The Deep Value of Useless Things

Posted on August 6, 2019August 6, 2019 by Danielle

At the risk of sounding like an aging baby boomer (oops, that is me), I want to put in a pitch to value highly those things that aren’t worth much. So here’s why everyone else is wrong.

A liberal arts or humanities major

There are an awful lot of parents these days who have a seizure if their progeny announce they are majoring in English or worse yet, French literature, art history, or history. This is close on the heels of recovery from the previous seizure when they saw the tuition bill. In the instant mental computation available to every check writing parent, we now know the degree will be worthless and the kid will be decorating cappuccino cups as their highest creative achievement. Particularly for female students, they’ll also feel as if they’ve betrayed feminism if they don’t major in a STEM field. In fact, tell people about a liberal arts major and they’ll immediately feel sorry for you (or your pathetic kid).

Once upon a time I majored in Sociology and minored in creative writing/English. Then I took COBOL and FORTRAN programming. Guess which choice has been more useful to my career, as well as my life? If you guessed computer skills, you’d be wrong. I haven’t made a penny off my computer skills. Technical knowledge quickly becomes defunct, A lot of specific, functional expertise can be gotten off YouTube (how do YOU do home repairs?). You can take an adult ed program or concentrated seminar for specific skills you discover you need.

On the other hand, it’s almost impossible as an adult to get concentrated time over an extended period to immerse yourself in culture, beauty, and deep background. College is very likely the only time in your life when you’ll have such an opportunity. I would have been very disappointed if my already-cosmopolitan daughter had selected some technical training field with the purpose of paying to become corporate cannon fodder at graduation.

Yes, of course we all have to work, and if your heart is in computer science, go for it. But, for most people I think not. At the music camp I just attended, instructor Kevin Carroll (a better musician and teacher than I can ever hope to be) commented that once upon a time everyone wanted to and thought they could be a rock star, and sales of electric guitars boomed. In these times, electric guitar sales have crashed. Now everyone wants to be an app developer or tech billionaire, or just play video games. Is it love, or is it the promise of instant riches? Why do the worst jobs have the best cafeterias? I wanted dearest daughter to keep her eyes on the prize—she needed to become employable at some point and probably no one hires a BA Anthropologist to do anthropology—but she isn’t a dope so she figured that one out for herself. In the meantime she learned a lot about group process, creating alternative solutions to unfamiliar tasks, and read a ton of good books which she thankfully sent home to educate her mom properly.

Playing music with no intention (or hope) of becoming a professional

An orchestra director once lamented to me that his extremely talented students, the ones whose parents were tigers, graduated and went into (pick one) engineering, computer science, or statistics because the parents felt that the only degree worth getting was one that offered instant employment, and music sure wasn’t that. But awards look good on college applications.

I’ll admit I have mixed feelings about performance majors at conservatories, not because of the near-impossibility of finding a job in the field, but because the education is so thin in any other topic. But what a supreme pleasure to play at that level. And I dearly wish I saw those same kids, or their parents, in the audience at musical events. They seem to disappear once the admission letter arrives.

I’m focusing on music here, but I could probably say the same thing about art, or creative writing, or even languages. They are all or individually worth doing because of the immense pleasure and satisfaction they bring to your life, not your work. I’ve enjoyed an obsession with music—guitar, piano, ukulele, dulcimer, Native American flute—for most of my life. I play everyone of them badly, but all I have to do is catch sight of one of my instruments from the corner of my eye to feel happy. I almost never play in front of anyone, nor do I feel I need to.

At times, being able to play or do art has been the only thing that saved my sanity in the large variety of horrible jobs I’ve wended my way through in life. I highly recommend it—and it’s often cheaper than all the stress coping activities that attempt to accustom you to a life with no other relief.

Crafts and hobbies

What I say about music and art goes just as well with crafts and hobbies, although making something may have even more empowerment than replicating someone else’s work. Carpentry, sewing, cooking, rebuilding classic cars, all these things give you control over aspects of your life that hiring someone else never does. There’s the pleasure of mastering the techniques, the lifelong opportunity to improve the technique, and the ability to have something custom, well crafted, and utterly your own.

For example, I make almost all my own clothing, (and much of my jewelry) and have done so since I was about 12 years old. No one ever asks me if I made “xyz”. I like to think it’s because what I make is so expert they’d never think it was “homemade” (I prefer “handmade”), but my strong suspicion is that no one, anymore, recognizes that objects could be handmade unless they come from Ten Thousand Villages.

