Dear Dave: I’m a senior in high school here in Arkansas, and I think I want to study business in college. I’ve gotten an unusual offer from a small, out-of-state school. It revolves around a $3,000 student loan program, where the loan converts to a scholarship if I maintain a grade point average of 3.3 or higher. Tuition at this college costs about $34,000 a year.
Dear Garrett: I’m glad you’re thinking about the future. But this is not my favorite idea, because you could end up with a loan.
In business, one of the things we look at is return on investment. If I can go to one place where tuition’s $34,000 a year, but I could go to another place that’s in-state for about $7,000, the question becomes this: Am I going to get a five times better education — or is my income going to be five times greater — by going to the expensive school? I think most of us who have been walking around a while would say no.
Your income will not be based on where you went to school, and it won’t necessarily even be based on your grade point average. It will be based on your ability to take what you learned into the marketplace, kill something and drag it home. This has as much, if not more, to do with your initiative, your perseverance, character qualities and integrity as where you went to school.
One of the great jokes in America today is that where you go to school matters. Some places may have better programs in certain areas than others, but is this particular college — which I’m guessing isn’t a prestige school, since you didn’t mention the name — five times better than a solid in-state school like Arkansas State or the University of Arkansas? No, it’s not.
I don’t think you’re going to get a return on your investment overall in this picture, Garrett. Add to that this little student loan nuance, and the fact that they’re not giving you enough “free money” to make this a good deal, I would have to say don’t do it.
Dear Dave: My wife and I are following your plan, and we’re in the middle of the Baby Steps. Do we have to wait until Baby Step 7 to buy a new car?
Dear Alan: No, you don’t have to drive a beater until you pay off your house. My advice is to drive the minimum car you can until you get past the first three steps. Remember, Baby Step 1 is a beginner emergency fund of $1,000. Baby Step 2 is paying off all debt except for your house, then Baby Step 3 is fully funding your emergency fund with three to six months of expenses.
Once you’ve done all that, then you can move up to a nice car. I didn’t say move up to a new car. I want you to save up cash a get a really nice, barely used car. I never advise buying a brand new car unless you have a net worth of at least $1 million. At that point, you’ve got enough assets in place to where you won’t even feel the massive hit in depreciation that comes with buying a new vehicle.
But until then, drive good used cars. That’s what the typical millionaire did, and I want you to model your financial behavior after people who are in the position you want to be in some day!
Dave’s latest project, EveryDollar, provides a free online budget tool. Follow Dave on Twitter at @DaveRamsey and on the web at daveramsey.com.