TODAY | August 30, 2010
ANN CURRY, co-host: This morning on TODAY'S MONEY , paying for college . An estimated two-thirds of recent college graduates borrowed money to pay for their education, but a new book is warning that that's a very bad idea. Zac Bissonnette is a senior at
the University of Massachusetts and he's also the author of "Debt-Free U: How I Paid For An Outstanding College Education Without Loans, Scholarships, Or Mooching Off My Parents ." That's some title, Zac . Good morning.
Mr. ZAC BISSONNETTE ("Debt-Free U"): Good morning.
CURRY: First of all, let's get this out of the way, you're 22 years old, Suze Orman on this broadcast recently said that you're, quote, "A wonderful advocate." We've got best-selling author Andrew Tobias who's written in the foreword to your book that you're "The Doogie Howser meets the boys from Facebook ." But is it a challenge? I mean, this is obviously meant to talk about how young you are.
Mr. BISSONNETTE: Yeah.
CURRY: Is it a challenge to dole out financial advice being so young?
Mr. BISSONNETTE: No. Because what I always tell people is that you shouldn't believe anyone's opinion about anything when it comes to your money and you shouldn't believe my opinion. And what I try to do is present information and analysis and research that can lead people to the right decisions.
CURRY: And one of those decisions you think is you suggest that people, counter to what everybody says, should not be taking out big loans to send their kids to school.
Mr. BISSONNETTE: Right. One of the biggest myths in the college process that a lot of admissions officers and financial aide experts say is that loans are an investment, it's OK to borrow money for college , and there's a lot of research that's been coming out recently that shows that the default rate on student loans , federal student loans , more than 20 percent of those loans end up in default, which is a higher default rate than any other kind of loan in the country.
Mr. BISSONNETTE: And when you do default, you can't discharge it in bankruptcy. And then it's not just the default rate you have to worry about, though, there's evidence that students who graduate with a lot of debt are less likely to enjoy their careers because they have to take a high-paying job instead of something that they're maybe more passionate about to start paying those loans and I think that's really sad because college should be all about building a flexible foundation for your life and a foundation of debt is not flexible and it's not something you want to build on.
Source: finaid.org Government Student Loans Default Rate 1995 - 2010 Overall 20%
Source: Chronicle of Higher Education
CURRY: OK. So you're saying the student shouldn't take out a big loan, what about the parents ?
Mr. BISSONNETTE: Yeah.
CURRY: Because parents want their kids to go to school.
Mr. BISSONNETTE: This is -- this is a terrible thing. One of the worst mistakes that you can make financially is borrowing money yourself to pay for your kid's education. The problem is that if you're the parent of high school kids, chances are that you're too old to be accumulating more debt. There's no nice way of saying that, but you're too close to retirement age, you need to be saving for retirement. And if you don't have the cash to pay for college , you are in a terrible position to borrow for it.
CURRY: OK. So don't borrow money .
Mr. BISSONNETTE: Right.
CURRY: So what do you suggest, then, people do?
Mr. BISSONNETTE: Well, here's the deal: A lot of people get tripped up on college costs because they say, 'Oh, it's $40,000 a year, I can't do that without borrowing money ,' but the average four-year public college in America costs just $13,000 per year, including room and board after a small tax credit the parents get, and when you break that down per week, which you can pay for college monthly interest-free at almost every public college , it works out to $250 a week. And if the kids are working and the parents cut their costs, you can cash-flow college .
Mr. BISSONNETTE: This idea that student loans are necessary is not true, I know, I've done it without loans, you know?
CURRY: You're basically saying the parents should slum it up, as you put it, you say that they should do things like...
Mr. BISSONNETTE: Exactly. Drive your car an extra year, drink fewer lattes, as trite as maybe that is, you know. Yes.
CURRY: Forgo vacations, which is a big expense.
Mr. BISSONNETTE: Exactly. Two hundred and fifty dollars in a week is an amount of money that you can cut costs and get to.
CURRY: Now let me just go back over your numbers, though, because, you know, if you add in living expenses and that sort of thing, that's going to cost...
Mr. BISSONNETTE: But that includes -- that includes room and board.
CURRY: I see.
Mr. BISSONNETTE: So -- I mean, yeah, you'll have textbooks and that kind of thing but I mean, but you're also going to save a lot of money because your kid's not staying at home taking hot showers, right?
CURRY: But part of the assumption, then, is that parents and students should not go after the most expensive schools.
Mr. BISSONNETTE: Right. Well -- and one of the things I talk about in "Debt-Free U" is that there's an overwhelming amount of evidence that you will not benefit from going to a better college . There was a study out of Princeton that found that students who get into elite colleges but attend less elite colleges earn just as much money as students who go to elite colleges . And what it is is that what's going to determine your success in life is how hard you work, how smart you are, and all of that is innate, there's no college that's going to make you something other than what you are.
CURRY: But, you know, you're talking only that -- what you just talked about was just about money , I mean, there's a lot of other benefits, there are a lot of other benefits to going to a great school in terms of your, you know, your sense -- your sense -- for example, you study art history...
Mr. BISSONNETTE: Sure.
CURRY: ...your sense of, you know, the professors you get exposed to.
Mr. BISSONNETTE: I have wonderful professors at UMass Amherst . I think -- you know, there have been studies that have shown that the teaching in elite colleges is not any better on average than it is at less elite colleges . And there are Web sites now where you can look up the professors before you sign up a -- for a class, so it's very easy to find the class with the best professors now, which is -- I've had wonderful professors.
CURRY: And you're thinking about this idea that we should send our kids, if we can't afford to send our kids to school and we want lower costs, to send them to a community college for the first couple of years.
Mr. BISSONNETTE: Right. There was just a study out that found that kids who start at community colleges learn just as much as kids who start at four-year colleges and that if they transfer actually have a higher graduation rate than kids who start at four-year colleges . You will save a ton of money by going to a community college . If you ask me, the smartest kids in America aren't the ones who go to Yale , it's the ones who go to community colleges because they're saving so much money .
CURRY: Can I just add really quickly...
Mr. BISSONNETTE: Sure.
CURRY: ...the National Association of Independent Colleges and Universities does say that there is a value going to a private higher education , basically saying that private nonprofit college students and alumni report that they have greater satisfaction with their education than their peers in other sectors. I just wanted to kind of get that side in there.
Mr. BISSONNETTE: Sure. No, I mean, there have been a lot of -- a lot of research on this, the bulk of it which I look at in my book, and I do look at both sides, suggests that on average there isn't a substantial benefit to going to a more elite college , that -- I mean, for instance, if you go to a less selective college , you're going to graduate with a higher class rank, and a higher class rank is correlated with earning more money . So in a way, you know, it sounds weird, but the idea that maybe you're better off to go someplace where you're going to be the star and all the professors are going to love you, you're going to win all these awards and that maybe that's a better approach than stretching financially to go to the best possible college you can get into.
CURRY: Zac Bissonnette , I tell you what, you're an example of a very well-educated man, you sort of speak for yourself and your education. Thank you so much ...