If you’ve been in my office you’ve seen the stunningly beautiful Mission style “throne” that a friend made for me. He’s organized his professional work so that he can have Fridays for his beloved craft.

Some crafts—knitting, cooking—are relatively easy to learn to a competent degree. Others take years—sewing, carpentry—to reach even a medium level of expertise. How wonderful to be interested in something where there is always more to learn.

Back to sewing—as with most crafts, no, it doesn’t save any money with the cost of fabric and the time spent. And, thanks to cheap clothing available everywhere, there’s no real possibility of making finely-made, quality-fabric garments and realizing any money selling them. But oh, the satisfaction, not only in the finished project but in the pleasure of the activity itself!

Less cash, more human interaction

Just about every night we walk our dog past a house in the neighborhood where we see a family sitting in their expensive house, in front of their bay window, eating out of boxes. I wonder how hard and long they work to pay for those boxes because earning enough to do so means they don’t have time to cook. They are well and truly trapped on the treadmill.

I love that we can learn so many things online (it’s how I learned to crochet), but maybe, just maybe, we could spend time with our kids, or an older relative, getting the fine-tuning that interaction with another human offers. But that would mean we’d have to take some time off the moving sidewalk. Maybe then, we could think not of enduring “getting older” but call it living longer (with so much worthwhile to do).

Financial planning for college: should you bother saving?

Posted on July 9, 2019July 9, 2019 by Danielle

Nobody wants to pay for something, then watch someone less deserving who gets it for free. A dear friend recently raised this situation: are you a sucker for saving, while somebody else spends freely and their kid gets more money from a college?

I’ll give a very qualified yes to this—there are a few situations where it doesn’t pay (very much, at least) to save for college. Let’s say you make under $75,000 a year and have no investments beyond retirement accounts. Your family probably will qualify for some serious financial aid, and would get less if you saved into a 529 plan. But I really question how much a family would be able to save on that income, and if they can, they should be pouring it into their 401k and a Roth IRA. Can a family making $75,000 a year really manage to save more than $25,000 (the maximum into these accounts)? I seriously doubt it.

If your child doesn’t finish school or joins the military instead, you might have done better saving into your own accounts.

That’s it. That other family of merry spenders who got so much more than you? Did you see the award letter? Because lots of people lie. Especially people like to “reinvent” things in the best light possible—that “aid” might have actually been in the form of a subsidized loan, or the “free ride” might have been a waiver of tuition or some small amount of “scholarship” aid. If it was a state public school, and they are remotely middle class, it’s all going to be loans. If it’s a private school, it’s probably still some loans, or they have financial issues you don’t know about, or the school competes with publics by bringing the cost of attendance down to approximately what a state uni would have cost. Cost of attendance is the important number: what it actually costs to spend a year at the school, including tuition, dorm, food, books (can be a whopper), fees, etc. Add in transportation, moving the kid’s belongings back and forth or in storage, and the inevitable dorm refrigerator (not included in the school’s website estimates).

For nine years now, I’ve challenged anyone to tell me about somebody they know first-hand, who had family income over $100k, who’s child got all costs of attendance covered with no loans, for 4 years (athletic scholarships not included). I’ve yet to have someone come up with that family, but I’m still interested. It’s always 3rd hand, or a one-year fellowship (usually after the kid is already at the school), or tuition only.

It’s easier for a college to waive tuition than it is to cover the full cost. Why? Because tuition just requires paying professors and administrators, and those costs can be averaged onto other people. You can always stick a few more people into a given class. But coming up with an actual dorm bed, feeding the kid, and providing books actually costs money. Those “free rides” you hear about that go to low income families are usually free tuition, and then a loan package for living costs—and living costs are often the whopper.

But let’s say you have family earnings of $76K-150K, and maybe even another kid who will be in college at the same time. You might qualify for some aid. What if you were really careful and managed to amass $100,000 in a 529 college savings account? At worst, about $5,000 of that would be considered “available” each year for all your kids in college. (Same for parents’ non-retirement investments). Sadly, a reduction in aid of $5,000 is real money, but compared to the total cost of attendance, it’s a drop in the bucket. But having $25,000 available each year is going to make some serious difference to your child’s options and future indebtedness.

