Today, I spoke to Zac Bissonnette, whowrites about personal finance for DailyFinance.com, and is hte author of Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents. In this interview, Zac talks about his book, why a brand name education might not be the best solution, and more.
Why did you decide to write Debt-Free U? Why now?
I wrote Debt-Free U because I believe that student loans are the next great consumer financial crisis in America and I want to help as many people as possible not be part of it.
In recent months, we’ve seen increasing evidence that the student loan problem is blowing up into a crisis. The Chronicle of Higher Education recently reported that of student loans that entered repayment in 1995, 20% have since defaulted: that’s a higher default rate than just about any other kind of loan out there.
So while student loans have always been a bad idea for undergraduate education, there’s an urgency to it now that people can see and will maybe make them more receptive to it. When homes were going up 10% per year, retirement accounts were going up 15% per year, and no one ever lost a job, it was hard to convince people that student loan debt was dangerous. But I think that, tragically, people are more receptive to that message right now.
Debt and an amazing education (Harvard) or financial freedom and a fair education (community college/public school)? Which would you recommend?
First, Harvard and a few other top colleges have huge endowments and their students very rarely graduate with any significant debt. Students accumulate the most debt at the sort of second- and third-tier private colleges like, no offense, New York University. I hear from more NYU grads with excessive debt than from any other school — by a factor of five, I would say.
So Harvard vs. a public college tends to be kind of a false dichotomy. But to answer the larger question, here’s the bottom line: the biggest decider of the quality of the education a student receives is the student — and what he decides to do at the school. Almost any college has the resources to provide tremendous value to an ambitious student — and it’s entirely possible to go to the “best” colleges and learn absolutely nothing; I’ve talked to many people who’ve pulled off that impressive feat.
What strategies do you use to pay for college without going broke?
The first is this: before you take out a single student loan, do everything you possibly can to lower the cost of college: that might mean attending a less expensive college, starting at a two year college, or living off-campus with friends to save money instead of staying in the dorm.
But here’s the little secret of college: it’s actually not as expensive as all the hype would have you believe. According to FinAid.org, tuition and fees and room and board at the average public four-year college in America — and most families will get a $2,500 tax credit. If you spread that cost out over the course of a year — which you can at most public colleges — we’re talking about a total of $244 per week. And again, that includes room and board. If a kid works and parents cut their costs, most families can cash flow that without looting savings. And if you’re lower income, you’ll get some financial aid that will reduce the cost.
Why do you say a brand name diploma won’t help a student become more successful?
When I look at all the data on that — and there’s actually been quite a bit of research on this that I explore in the book — it’s pretty clear that the overwhelming majority of the earnings premium that grads of elite colleges enjoy is a result of selection bias. That is, they were smarter than students at less selective colleges before they got there, and would have earned more money. One study actually found that students who got into elite colleges but went to less selective colleges earned the same amount of money as students who went to elite colleges. What will determine whether your kid is successful is his intelligence and work ethic — not a sheepskin.
What about your book do you think will surprise readers the most?
I think they’ll be surprised at how backed up by data and research it is. A lot of the college “advice” out there is really just opinion. But I always tell people: you don’t have to believe my opinion on any of this. College is way too big of an investment to believe anyone’s opinion about anything. What I do with the book is guide people through the research on on picking a college and the lifestyle outcomes that are associated with student loan debt, and you can make up your own mind based on that. There’s no leap of faith required here.
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Zac Bissonnette writes about personal finance for DailyFinance.com, Aol’s financial news and analysis destination. His book Debt-Free U: How I Paid for an Outstanding College Education Without Loans, Scholarships, or Mooching off My Parents will be published by Portfolio/Penguin on August 31st. Zac writes for The Huffington Post, WalletPop, The Daily Beast, and other outlets. He’s been featured in The Washington Post, USA Today, The Wall Street Journal, and US News & World Report. In his spare time, Zac is an art history major at the University of Massachusetts, Amherst.
