Many people take the student loans and use them to live on , pay for college expenses and quite frankly, to party for four years. What they end up with is hopefully a degree that they may or may not be able to use towards finding a job and tons of personal debt. But what if you took the Dividend Income Investor philosophy and applied it to paying for college? You know the “Golden Rule of Investing” which basically says don’t spend your money. As a Dividend Income Investor we know that the best use of money is to produce income.
I have convinced her the best way to start college is at the community college level. It is much cheaper, she can live at home and is spared the expenses of living somewhere else. So her first two years will be much cheaper than going off to some far away college. The second thing we talked about is going to school to develop a career opportunity not to just go to college without direction. Fortunately she has it narrowed down to two choices, both of which can be completed in two years and pay well. Her choices are Dental Hygienist and Registered Nurse. Both are offered as two year programs at out local community college. This way after two years she has a great income coming in and should she decide to pursue a 4 year degree she has a way to support herself while doing so. I know a lot of people think it is impossible to pay your way through college and I say they don’t know what they are talking about. I had one person tell me I did not understand how expensive college was now days and I could not do so if I were getting a degree in today’s world. First, I will admit , College has become more expensive than it should ever be but saying it cannot be done is just an excuse by someone who is misinformed or maybe just a little lazy. (I’ll let them judge themselves as to which one applies) .
Here’s my daughter’s plan. She has 23,000 saved for college and has another $2,000 in a separate account. In addition her grandfather is giving her $10,000 each year to help fund her college. I have talked to her and we will put the entire amount into a brokerage account with Dividend paying stocks. Her yield will average 9%.
So the first year – $35,000 in stocks are purchased – This will produce $3,150 per year in Dividend Income. Her tuition will be $160 per semester hour and her degree requires 69 semester hours so the total amount for tuition is $11,040. Of course there will be other expenses like books and lab fees. She has to attend 5 semesters so the average amount of tuition is $2,200 per semester or $4,400 per year. Just $1,250 shy per year but she will also get a part time job. If she works 20 hours per week at $10 she can earn about $200 per week or $800 per month, and in just three months she has earned the rest of the required tuition.
When she starts her second year of college she will get another $10,000 from her grandfather – So now she has $45,000 invested and bringing in $4,050 per year in income or $337 per month. Add this to her part time job and she has finished her first two years of college, has a degree in Dental hygiene or Nursing and Can go to work earning much more money. She not only owes nothing to anyone but she still has her $45,000 invested and is earning income from it. Also her grandfather will give her $10,000 for the third and fourth year of college so it will grow to $55,000 and the start of the forth year to $65,000. At this point her Dividend Income is $5,850 per year or $487 per month ! At this point she has – A 2 year degree, A great Career, No debt , a great start on her Investments, and a very good start on Dividend Income.
Okay so you say “but my daughter does not have a grandfather giving her $10,000 per year for college”. I thought you would never ask. The same scenario applies but using various types of student loans both private and federal. Because of the interest rates on the loans and you have to pay them back you will not have as much left at the end of school but you can still come out ahead by investing the money and only paying for college out of Dividend income. Another way is to work more hours during school breaks and summer vacations. Or try and save more towards college before she starts to have an advantage in that respect.
There are tons of ways to eliminate college debt or reduce it substantially but one thing is certain you have to be an active participant in the finances of your education. To allow your child to make the mistake of accruing massive debt from his or her education is irresponsible parenting in my opinion. There is no need to start ones life off struggling to pay bills.
Thoughts or comments ? I would love to hear from you.