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Would you want free tuition, in exchange for a percentage of income?

I read this interesting article yesterday about Oregon’s “Pay it Forward, Pay it Back” pilot tuition plan. Basically this means that students will be allowed to go to a public university or community college tuition-free, in exchange for a binding contract that they will pay a small, fixed percentage of their annual gross income for 20 years after they graduate.

In this financial model, there was a proposal that all community college students pay 1.5% of their income, while all four-year public university students pay 3% of their income – both for 20 years after graduation. The pilot program will likely choose one university and one community college to experiment with.

In theory, this is a pretty good plan. It lets students get an education without worrying about carrying a debt load after graduation. They can start their lives sooner, and not be bound by massive student loan payments every month.

But once I started to really think about this program and what it would mean financially, the more I realized how much I disliked the idea. Here’s why:

3% of your income over 20 years will likely be more than the degree would cost

Let’s say as a new graduate, you make $40,000 at your first job, and then your salary goes up from there so that 20 years later, you are making $90,000.

Your tuition for a 4-year degree from Portland State University will cost you $25,500 ($2,125 per quarter x 3 quarters/year = $6,375/year x 4 years). However, if you were to pay 3% over 20 years of your career, you would end up paying $35,700 – which is $10,200 more than what the degree is actually worth.

YEAR SALARY 3% OF SALARY YEAR SALARY 3% OF SALARY
Year 1 $40,000 $1,200 Year 11 $60,000 $1,800
Year 2 $40,000 $1,200 Year 12 $60,000 $1,800
Year 3 $45,000 $1,350 Year 13 $65,000 $1,950
Year 4 $45,000 $1,350 Year 14 $65,000 $1,950
Year 5 $45,000 $1,350 Year 15 $70,000 $2,100
Year 6 $50,000 $1,500 Year 16 $70,000 $2,100
Year 7 $50,000 $1,500 Year 17 $75,000 $2,250
Year 8 $55,000 $1,650 Year 18 $75,000 $2,250
Year 9 $55,000 $1,650 Year 19 $80,000 $2,400
Year 10 $55,000 $1,650 Year 20 $90,000 $2,700

You’re not allowed to pay it off earlier

A big problem I have is that you don’t get to decide when you pay off your loans. So if you start earning staggering amounts of money over your career (or if you really just hate the idea of owing money to somebody for that long), there’s no way to pay off the tuition you owe – you will be perpetually “in debt” for 20 years of your life with no way to get out of it. That sucks.

It’s still a student loan

A professor at PSU was quoted in the article as saying, “essentially what [the program] does is allows you not to carry a debt load. It’s not a debt you graduate with.”

Umm… debt is debt. Whether you owe $25,500 immediately after graduation, or $35,700 over 20 years, you still owe the money to somebody, and you’re still obligated to pay it. The Pay it Forward, Pay it Back program just prolongs the length in which a student needs to make payments for their education, without actually calling it what it is: a student loan.

Here are a few selected comments from the article:

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As someone who had to work extremely hard to get $20,000 out of student debt, I can appreciate what they’re trying to do with this program. But, I would rather have higher payments and a higher interest rate if it means I can get rid of my debt in a few years, instead of a few decades. I want to decide where my money goes. I want to be debt-free on my own terms. And if I make more money in the future, I don’t want it going towards something I purchased in the past. But, that’s just me.

What are your thoughts on the Pay it Forward, Pay it Back program?

How I chose my first home

Some people say they knew exactly when they had found “The One” for them. They just got that giddy feeling inside of them. Everything about it was perfect. It was love at first sight.

Of course, I’m talking about buying your first home. :)

For me, I’ve always been a little bit indecisive when it comes to making big decisions, and buying my first home was no exception. I always thought I’d buy my first home with a partner (maybe a husband), but life doesn’t always work out the way you think it will. I had spent years saving up for my down payment, and I was ready to buy. I just needed to find “The One” for me.

Related: Two years of home ownership

Once I found a real estate agent that I wanted to work with, I came up with a wish list of things that I wanted for my first home:

  • Less than $280,000
  • One bedroom
  • Townhouse (separate entrance)
  • In-suite laundry
  • Parking spot
  • Open floor plan

My agent took me to see 11 different properties over two weekends. I saw everything from new builds with granite countertops and all the upgrades, to rundown units that needed a lot of TLC. In the end, the two that appealed to me were townhouses. I liked the idea of having a separate entrance – it felt like more of a home to me, instead of living in a condo building surrounded by neighbours.

