Term Paper on "Personal Financial Planning Student Debt"
Term Paper 6 pages (1641 words) Sources: 1+
[EXCERPT] . . . .
Personal Financial Planning (Student debt)This paper is about student debt. It will concentrate in particular on the types of debt incurred by students, the overall level of student debt, and how students can plan and manage their debt.
The amount of student debt has climbed in recent years to historically high levels (Block, 2006). The current average level of debt is illustrated in the following graph
Average Student Debt (Block, 2006)
Note that the above graph demonstrates that student debt is a combination of commercial and public debt. This paper will deal with each type of debt in turn: publicly-financed student debt related to tuition, privately-financed student debt related to studies, and personal debt, primarily credit cards. Each category has a specific type of repayment needed, and a different payment period.
Supporting College Tuition college education is generally a good investment. Those who have a high school diploma can expect to earn $1.2 million in their lifetimes, while those with a bachelor's degree will earn $2.1 million (Day, 2002). This difference of $900 thousand in lifetime earnings can be compared to the average tuition, room and board of a four-year education, which can range from $50,000 to $250,000 for a four-year education. While, on a present-value basis, $900 thousand would not be a good investment for $250 thousand, those who pay those higher amounts for a private education at an elite institution are (1) more likely to proceed to Master's or PhD-level studies, which result in higher income, and (2) are likely to have higher incomes even if they do not proceed past the bach
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For the above reasons, it makes sense to borrow against future earnings. Pell Grants and student loans are a way to borrow with little or no security, and to pay off over the next 10-15 years at a low interest rate. Students should ask themselves if they plan to pursue a career in which they will be able to pay off the loans. Repayment can take several forms. if, for example, a student wants to become a teacher, particularly in the hard-to-find math and science areas, many states and municipalities have "student loan forgiveness" programs (Rimmer, 2006). If a student plans to later attend grad school, this question needs to be asked again: although medical and law school can be very expensive, loan programs can cover the bulk of expenses, and generally can be paid out of future earnings.
A student should look at student loans as if he/she were an asset, like a home. Is the asset going to appreciate in such a way that the loan will be covered? The student should plot out his/her future earnings, with particular attention on when they will start. There are many available sources to help in this projection: the U.S. Bureau of Labor Statistics has a number of such projections, split into types of careers and even by gender and race (Hecker, 1998).
Personal Debt
Students are constantly bombarded by offers for "free" credit cards. The terms under which students are obliged to repay loans, however, are generally exorbitant.
Since most students have high expenses and a relatively low income, it generally doesn't make sense for a teen to run up credit card debt.
Students are nevertheless taking on credit card debt that they cannot afford. A survey performed in 1998 found that two-thirds of undergraduate college students had debt to at least one credit card, and that one in four had five or more credit cards (Holub, 2004).
Credit card debt for students averages $2,200 per student (Lazarony, 1998). This means that, if a student maintains such a debt level, they must pay a minimum charge (typically $100 or so) and an interest rate of about 20% per annum -- almost $500 in yearly interest payments.
It is tempting for a new college student to take advantage of all the "free" credit card offers which are made when he/she arrives at a campus. For many students, this is their first attempt at living independently. They see their parents living with high levels of debt, and may not have the financial sophistication or self-control to analyze how credit cards might affect their credit rating and ability to repay. Although some college freshmen have had previous experience with credit cards, not all know how to navigate the credit card "traps," as is shown by this comment from a college student:
As a younger teen, I actually received a credit card and didn't know my spending limit and that kind of thing, so I maxed out the credit card and was penalized for it, and that's why I don't have one now (Lucas, 2007).
The best advice for freshmen considering applying for a credit card is "wait." The temptation to get a credit card and start purchasing is great, and the student has less experience in managing credit and independent living. Many advise waiting until at least sophomore year, or until a time when the student is closer to earning an income (Lucas, 2007).
