College vs. Contract

This is going to sting a little.

Today, the average cost of one year of college in the United States (room and board, tuition and fees) is $26,820 at a public, in-state university. That’s right. It gets significantly more expensive if you either go out-of-state or go to a private college (over $40,000 and $50,000 respectfully). Although there are ways to reduce these costs (community colleges or high school courses that count for college credit, for example), the price is still quite steep. Considering that student loan debt is unforgivable, I urge the highest caution in choosing to go down this path.

What our educational system fails to teach students is that most employers really don’t care about your schooling as much as they care about your skills. A good friend of mine dropped out of community college, taught himself graphic design, coding, and SEO (search engine optimization). He easily acquired a six-figure job before venturing down the path of self-employment. Let’s just say he’s doing quite well.

Now, for certain professionals, such as doctors or engineers, college may very well be the right path. Even so, however, there are ways to go about securing the education for these vocations without the need for nasty student loan debt. The US Armed Forces, for example, will pay for a certain amount of college for free via the Montgomery GI Bill. Trade schools are another low-cost option for higher paying careers like HVAC techs or electricians.

Let’s compare.

However, let’s compare a typical degree to acquiring a promissory note. Our fictional character, Dennis, is deciding whether or not to go to college and get a degree in something rather generic, such as business, communication, or liberal arts. The cost of this endeavor is now $107,280, minus four whole years of being out of the work force. Dennis completes his degree, now has six-figures in unforgiveable debt, and no guaranteed employment.

Or, Dennis could take $107,280 over three years and create a note at 25% APR, principle and interest, or interest-only.

  • Principal and Interest: Using a simple loan calculator, this equates to $4,265.43 x 36 months, which is $153,519.48 total. This is $46,239.48 over three years, or a bit over $15,413 a year for doing, quite literally, nothing.
  • Interest-Only is calculated a bit differently, but it is approximately $107,280 x .23 x 3 years, equaling $74,023 over three years. This is $24,674.40 a year for doing nothing, along with your $107,280 back at the end of the term.

Even better.

Keep in mind, during these three years of making money while doing nothing, Dennis has a lot of options. He could work. He could go to a trade school while getting paid an apprenticeship. He could use this money to help offset the cost of college if he truly wanted a degree, quite possibly graduating debt-free. He could use that time to teach himself an in-demand skill or try to start a business.

I hope you can see the rather limitless options we provide for our collaborators.

If you’re wondering more about private lending, you’re welcome to schedule a time to talk. If you’d like to read more of my cyber-etchings, more posts can be found here.

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