The first townhouse was listed at $265,900. It was a one-bedroom home in a very desirable location, and ticked off all of the items on my wish list. The layout was a little quirky, but it had a nice front porch and was just steps away from a beautiful park.

Related: Take this quick and easy quiz to see if you’re ready to become a homeowner!

The second townhouse was $292,000. It was a two-bedroom home with a slightly more closed off floor plan, but closer to public transportation. It was a little more expensive than my wish list budget, but I could see how I would be happy there.

It was a really tough decision. I visited both places twice, and spent some time just hanging out. I took into consideration the layout of both places, as well as the space provided (the two-bedroom townhouse was approximately 250 sq. ft. bigger). Having a bigger home would mean it would be more appropriate for a longer period of my life. But did I really need the space?

Most importantly, I thought about the price. Was the second townhouse worth almost $30,000 more?

Related: How I saved for my down payment

Broken down over 25 or 30 years, it wasn’t a big difference in terms of monthly payments. But I needed to think about a bunch of different factors, such as the amount of interest paid over that time frame, how quickly it would take for me to pay off the mortgage, and how a larger monthly payment would affect my other life goals (such as retirement and travel).

In the end, I chose the one-bedroom townhouse because I knew I wouldn’t be able to fully utilize the space that a two-bedroom offered. My real estate agent and I were able to negotiate the price down to $259,900 – $6,000 off of the list price.

By choosing the cheaper option, I’m living in a nicer building complex, as well as saving on my mortgage, utility bills, future renovations, and the cost and energy of running a home. But perhaps most importantly, as a single homeowner, I have the security in knowing that I can comfortably afford my mortgage (even if interest rates rise) by myself.

Disclaimer: This post content is sponsored by Royal Bank of Canada, however the views and opinions expressed herein represent my own and not those of Royal Bank of Canada or any other party and do not constitute financial, legal or other advice.

Q2 Review: 2013 Goals

Well, the year is half over. It’s been an interesting journey so far: adjusting to life back in Canada, starting a new job, breaking up with my long-term boyfriend, and trying to live a more balanced life. I think I’ve done a pretty good job so far, but of course everything can be improved.

I’m excited for the next 6 months, but I’m also a bit nervous that I’m not going to hit many of my goals listed below. I haven’t developed a plan to get myself to that income level I want to be at (and that income level is tied to so many of my financial goals). If I were still freelance writing at the pace I was last year, I’d definitely be there… but life sort of took over, and I really didn’t want to go back to working 75 hours/week. I’m enjoying the time off, but at the same time, I know I have to work harder. So I think the rest of the year is going to be a balancing act for me. How much can I pile onto my plate without feeling overwhelmed?

Financial

  • Earn $85,000 to $90,000NEEDS WORK. Just like after Q1, if I keep earning at the pace that I’m earning, I won’t make it. At the halfway point of the year, I’m still hovering around $75,000 to $80,000. I picked up a small freelance writing contract, as well as a piece for the Toronto Star, which should get me back into the swing of writing.
  • Put an extra $2,500 onto the mortgageON TRACK. I lost one month of increased payments because the bank took a long time to process my request, and then they couldn’t do it until the billing cycle lined up properly. But I’m back on track and averaging around $220 extra each month.
  • Save $16,000 in my Retirement PortfolioNEEDS WORK. This has got to start being a priority for me. If my goal is to eventually retire early, then my lifestyle and my savings rate has got to reflect that.
  • Diversify my investmentsON TRACK. I’m just about done with my stock stimulator, and am ready to go with my Questrade account.
  • Start contributing to charityON TRACK. I’ve decided on the charity that I’m going to contribute to, I just need to fill in the paperwork to get my monthly contribution started.

Personal

  • Go on one big tripON TRACK. Well, I’m still going to France in October for work, but my “big trip” to Morocco might get axed. It depends on how long I’m in Europe for work now. There has been some talk about extending my trip to include other nearby countries, and if that’s the case, then I doubt I’ll have time to go on vacation. :| But that means I can spend my vacation days doing something else. Maybe I’ll finally get to do the West Coast Trail! Or I can roll them over into next year, and do a longer trip then.
  • Take a French language classNEEDS WORK. Since Nic and I broke up, I’m less interested in learning French. But that being said, I do still think it’s a valuable skill to have – especially in the industry that I’m in.

