An often heard mantra on personal finance blogs is to get out of debt as soon as possible. Rightly so, debt can truly cripple someone’s ability to save in the long run. The most talked about type of debt, especially on USA-based blogs, are student loans to pay for higher education. Not only did my first reaction “how bad can it be?” immediately vanish when six-figure numbers popped up, my head actually started to hurt. Insanity! Because over $100,000 in debt just for a university degree is an inconceivably high amount to a Belgian, it occurred to me that I had a huge financial head start to many of my United States peers.
In comparison to many other countries, the Belgian education system is almost fully subsidized by the government. Officially, elementary and secondary school are completely free, while college and university require a low fixed tuition fee. Basically, for the upcoming 2014-2015 academic year you pay €61.9 to enroll, while every credit costs an additional €9.3. Below a certain income threshold, the price of individual credits even goes down to as low as €0.7. An entire five-year program will therefore cost just over 3,000 euros for a median income household (more or less $28,000 after taxes – yes, the flipside of free education is a high tax base), a bargain!
Of course that does not take into account any additional required expenses, such as syllabi, course books, and housing costs if you move to another city. Most students can, however, count on their parents to cover these costs. On average, the costs of an entire academic year do not run in the tens of thousands of euros, but remain in the four-figure range. My personal expenses usually amounted to around €7,000 every year. This literally included everything except my fun money, which came out of my own pocket. Now, I reckon you can get this number down to €3,000-4,000 easily if you go all out Mustachian and continue living with your parents.
When I finally graduated after six years – I have way too many degrees, but at least they were cheap – I did so without any debt to my name. Quite the contrary, I had over €20,000 in the bank. That’s an edge of 125,000 US dollars over my American self in another time-space dimension! At my current savings rate it would take over seven years to bridge that debt gap, not taking into account future interests on the principal owed. Furthermore, the 20,000 euros in savings can immediately be put to work: in 40 years’ time that money will have compounded to over €140,000 at 5% growth every year.
I feel truly lucky to have such a great head start, especially because I never considered the possibility of financial independence before graduating. Not having to deal with student debt immediately boosted my possible retirement date forward by at least seven years. The savings I built up during my time at university also allowed me to enter the stock market with hardly any short-term risk because I had more than enough cash socked away in case of an emergency.
Here’s to holding on to my lead in the next couple of years!