Private Student Loans
Students are able to transact student loans through private institutions, chiefly banks. These banks then receive support in the form of risk limitation from a federal body called "Sallie Mae," which was created as a semi-private institution to support college education. As with direct federal student loans, the payment of interest and principal is put off until the student starts earning an income. As with the direct loans, students should prepare a future expected cash flow pro-forma statement in order to understand how much they will earn, and how able they will be to pay back the loans.
Income and Saving: the Forgotten Part of Personal Financial Planning
The best money to "earn" is the money saved. A student should ask her/himself: "Am I getting value for my educational spending?" A student should seriously consider two options to reduce overall college spending:
Consider going to a community college for the first two years, in order to keep down expenses and determine his/her aptitude to a college education, and Consider attending in-state subsidized universities, which generally have a much lower tuition charge than private schools or out-of-state public institutions.
The issue of rising tuition, room and board has become more important as those rates continue to climb faster than inflation. Since 1975, college tuition at private institutions has climbed nearly 3 times the rate of inflation: over 8% (Carnahan, 2003). The result: a year's tuition, room and board at an elite Ivy League School like Brown can exceed $50,000. What is less known is that such schools have a high percentage of students on scholarship -- thus, students should compare "after-scholarship" costs when considering the return on investment.
One should not automatically assume that because one is attending an elite school that income will be higher. To take an extreme example, someone attending Brown who wishes to go on to social work may end up with less income than someone graduating from Purdue with a degree in electrical engineering. The same is true for a graduate education: students should develop a reasonable expectation of their future income streams based on the kind of career that they will pursue post-graduation. Even physicians are not immune: despite taking on hundreds of thousands of dollars in debt, the average salary for a physician is $135,000 (Payscale, 2007). Although surgeons receive more, they also must study several additional years. Thus the taking on of debt can be a major consideration for many seeking even highly-compensated careers.
Working while going to school is difficult, but may enhance a student's job prospects after graduation. Employers like students who work their way through school. In addition, earning income in the summer months and during school helps to reduce the overall burden of student loans after graduation.… READ MORE
Quoted Instructions for "Personal Financial Planning Student Debt" Assignment:
APA STYLE WORK CITED
The topic I have picked is Student debt with subcategories such as credit cards, student loans, and line of credit etc. This is for a personal financial planning course. The Paper should focus on most of the aspects of repaying student debt the best way possible and the best way to do it etc.
Here is the outline:
Requirements
The term is an opportunity for you to perform a small research project on a topic related to Personal Financial Planning. The topic of the project is open, but MUST be approved by the instructor by the end of class of MONDAY, SEPT 24. Topics must be submitted IN WRITING for approval.
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> > You are encouraged to take advantage of some of the current ongoing issues in the financial planning world in selecting your topic - for example, a comparison of different types of mortgages; a comparison of different types of life insurance. The reason for the term paper is for you to have an opportunity to take a look at a financial planning topic in a little more depth than the text allows for. You are encouraged in your papers to explore topics that will allow you to draw some conclusions of your own rather than simply repeat information you have gotten from your research sources. For example, if a student were to write on the different types of mortgages available, I would expect to see comments at the end of the paper as to what type of mortgage they would recommend and for what reasons.
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> > The written report is due at the beginning of class November 19. It must be TYPEWRITTEN and DOUBLE-SPACED. Maximum length of 10 pages, excluding graphs, tables, appendices and bibliography. There MUST be a PROPER title page and a BIBLIOGRAPHY page for all references used. If you are not sure of the proper format please consult the Writing Lab personnel for details. Term papers without a title page and bibliography WILL NOT PASS.
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> > The marking scheme will be such that simply repeating information you find in your sources will be considered an average paper. An above average paper will be one where you have taken the information and put thought into how that information could be used by a person in their own personal financial
Title page, References, and Graphs & Charts if possible in appendix
How to Reference "Personal Financial Planning Student Debt" Term Paper in a Bibliography
“Personal Financial Planning Student Debt.” A1-TermPaper.com, 2007, https://www.a1-termpaper.com/topics/essay/personal-financial-planning-student/352286. Accessed 3 Jul 2024.
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