Student Loans are Great, But Only if Used Correctly

Understanding Student Loans

In this lecture, the speaker explains what student loans are and how to use them. Before doing so, he shares his family's experience with home mortgage loans as a means of pulling themselves out of poverty.

The Power of Education and Home Ownership

• Education and home ownership are powerful financial tools that can help families move from poverty to the middle class.

• While education is often used for this purpose, home ownership was the tool used by the speaker's family.

• Housing discrimination was a form of oppression faced by Jewish Americans in the early 1900s, but owning a home allowed families to build wealth over time.

How Home Mortgage Loans Work

• A home mortgage loan allows someone to buy a house they cannot afford outright by putting down a percentage of the cost (usually 20%) and borrowing the rest from a bank.

• The borrowed amount must be paid back over time with interest (usually over 30 years).

• If payments are not made, the bank can take possession of the house since it serves as collateral for the loan.

• Renting is more expensive than buying over time since rent increases while mortgage payments remain fixed.

Applying Lessons Learned to Student Loans

• Student loans work similarly to home mortgage loans in that they allow someone to invest in their future by borrowing money they do not have upfront.

• However, unlike homes which appreciate in value, education does not always guarantee a return on investment.

• It is important to understand the terms of student loans and how they will impact one's financial future before taking them out.

Homeownership vs Renting

In this section, the speaker discusses the benefits and risks of homeownership versus renting.

Benefits of Homeownership

• Homeownership is a powerful financial tool that can help individuals move from poverty to middle class.

• If an individual plans to live in a house or apartment for five years or longer, it is usually more financially prudent to buy rather than rent.

Risks of Homeownership

• The down payment made towards a home loan is at risk if an individual stops paying their mortgage.

• If an individual stops paying their mortgage, they could lose their home and the down payment made towards it.

Benefits and Risks of Renting

• Renting over the long term may be more expensive than owning a home, but if an individual stops paying rent, they do not lose any money beyond what they have already paid in rent.

Paying for College

In this section, the speaker discusses who pays for college and the risks associated with taking out student loans.

Who Pays for College?

• Most students attending public universities are funded by three groups: society, parents/family members, and themselves through student loans.

• Society has decided that funding education for some individuals will improve everything for everyone.

• Parents or family members may pay for college tuition if they are able to do so.

Risks Associated with Student Loans

• Taking out a student loan is similar to taking out a home loan; it's a smart bet on oneself but comes with risks.

• Graduating is necessary for the return on investment to work out. If an individual does not graduate, they still have to pay back their loans without the capability of a higher-paying job.

• Student loans are non-bankruptible, meaning that even if an individual declares bankruptcy, they will still be responsible for paying back their student loans.

Conclusion

In this section, the speaker concludes by emphasizing the importance of making informed decisions when it comes to homeownership and student loans.

• Homeownership and student loans can be powerful financial tools but come with risks that individuals should consider before making decisions.

• It's important to research institutions of higher education before attending them and taking out student loans.

• Making informed decisions about homeownership and student loans can help individuals achieve financial stability and success.

Understanding Bankruptcy

In this section, the speaker explains what bankruptcy is and how it works.

What is Bankruptcy?

• The most common type of bankruptcy is chapter 7 liquidation bankruptcy.

• When you file for bankruptcy, the court will take your possessions to sell them and pay off your debts.

• The court will not make you homeless when you file for bankruptcy but they're not going to let you live in a nice home or drive a nice car.

Student Loans and Bankruptcy

• Student loans are non-bankruptible, meaning that if you file for bankruptcy, they won't be wiped out.

• Once you take out a student loan, you have to pay it back whether you graduate or not.

Risks and Opportunities of Student Loans

In this section, the speaker discusses the risks and opportunities associated with taking out student loans.

Smart Risk

• Taking out student loans presents a fantastic financial opportunity if done correctly.

• Getting good grades can lead to high paying jobs that would otherwise be unattainable without a college degree.

Long View

• Take the long view when it comes to money. Sacrifices made now can set up future success.

• The point of college is to set yourself up for the rest of your life. Small sacrifices now can lead to big rewards later on.

Smartphone Lockbox

• A smartphone lockbox can help students stay focused on their studies by locking away their phone for a set amount of time.

Locking Your Phone Away to Get Work Done

The speaker discusses the importance of avoiding distractions while working and introduces a lockbox that can be used to store phones.

Locking Your Phone Away

• The lockbox prevents access to the phone, making it impossible to send or receive messages.

• The speaker is an assistant professor who needs to publish academic papers in order to get tenure. He uses the lockbox as a way of avoiding distractions and staying focused on his work.

• Students who have taken out loans or are being supported by society or their parents owe it to them to stay focused and avoid distractions.

• The purpose of this lecture is to convince students that they should want to study and learn, not just teach them how.

Conclusion

• Students who have taken out loans are placing a bet on themselves. They need to make sure that they are making a good bet by staying focused and avoiding distractions.