“Knowledge is power” as the saying goes, but debt is a financial anchor if not used properly.
Looking forward to $50,000 to $200,000
in student loan debt.
A college education is the second most expensive purchase for Americans, right after the purchase of a new home.
In theory, a college educated person should be able to find a much higher paying job than a person who did not attend college. However, a person who hasn’t attended college may have minimal debt when compared to the college student who has $50,000 to $200,000+ in student loan debt.
Did that student learn about how to make any money in today’s ever-changing financial and investment world?
A primary reasons for attending college is to find a decent job, so you can purchase a home and raise a family. It’s somewhat of a “Catch 22” because massive school loan debt might not allow you to qualify for a new mortgage loan.
This inability to qualify for new mortgage loans is partly due to tougher underwriting guidelines. It’s also because Americans have very low cash reserves and all-time high consumer debt.
Student Loans vs. Mortgage Loans
What’s the difference between mortgage loan debt and student loan debt?
With a mortgage loan, the collateral for the debt is usually a piece of property such as land, a single family home, or an apartment building. With a student loan, the collateral is YOU.
Real estate is the true collateral for mortgage loans, as opposed to the individual borrower being the primary collateral. If the property owner misses payments for a few months or even for several years, the lender may eventually begin the foreclosure process to recapture the collateral for the original mortgage loan. Depending on the state and its respective foreclosure laws, the foreclosure process takes anywhere from 4 months to a full year.
The lender, bank, or loan servicing company will try to resell the same asset they took back from the borrower. The lender will try to sell it on the open market for the best price possible to recover the losses or even make a profit on the deal.
With a delinquent mortgage loan, a homeowner can at least stop making mortgage payments for a few months to several years if they don’t have the cash available to make the monthly mortgage payments. Yet, he still has a roof over his head for a relatively long period of time and may be able to recapture some, most, or all of the down payment he originally invested in their home.
The same property owner may later go out and buy another home or has the option to find a nice rental property at much lower monthly prices.
Even in the worst possible outcome, a property owner–who lost a $100,000 home or even a $100 million retail shopping center in the foreclosure process–this same person can file personal and/or corporate bankruptcy. They legally walk away from this and any other debt in bankruptcy court.
However, one of the very few types of debt a person may not legally delete in bankruptcy court is the student loan.
“Imagination Is More Important Than Knowledge….”
A person with staggering student loan debt, employed or unemployed, wealthy or not, is still stuck with that compounding student loan if he chooses to do nothing about it. This debt may follow him for the rest of his life and dramatically hinder his ability to find new sources of credit for things like homes, credit cards, automobiles, or business loans.
It’s best to confront negative situations, so that we may try to find solutions. Albert Einstein said these empowering words of wisdom:
“Imagination is more important than knowledge. For knowledge is limited to all we now know and understand, while imagination embraces the entire world and all there ever will be to know and understand.”
The majority of college educated Americans are very bright, but sadly they were not trained for the financial changes in our ever-changing financial world.
Some of the best education options are the ones that teach students how to make money out in the real world using their imagination and creativity.
For example, the median net profit earned by a “fix and flip” investor in California in 2013 (per Redfin) was over $100,000. San Francisco was ranked #1 at a median net gain of $194,000+ per deal. Denver, Chicago, Philadelphia, Portland, Baltimore, Washington D.C., and Seattle were reported to generate median “fix and flip” profits in 2013 within the $85,000 to the $113,000+ profit ranges.
How many jobs in the U.S. generated income within the $85,000 to $194,000+ profit range? Again, few educational or investment options today generate better returns than real estate–with or without massive student loan debt.
To find the most positive investment returns, you must find affordable and creative educational options. It’s a lot cheaper than college–and a much bigger bang for the buck.