Professional

  • Invest in a grown-up wardrobeON TRACK. I’ve spent a lot of money so far this year on my wardrobe, but I still think I’m missing some things. Right now I’m attempting a shopping ban until the end of September. This will help me reduce the amount of money I’m spending on clothing, as well as ensure I’m buying the right size. The suit I bought in February? It is way too big for me already. :|
  • Read 6 marketing books. NEEDS WORK. I’ve started reading two books, but should have finished 3 books by now to stay on pace.
  • Scale back my freelancingCHECK! Do you love how the only goal I’ve actually completely achieved so far this year is my goal of doing less? :P I do think I need to step up my freelancing a little bit, and I’ve started bringing my hours back up.

July 2013 Goals

I have no travel plans for the month of July, but I added in $75 extra for gas/food in case I want to do a small road trip, or maybe get in an overnight hike near the end of the month (have been thinking of Black Tusk for a while).

Other than that, it’s a pretty standard month of spending for me. I increased my Entertainment budget a little bit, since friends and family will be in town over the next few weeks. Plus, there’s a concert (Postal Service), and a few local meet-ups I’d like to attend.

07 - July Budget

July 2013 Goals:

  • Run 25-40km. This is going to depend on how I feel. After my medical procedure a few days ago, I was told I can’t do any physical activity for a week, and then nothing strenuous for up to 2-3 weeks afterwards. I’m not going to push it because I want a full recovery… but at the same time, I have my first ever 10km race happening in mid-August. My biggest fear is that I’ll be well enough to start running again, but I’ll be in lazy summer mode, and won’t want to do it anymore.
  • Make $1,000 in freelance income. I’ve gotta get back on track and earn more money.
  • Utilize my Questrade account. After doing research over the past few months, I’ve been debating about when I’m going to eventually take the plunge and purchase something. Now is the time! I’m scared.
  • Pack a lunch every day. No buying lunch at work at all this month. It’s so tempting to go across the street to pick up cheap, delicious sushi. But it’s not that great for me or my wallet. So I’m going to take the extra effort to make salads and healthier foods. Especially if I end up going out for dinners with friends.
  • Rebalance my RRSP account. I like doing this once a year, but haven’t gotten around to it for at least 18 months. :|

 

June 2013 Goals: Review

I thought this month would look a lot worse than it actually does, since I bought an expensive juicer AND got a speeding ticket. :| But, I still only went slightly over budget, so I’m happy.

This month has also been extremely social. I’ve been seeing a lot more of my friends lately, and have been more inclined to meet new people and put myself out there. But as a result, everything else in my life gets pushed aside. This is evident in the amount of freelance income I brought in, the foods that I ate, and in the state of my home. And truthfully, the only reason my expenses weren’t higher was because for about 5 days out of the month, all of my entertainment and food was accounted for because of work.

July will be all about balance and getting myself back into a schedule that sees me more committed to my goals.

06 - June Recap

Over Budget:

  • Home Insurance – I was just estimating the cost of it, and I was pretty close. This is my annual home insurance policy as a one-time fee.
  • Household – Breville juicer! I’ve already used it a few times, and am in love with it. My only comment so far is that it takes a lot more time to clean than my blender. But I’ve made some delicious juices AND even citrus salad dressing, which was pretty cool.
  • Personal Care – Some hair products from Sephora.
  • Miscellaneous – Yeah… that was my speeding ticket. :|

Net Worth Change: + $587 (+ 0.71%)

My RRSPs went down a lot this month, and I also didn’t bring in much freelance income.

June 2013 Goals:

  • Run 90km total and a 15km run. CHECK! I am so proud of my running schedule this month. Last month, I ran 76km total, and this month I ended up reaching 102 km – including runs at 15.4km, 16.4km, and 17.3km. :)
  • Make an additional $1,100 in extra income. FAIL. I only brought in $267.95. But, I billed out for approximately $2,350… so I should hopefully see the results of that hard work sometime in the next 2 months or so.
  • Price out household “stuff” that I want to get done. FAIL. This month was so busy that I just didn’t even have time. I did think about it though, if that gets me any points. :) But my problem is that as soon as I start to price out things to buy around the house, I realize I’d rather spend my money on other things. I know I need to buy things like a bed and window blinds eventually…
  • Put $275 into my Questrade TFSA account. FAIL. I changed my mind halfway through the month, and decided that cash was better off in my RRSPs instead.