The Bridge Principle – Pay Ahead, Reduce Risk

Risk reduction is something we are all familiar with, as is getting a “jump start” on a project. I’d like to show you what I did to reduce the risks of paying for college while getting ahead financially. This principle is at the heart of a successful strategy to graduating debt free and it puts you in direct control of your money and your future – I like it! I call it the Bridge Principle. Read on to see how it works

The bridge is a lump sum of saved money that you draw upon to pay for each term or payment plan installment up front. This means you write a check or authorize a debit transaction to pay it all from your own account – scary. Then, you have until the next payment is due to make enough money to pay the next one up front also. All this time you have at least one more term or payment plan installment’s worth sitting in the bank, untouched. This gives you security and freedom while you work hard to make next term’s payment. This bridge is your insurance policy against borrowing based on things life can throw at us all: a poor earning month, an unexpectedly large bill because you had to take an extra lab or more credits, a month you used extra water or electricity, or a month you had to replace the tires on your car.

The “bridge” is your ticket out of living paycheck to paycheck without anything to absorb the normal blows of life in college except the ever-eager embrace of the coils of student loans. I wish it were more fancy, complicated, or arcane, but it really isn’t. If you start with more money in the bank, a source of reliable income, and the discipline not to spend every penny as you earn it makes it exponentially more likely that you will not need to borrow money in order to graduate – making you one of the top 20% of college students in the country. That’s really the “big secret” in education.

(PS: If you think being part of the “top percent” of anything is inherently bad, we need to talk.)

Note: in all honesty, if we look at college as an economic transaction, when a student cannot, of his or her own ability and work, pay the bill by working and paying one term ahead, the value of the degree earned no longer merits the effort put in. In other words, if you can’t work your way through a certain degree at a certain school, it’s really not worth your time and money. A broke kid from Nowheresvillle, USA can get more value out of a basic business degree for $8,000 per year, paid in full, than a kid with a degree in accordion performance from a prestigious private college for $60,000 per year financed on student loans. Likewise, I would propose a (let’s just say “worthless”) degree in Medieval Russian Languages paid in full by hard work and smart money management is worth more than a (let’s just say “most employable on earth”) Nursing degree with $75,000 in debt. The lessons you learn by paying your own way and making it happen are worth more to your personal economic bottom line, net worth, and self worth, than any degree or credential can ever provide. In “private sector terms” demonstrating your ability to perform under pressure, within budget, and to a high standard is imminently practical and highly valuable to any employer or home business. Just food for thought…

To build the bridge, you need to save up twice your normal term expenses including tuition, books, fees, and living costs (housing, transportation, utilities, and food). Take you last tuition bill, or use the college cost estimator, and find out how much this is. Then find out how many months each term contains and add that many month’s worth of expenses. This is your target savings number. Aim to put this much away before even starting your next term. If you have to take a term off of school to amass this amount, trust me it’s worth it – you’ll be debt-free when you graduate and that is worth everything.

You will also need a source of income. I like to calculate this yearly because it’s often simpler. Your target income is your total term expenses multiplied by the number of terms in a year. Taking a cue from Tim Ferris, you can break down your target income into hourly, daily, or paycheck increments, whatever motivates you the most.

For example, Sean has  a tuition bill of $3,000 every three months. He also pays $300 in rent, and has about $700 in expenses each month. That means Sean’s average term expenses are $3,000 plus ($1,000 per month x 3 months) = about $6,000. To build the bridge, he needs no less than $12,000 in the bank before he begins the next term, enough to cover two whole terms, in cash, in case something goes wrong.

His target income also needs to be enough to cover the next term while he is doing the current one. This means he needs to make about $6,000 every three months, or $2,000 per month.

To put this into perspective, Here’s a breakdown of Sean’s Target Income:
$24,000 per year
$~2,000 per month
$460 per week
$83 per day at 6 day per week
OR $15 per hour on average at 30 hours per week
In other words, with financial aid and in the course of a regular year including summer break, this goal is within reach of anyone.

The Bridge is so powerful because it also mitigates risk. To use the example above, Sean needs a pretty delicate balance of work and school, but he can also depend on taking a percentage of the bridge each year to pay his bills, as long as he does not deplete the bridge before graduation. For example if over 60% of students take 5 years to graduate (which is the case right now), Sean can expect to draw 20% of his bridge each year and still be alright. This means that if he depletes his $6,000 bridge by 20% every year, or $100 per month (or the equivalent of an extra shift per week), he will still graduate debt free at the end of five years. And you can too.

Remember that student loans take a lot longer to pay off than most people think. At 6% interest over a loan term of 10 years (many students take 20), every dollar you borrow must be paid back by almost double. It’s worth working a couple extra hours per week over the next 3-5 years to reduce borrowing than to work twice the amount you should over the next ten years, talk about a bad deal.

I went to a state school, kept my expenses extremely low, and lived at home while in school. I was able to work several jobs and had about $2,500 in savings after building my bridge by going to Alaska for one term and earning enough to pay off my students loans at the time and put away the bridge. I still worked 7 days per week, but I graduated debt free after four years (after taking two terms off to work, and spending one term playing ultimate Frisbee) and still saved up almost $8,000 for my future goals.

You really can graduate debt-free! It just takes dedication, discipline, and the willingness to make a sacrifice and work hard. Build that Bridge, and start on your path to debt-free graduation!

Summary: Build the bridge by saving 2 times your term’s expenses, pay each term up front from this savings, and make sure your term’s income equals your term’s expenses (or just 20% less if you must) to stay ahead and prevent you from borrowing.

Bonus: If your program requires an internship, hold out for one that is paid. It is literally counterproductive to work for nothing and pay for the credits for the internship “class.” Convince your instructor that a real job in your field counts as an “internship” and make your reports meticulous and immaculate so there will be no complaints. If you need help locating a job in your field, get into the hidden job market with  my short and effective method POWER HOUR: 60 Minute Access to the Hidden Job Market right away.

Until next time,
Do Brave Deeds and Endure!
– Ben at Debt Freeks

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