I’m a big Ramsey fan when it comes to managing personal debt. I believe most families who find themselves buried in debt would benefit from following Dave’s 7 Baby Steps. However, when it comes to advice on college, his counsel could use a bit of a tune up. 

Student Loans 

The federal student loan system is a disaster that has led to our country’s $1.7 T student loan crisis. Borrowing money to finance a student’s college education is a really bad idea. 

This is Dave’s soapbox. I’m sure his advice has helped certain individuals graduate debt free, but there is no indication he has moved the needle when it comes to reducing the outstanding balance of student loan debt.

Dave and I agree student loans are bad, but I stand on a different soapbox. We will get to my “soapbox” momentarily.  

529 Savings Plans

Dave’s advice is to underfund your kid’s 529, limiting contributions to $20,000. His reasoning is, “The higher ed landscape is going to change so much in the next eighteen years as the student loan epic failure debacle unfolds.”

I’m not sure that Dave’s idea of the “student loan epic failure debacle” is the same as mine. Almost any high school graduate can find a college or university that will accept them, because 92% of the institutions aren’t all that selective. Once accepted, just about all the undergraduates are given access to $31,000 in federal student loans. That includes Junior, his high school class’s valedictorian, who plans to major in engineering, and Joanie who barely managed to graduate and plans to major in Psychology.

If Joanie does manage to graduate college, her odds are slim, there’s a 50-50 chance she will find herself underemployed, e.g. making lattes. As a barista, Joanie will have a hard time making her student loan payments.

To fix this system, some politician is going to have to stand up and say, “The federal student loan system needs underwriting standards. The Joanie’s of the world shouldn’t be given student loans.” I doubt that’s going to happen.

Assuming your student is “college material,” I would be comfortable contributing at least $50,000.

Free Application for Federal Student Aid 

“The FAFSA is for poor people. I sent my three kids to college and never filled out one FAFSA.” This is Dave’s position on the FAFSA. He sees the FAFSA as a gigantic marketing tool for federal student loans, and he has a point. However, there are four arguments parents should consider: (1) The FAFSA has long tentacles, many schools and states use the FAFSA to award a wide variety of scholarships. (2) A lot of stuff can happen over four years. A family’s financial situation could change, making need-based aid an option. If you didn’t submit an application when your student was a freshman, many schools are going to refuse that application at a later time. (3) The exact internal workings of the FAFSA are a mystery. Many parents who think they don’t qualify for government aid might be surprised. (4) Some states, e.g. Ohio, offer a small scholarship if you submit a FAFSA in a timely manner. 

Stupid-Butt Degrees 

These days, many degrees, e.g. Gender Studies, Psychology, History, etc., are likely (52%) to leave college graduates underemployed, struggling to make $40,000. I call them “anything” degrees. I may just borrow Dave’s description, “stupid-butt” degrees.    

Choosing a College 

Dave and I agree on the importance of choosing an affordable school versus choosing an out-of-state or prestigious institution. I would fine tune his advice to encourage parents to limit their student’s search to colleges and universities where their student’s credentials (GPA and standard test scores) meet or exceed 75% of the credentials of the incoming freshmen class. When a school “wants” a student, they will often offer a generous tuition discount disguised as a scholarship. This tip can cut your offspring’s total college bill by tens of thousands of dollars. 

Community College 

Dave is a fan of community college to save money. Obviously, he hasn’t seen the startling “outcome” data. Most students who attend community college (80%) intend to transfer to a four-year institution to earn a bachelor’s degree. This plan is so common it has a name, the 2+2 Model. Unfortunately, for a wide variety of reasons, the 2+2 Model has an eighty-six percent failure rate. 

Scholarships

Dave and I are on the same page when it comes to scholarships. Make applying for scholarships a job, so many hours per week. Send in a thousand applications. If your success rate is 5%, you will be well on your way to graduating college debt free.

Financial Planning 

Sixty percent of families plan college expenses a year at a time. A problem with finances is the major reason that 40% of students drop out. Dave is a planning and numbers guy, but never mentions the importance of having a four-year financial plan. 

Parenting 

I promised you we would eventually get to my “soapbox.”

As a parent, one of your major jobs is managing expectations. Dave Ramsey is going to admonish you to, “Never tell your kid they shouldn’t go to college.”

It is probably best that you sit down because the data on college outcomes is shocking. College is a competition because Supply (college grads) far exceeds Demand (well-paying, professional jobs). Recently, the Wall Street Journal reported on the results of a Burning Glass Institute/Strada Education Foundation study, showing only forty-eight percent of college graduates become fully employed upon graduation. Another way to look at that statistic is that only twenty-nine percent of students who matriculate succeed, graduate and score a well-paying, professional job.

Way too many high school graduates listen to the “siren song” of “College is for everyone.” Sorry, college is for the smart kids who can afford it without ending up buried in financially crippling student loan debt. 

Conclusion

The 7 Baby Steps is Dave Ramsey’s money management plan, designed to help families get out of debt, save money and build wealth. Baby Step 5, “Save for your children’s college fund,” needs a major overhaul. The data shows that the majority of high school graduates don’t have any business, academically, attending an expensive four-year institution. I can cut the future growth in the outstanding balance of student loans in half in five seconds. 

“Junior, you are not going to college because you aren’t “college material.” 

As parents, our objective should be to guide our offspring to transition from dependent adolescents to financially self-sufficient adults. Most of the time (98%), this is going to require some form of post-secondary education, but not necessarily, a four-year college degree.