out of poverty
source: Prof G / The Economist
Any debt can be uncomfortable, but the Fed backs most student loan debt. So, non-payment can have Uncle Sam dipping into your paycheck, tax refund, or more. In an extreme case, the feds sent a marshal to someone's door.
Remember, student loan debt doesn't die. It multiplies. And with 20% of all student loan borrowers in default, many are feeling the pain.
Here are strategies to manage student loan debt:
Refinance your student loans at a lower interest rate. You'll likely need a co-signer if you don't have a stable income or a 600+ credit score.
Use debt payoff hacks like paying over the monthly minimum, enrolling in autopay, and making bi-weekly payments to get ahead.
Join a company that offers student loan repayment assistance benefits.
The good news for loan-holders: On top of pausing loan payments interest-free until 2022, Biden plans to suspend payments for folk making under $25K, cap them at 5% of income for $25K+ earners, and forgive loans after 20 years.
If you've made it to the student loan-free promised land or are still working through it and want to set up your next-generation real proper-like, read on.
level 2: i got 5(29) on it.
don't you want your kids to be this happy with no student loans?
Unless you want to pay straight cash for school (not recommended), then you'll need to choose an education savings plan. The goal? Maximize every dollar you save through tax benefits and opportunities for long-term growth.
There are plenty of vehicles to choose from. Each has its unique tradeoffs, benefits, and drawbacks: 529 Savings or Prepaid Tuition Plans, Custodial Plans (UGTM /UTMA), Coverdell Plans, Savings Bonds, or Trusts.
Sound complex? Start by marinating on the following factors:
Contributions: what are the limits on putting money into the vehicle?
Tax breaks: what kind of tax savings will the vehicle give you?
Investment types: what will the vehicle allow you to invest in?
Uses: what can you use the money in the vehicle for?
Control issues: who controls the assets in the vehicle?
Financial aid: how does the vehicle impact eligibility for financial aid?
Once you're clear on the factors, check out this chart to compare the options. Of the options, we believe 529 Plans (for saving for college) and Crummey Trusts (for flexible wealth transfer to kids) stand out from the crowd.
We recommend you hit a financial advisor to use both 529 Plans and Crummey trusts (you don't have to choose just one) to save for college tax-efficiently while also setting up your kids with long-term financial stability.
level 3: money trees.
Superfund a 529: front-load five years (up to $75K or $150K for couples) of 529 contributions. Over time, that lump sum will generate more tax-free returns than if you were to invest the same amount via monthly payments.
Overfund a 529: put more money into a 529 than your kids need for college. You can later change the beneficiary to your unborn grandkids and fully leverage the power of compound interest for decades.
The system isn't exactly fair, and the wealthy work it to get their kids into the "best" schools ("best" is subjective, but using a school's ROI is a good start). Tips to hack the education system like the wealthy:
Be a major donor: You can go big like billionaires or strategize with more reasonable options to secure spots for your kids. For example, the price for preferential admissions at Stanford is rumored to be $500K.
Gravy is all about equitable systems and believes that practices like legacy admissions are unfair and need to change. But, if you can't beat the system, then play by its rules. Just don't go off the rails like these ladies.
Last point: with so much talk of traditional colleges becoming obsolete, it's worth asking: which colleges and degrees will be worth it? The below chart predicts which schools will thrive or perish in the future. Full analysis here.
us higher education: value vs vulnerability
source: prof g, us news & world reports.
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This content in this newsletter is intended for informational and educational purposes only and should not be construed as professional financial advice on any specific security or investment product. Should you need such advice, consult a licensed financial or tax advisor.
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