Remember, many colleges do not cover all demonstrated financial need. They’ll give you something, but sorry Charlie if you can’t scare up the rest—I’m not sure how they can assume you’ve been honest about your finances, then expect you to come up with more. Or maybe they just don’t care because there’s somebody right behind you on the waiting list.
Some schools have grandly announced that they’ll cover all need for families making under $XX a year. Note that that does not necessarily mean free—it only means they’ll cover the gap (as they calculate it) with aid rather than loans. For example, the University of Chicago says that if you make under $125K, they’ll cover tuition. But you have to make under $60K for them to cover the entire cost of attendance ($83,760 according to the school, compared to Northwestern’s $78,654).

But here’s the hitch—the kid has to get in, and any school that announces that will suddenly see an enormous jump in their applications, so your kid has even less chance of getting in than previously. I’d genuinely like to know how many kids attend who actually receive the full ride. Does anyone seriously believe that they will fill their class by allegedly need-blind selection, and then just randomly discover that they have to cough up more money from their endowments from all the kids they just admitted? I think I hear the sound of one hand clapping.

The exceptions to this are two: your kid is a world class athlete and gets an athletic scholarship that includes living expense, or your kid is a nationally desirable scholar (think published a novel, won the Davidson or Intel, has ground breaking published research or inventions) and is willing to go somewhere lesser than the ivy league. If your kid will outrank (grades + test scores + other achievements) 90% of that school’s current population, they might be willing to ante up something to entice them to come—but you should check that the guarantee is for more than one year.
Saving for the kid’s college means they won’t be burdened with very heavy debt incurred for living expenses, books, getting home for holidays, and every other surprising thing it actually costs to go to college.

BTW, if your child does get significant merit scholarship aid, you can withdraw the amount from the 529 penalty free. Or you can just leave it alone, because there’s always grad school…

How do people rack up those huge college loans?

Posted on November 9, 2018November 9, 2018 by Danielle

Recently over lunch and some very good small batch cider, a colleague asked me, How on earth do people rack up these big loans when there’s a limit on federal loans? It was a very good question: I’ve seen some humongous student loan debt, but I decided to go back over client profiles to really check out where it all came from.

First, some basics; as an undergraduate, you have six options for borrowing to pay the cost of attendance:

Direct Subsidized Loans

These are available for undergraduates who can demonstrate financial need. The borrowing limit on these is $3,500 freshman year; $4,500 sophomore year; and $5,500 for junior year and beyond. So, in four years you could borrow $19,000, and theoretically if your program is 4 years, you can borrow up to 6 years if it takes you that long: $30,000.

Direct Unsubsidized Loans

$5,500/$6,500/$7,500. If you’ve qualified for subsidized loans, these are the upper limits for total amounts. So if you qualified for $3,500 in subsidized loans in freshman year, you could borrow another $2,000 in unsubsidized loans. If you couldn’t qualify, you could borrow $5,500. So the total in four years would be $27,000; take 6 years and the total limit is $31,000.

This level of borrowing is where I’d encourage a full stop. With most bachelor’s degrees, you need to keep a sharp eye on your likely first year salary, and that’s the standard for the limit I recommend borrowing.

Find the definitive word on federal student loans here.

Some schools have a loan program. This is much more rare for undergraduates, and limits can vary.

PLUS loans. These are available to parents of dependent undergraduate students, and directly to graduate students. The maximum is the cost of attendance, and here’s where we get into the whopper amounts—we’re talking not only tuition, but also fees, room and board, and books and equipment. The undergraduate cost of attendance at Northwestern University for 2018-2019 was $75,753. If it doesn’t go up a penny for your four undergraduate years (unlikely) you and your parents could end up owing $303,012 and I guarantee no first year job is going to offer you that salary.

Parents should think long and hard before taking these loans, and in my view almost NEVER should. What if the student drops out? Gets really ill? Goes biking around the world to find themselves? Has a major car accident? Huge investment down the drain, and it happens all the time.

Private loans. Think a long, long time before you take these. They generally appeal to people whose parents’ credit is so bad they can’t qualify for a PLUS loan, and sometimes entice borrowers by offering variable interest rates—low at first, but then watch out. Be sure you understand repayment terms and when repayment begins—sometimes, immediately.

Home equity loans. Parents (and very occasionally, older students) may be able to borrow against home equity. With the new tax laws, these loans are probably no longer deductible. Don’t, just don’t.

