Thursday, October 22, 2015

The Student Debt "Bubble"?

About 25 years ago, federal government policies were implemented to encourage students to get a higher education—including borrowing the funds for that education if necessary. It was assumed that college graduates could afford the debt because they would be earning more from better paying jobs. However, the law of unintended consequences reared its ugly head. College expenses have been increasing much faster than the general rate of inflation. In addition, especially since the 2008 recession, jobs created have not been ones that paid exceptionally well.
An Associated Press article, written by Josh Boah in early October of 2015, gave some statistics about the student debt incurred for a higher education—and how it can have a multi-generational affect. Student debt in America now totals approximately $1.2 trillion. An Associated Press analysis of that data provided the following statistics:

  1. Americans over age 40 account for approximately 35% of the education debt. Extended loan repayment schedules, mid-career changes, and signing for children’s educational borrowing have driven the increase from its 25% proportion in 2004.
  2. Adults in the age 35-50 year old bracket owe about the same amount (an average of $20,000) as those students in the age 34 and younger bracket.
  3. Parents who still have college debt and teenage children have more difficulties in providing education assistance for their children. Such parents have an average of $4,000 for children’s education savings vs. the $20,000 average for children whose parents have no student debt.
  4. Student debt repayments are surpassing the cost of food for the average college educated head of household under age 40 (who has student debt outstanding)--$404 for debt repayment vs. what the family spends per month at the grocery store.
Student debt levels are causing potential problems in an already weak economy. Older graduates are delaying or foregoing some spending which would benefit the economy (such as housing and related purchases). Some graduates are accepting employment (usually at lower paying jobs) which would qualify them for student loan forgiveness.  Second generation student debtors will be looking at greater debt levels to continue their education.

There are some planning opportunities for pre-college students on how to handle the costs of continuing education. We, at Paragon Financial Advisors, can assist parents (and grandparents) in the best way to proceed on college funding. However, stay tuned—we haven’t heard the last of the student debt “bubble."  Paragon Financial Advisors is a fee-only registered investment advisory company located in College Station, Texas. We offer financial planning and investment management.

Thursday, October 1, 2015

Interesting Times

There is an old curse: “May you live in interesting times.” The stock market has definitely had those “interesting times” in the last few months. Triple digit moves in the index (both positive and negative) have had investors hanging onto their hats for a wild ride. Pundits on the financial news channels have mentioned that the third quarter of 2015 was the worst quarter in the last four years. For 2015 (January 1 through September 30), major financial indices have been as follows:
  • Dow Jones Industrial Average: -8.8%
  • S&P 500: -6.7%
  • Russell 2000 (Small Caps): -8.8%
  • Barclays Aggregate Bond Index: -0.6%
  • High Yield Corporate Bond Index: -7.8%

In this quarter's newsletter I discussed  a “white paper” from the Vanguard Group that I found quite interesting. As you probably know, the Vanguard Group manages significant amounts of money in their mutual funds and exchange traded funds (ETFs). A major area of emphasis for them has been indexing markets and market segments. The article, “The added value of financial advisors,” provides some interesting research insights from a company that was founded for individual investors. One of advisor benefits cited is “…helping you get through tough markets.” There are strategies which can potentially reduce the market downturns. We hope you find the information worthwhile, and urge you to call us to discuss those downturn strategies.

For a complete copy of this Quarter's Newsletter with the "white paper" article discussed please email and request to be added to the mailing list.