“I Ruined My Life Going to College…”

I picked up this Consumer Reports magazine last week. It’s the August 2016 issue.

consumer reports magazine

The yellow banner across the bottom reads…

“42 million people owe $1.3 trillion in student debt.”

The articles within the magazine paint a very ugly picture of what student loan debt can do to young adults. I purchased this magazine because my oldest daughter will be going through the college application process this fall and I want to do everything I can to help her avoid significant debt upon graduation.

However, as I read the stories of these people who are struggling with student loan debt and the impact it’s having in their lives, I started to realize this is a much BIGGER problem than I thought. As an example, the magazine highlights a few sad situations…

1. Jackie K. who borrowed $128,000, but owes $152,000 today. Her monthly payment is $1,200. She is 32 years old.

2. Jessie S. who borrowed $72,000, but owes $90,000 today. Her monthly payment is $900. She is 28 years old.

3. Vanessa M. who borrowed $67,000, but owes $73,000 today. Her monthly payment is $522. She is 29 years old. Even worse, she never graduated due to an illness. Imagine owing $73,000 for a college degree you never completed? Damn.

4. Saul N. who borrowed $10,000, but owes $23,000 today.

Many of these young adults owe more now than when they graduated. This is because their monthly payment doesn’t cover the interest due for the period. So the unpaid interest gets added to the outstanding loan balance. Imagine making monthly payments on your student loan for an entire year and owing more than when the year began? This means the amount of interest due the next year increases and their monthly payment increases. Jackie K. from above (the 32 year old) has a $1,200 monthly payment and still owes $152,000.

They’ll never get out of this ugly situation and this is because these loans cannot be discharged in bankruptcy. You can read more about this here.

In March of 2016, the Consumer Reports National Research Center did a survey to those with student loan debt. Here’s what they found:

– 45% of those with student loan debt said college was not worth the cost. (38% of those respondents didn’t graduate from college. They’re paying for a degree they never received.)
– 69% indicated they had trouble making loan payments.
– 78% earn less than $50,000 per year.
– 43% didn’t get any help from parents making financial aid decisions.

This BIG problem may actually be a BIG opportunity. The reason why I say this is because I honestly believe rental real estate is the SINGLE BEST WAY to pay for college. It is far better than any 529 college saving plan.

If you have a real estate license, you may be able to help families avoid this ugly situation by helping them buy rental real estate. The income from the real estate can help offset the student loans upon graduation. Last year, my daughter and I used a portion of her college savings to buy a single-family rental property. This property is “her” property. The income from the property will go towards her college expenses.

Upon her future college graduation, she will have a few options:

1. Sell the home and use the proceeds to pay off any outstanding student loan balances.
2. Keep the property as a rental and use the rental income to pay her monthly student loan payments.
3. Move into the property as her primary residence. This will eliminate a monthly house payment so she can easily afford any monthly student loan payment. Plus, she could rent a room, or two to her friends and use this income to pay her student loan payment.

We need to teach families how to do this for their children. It really is the best way to pay for college.

I also think we have an obligation as parents to help our kids avoid spiraling student loan debt. 43% of those surveyed indicated they didn’t have any help from their parents with financial aid decisions. Shame on those parents. They’ve set their kids up for a life of financial misery.

This doesn’t mean we need to run out and pay for everything ourselves. It means we have to teach our kids how use assets to pay for the things we want in life.

Don’t pay for college directly.
Buy an income producing asset and use the income produced to pay for college.

After reading this Consumer Reports and seeing the true magnitude of this problem, I’m starting to think this may be one of the best niches a real estate professional could specialize in with their businesses. Imagine how cool it would be to help families avoid crippling student loan debt? Talk about rewarding. I really am concerned about how ugly things are and how challenging life will be for those with large student loan balances. We can help families avoid this with their children.

Note: I’m curious to see if others have interest in this idea of helping parents use real estate to pay for college. Can you leave me a comment and let me know what you think. I won’t publish your comment, unless you say its okay. Just looking for your thoughts around this opportunity.

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