So we can immediately see the real dilemma—if you don’t have savings, you’re in real trouble. If family income is really low, then you should get aid. I’d recommend choosing a college primarily on that factor—how much are they offering you? On the flip side, if you have high income but no savings, you ought to be able to pay from current income, but again college choice should be pragmatic, and you should be looking at a public college unless you can wrangle some kind of merit aid from a private school (not likely, but possible at some schools). Many schools now have a policy that aid is 100% needs based. That may or may not be actual practice. Private school aid always involves “professional judgment” from the financial aid office.

Now let’s look at the most common ways you can accumulate crippling debt.

Borrowing for living expenses

This can really run up the bill. Anyone who needs to borrow money should be choosing the least expensive living accommodations. Usually, that means the dorm. Sure, rent may be cheaper at first glance, but you also have utilities, internet, food (and you’ll end up eating out more often), maybe more transportation, security deposit; be sure you figure all costs that would be provided by the dorm.

If at all possible, a student should have a job. Research has said that the student who works 10 hours a week is better organized and often does better academically than the student who doesn’t work, or works too much.

The real problem with mounting living expenses is someone who is ill, has non-covered medical needs, or whose program is too demanding (usually grad school) to work. As an undergrad, this should definitely be raised with financial aid for “professional judgment”. Grad schools don’t care.

Choosing an expensive school

If you have to borrow more for 4 years than you can earn in the first year of employment, choose a cheaper school. Pretty much no exceptions. Most BA degrees don’t buy you huge salaries, so you don’t want to shoot your whole financial future on just a BA.

The three most important factors are who you are, where your last degree is from, and (if the field requires it) what professional certification you earn. Do you really care if a neurosurgeon got their BA from State U? Many, many CEOs and inventors have graduated from public universities.

Choosing an expensive graduate program

If it’s a professional program, you should know what the employability of the field is. If there’s a public option, take it.

If it’s an academic discipline, and they’re not paying for you, they don’t want you. Employment from graduate programs is abysmal, and statistically you’re not going to get a job as a professor without some extraordinary achievement or other practical experience that sets you apart.

Too many people stay with school because they don’t know what else to do. You’re paying for the privilege.

On the other hand, if you borrow $300,000 and walk out into a job that pays you $150K with a $200K bonus (okay, you’re a doctor), you’re probably okay. It’s not the money you borrowed, it’s what you can earn with the degree. Like any investment, it’s worth putting money in if the ultimate payoff is worthwhile.

Similarly, the BA who’s borrowed $25K has borrowed as much as if they purchased a new car. This is a doable payoff, but only if you have a job. Even better if you can cut your living expenses radically for the first few years so you can also build an emergency fund.

Most huge debt I see comes from graduate work, not undergraduate. Carefully consider the field, and maybe consider working awhile before going directly to graduate school. Hey, you might even find an employer with tuition reimbursement.

Not having a part time job

Even if you can cover everyday spending by working some dumb job part time, you’re going to save a lot of loan expense. Is that latte worth $10?—because that’s about what you’ll pay with a 10 year loan.

Dropping out before finishing

Even worse if you drop out before graduating or take more than 4 years to complete. Any time you put payments in abeyance, the interest charges balloon. People who take time off, move in and out of loan payment, etc. can see their payback amount easily double over time. Remember, the interest is ticking continually: just because you’re not paying it now doesn’t mean it’s gone away. It’s growing steadily like mushrooms in the dark.

Dropping out before finishing also involves a hidden cost—lost opportunity. You already have lost opportunity—even with a free ride, college costs you what you could have been earning by working instead. But a partial degree is worth next to nothing in the job market (for most fields), so you’ve borrowed a lot for nothing. Or, if you’ve changed majors or taken time off, you’ve paid far more in extra years of tuition (and living costs, and lost opportunity) for the same degree. Stick it out—add a minor, or suffer through. Life isn’t perfect–just wait until you get the first crummy job or boss that hates you and you have a huge loan payment to make.

Ignoring the payment or taking a payment scheme

The loan never goes away, and it keeps building. Most of the forgiveness programs haven’t worked. And, if you have any kind of professional license, it can be yanked if you don’t pay. Ignoring it only makes it worse.

IMHO we have a really broken system for paying for what has become virtually essential higher education. Until and unless that changes, we have to work the current system as best we can, and that means making some very pragmatic choices. Don’t get so snagged on the college of your dreams that you close off any possibility of fulfilling after-college dreams.