Postpone College In Order to Pay For It With Cash?


This article is by Adam from Money RelationshipSubscribe to his site to get free updates on his journey out of debt.

One of my biggest financial regrets was taking out student loans for college. My wife and I currently have about $110,000 left to go on our loans and frankly, that number is hard to look at. I know for a fact that I could have graduated with $0 in student loans but I was just stupid with my money. I had great jobs throughout college but instead of using my money towards school, I used it for other useless junk.

I imagine many of you did exactly what I am about to tell you. Every semester, after the financial aid office received my Stafford loan disbursement, it was always for more than I owed the school. So of course, they cut me a check for the difference. Instead of using that money to pay off the loan (because I obviously didn’t NEED the money), I blew it on stuff that I can’t even remember. It was something that I always looked forward to every semester because it felt like free money. I thought to myself, don’t worry about it, you’re going to get a great job when you graduate and you’ll be able to pay it off in no time! Well, after 6 years of doing it (undergraduate and graduate), it added up. Now I’m stuck paying over $600 a month just for my loans. Oh, and I’m not even working in the field I got my degrees in!

Postpone College Until You Get Enough Cash?

Looking back, I know I could have paid for my first year of college with money from high school jobs. Well, what if you didn’t have a high school job and your parents didn’t save anything for your college? Should you wait a year until you get that money saved up? Personally, I think that it’s best to pay cash from the beginning. If you don’t have enough cash to start school then get a job to help pay for it. At least it will force you to get out in the real world and get some experience being an adult. That can be invaluable.

In addition to getting a job, you should also be looking for scholarships a couple of hours a day. Apply to as many as possible. The majority of them will probably reject you but I bet you will get a least a couple. Just think, the more scholarships you get, the less physical work you have to do!

You’ll Learn More By Paying in Cash

Another benefit to paying in cash is how it almost forces you to learn more. I have taken several classes that I paid cash for and I studied a lot more because I didn’t want to pay for it again. When I took classes using loan money, I slacked a little more. I’m not sure why, but I just knew I wouldn’t feel the financial pain as much if I had to take the class again (I never had to take a class a second time).

What do you think? Should you go straight to college even if it means taking out student loans?

Saving With Purpose: The College Savings Fund


This is the second post in a series called Saving With Purpose: Living a More Intentional Financial Life. In this series, I plan to highlight a number of specific savings goals my family has identified we would like to achieve over the next few decades.

Before having kids, both my wife and I agreed we wanted to help our children with their education. My own experience struggling to finish school after taking on student loans, and then charging tuition and books to a credit card, strengthened my position. Like all parents, I wanted better for my own kids.

However, we also want to balance our desire for them to have it easier, our own retirement plan, and my wish for them to learn the value of hard work. One of the mistakes many parents make is that so overload college savings they hurt their own financial plans.

I’ve known parents who saved $200,000 dollars in mutual funds for their kids’ college education, but have zilch in their own retirement plans, a big mortgage payment left from their refinance, and a host of other debts. I will always advise to take care of your own financial plans first, and college savings second. After all, there are no scholarships for retirement.

Having said that, because we are maxing out our retirement plans (more on that in an upcoming post in the series), we hope to also fund our kids’ college needs – at least a large percentage of them. Unfortunately, we got a late start because we put off college savings while paying off our debts. The good news is that we have more to save without debt payments. The bad news it will take some hefty savings contributions to cover college expenses for our oldest, now 10 years-old.

Determining Future College Costs

Hope you are sitting down for this section. College costs are ridiculously expensive, and getting more expensive every year as the rate of tuition costs increases at a faster rate than inflation (between 5%-8% per year). Let’s run some numbers at the website CollegeBoard.com, which has a pretty good calculator.

Assumptions

  • Annual college costs, in today’s dollars: $19,388 (4-year public, in-state)
  • College cost inflation rate: 5%
  • Expected years of attendance: 4
  • Percent of costs you plan to cover from savings: 100%

The inputs above yield the following future college costs for both kids:

  • Tuition costs per year in 8 years: $28,645
  • Tuition costs per year in 13 years: $36,550

For those keeping score at home, that works out to $123,463 and $157,574 (keep in mind, tuition continues to inflate the four years they are in school) in college expenses for our kids. Ouch. Of course, this is sort of a “worst-case” scenario considering most parents don’t have to pay “full retail” for tuition at most schools.

There are a variety of college scholarships, grants, tuition reimbursement plans (if employed), etc. that can help defray some of the costs. But if you’ve learned anything about me from the site, I like to aim big, so let’s work with these numbers for now.

Accounting for the modest amount we currently have in 529 plans, and a 7% growth rate of the funds (which may be a tad optimistic given recent history), that same website suggests we increase our monthly 529 savings plan contributions to $715 a month for our oldest child ($512 for our youngest). Okay, so it looks like we’ll be cash flowing a good bit of her tuition if she doesn’t earn any scholarships, because saving that amount would be a stretch.

So what’s the lesson here? Start saving early! If my daughter was a newborn today, I’d only have to save about half of that monthly amount (roughly $450) to hit a target 18 years out. If I had only taken my own advice ten years ago.

Keep Your Child Out of Debt – Alternative Options to Save Big on Textbooks


The following guest post was submitted by Austin of Foreigner’s Finances.

Many parents question how to bring up the subject of finances with their children. Some don’t want to sound, “uncool” but being worried about how financially ready your child is for the real world is normal. There are many financial lessons a parent can teach a child, but where does one begin?  This concern tends to pop up the most during this time of year, as children are leaving home for the first time and moving into college dorm rooms across the country.

After graduating from college in June, I have narrowed down my college experience to just one tip I wish my parents would have taught me before I left for school four years ago.

Don’t limit yourself to only buying textbooks from the college bookstore.

According to the Washington Post, “students at four-year schools spent, on average, about $900 for books and supplies in 2003-04“. This is not an amount the average 18-year-old can handle without diving into credit cards, and we all know this is a dangerous habit for young people.

Luckily, there are a wide range of options available to students on college campuses for accumulating textbooks at cheap prices. Prices that are repeatedly 50-90% cheaper than the bookstore. During my time in college, I only bought books from the bookstore my first semester of school and whenever it made financial sense. During 4 years, I saved over $2000 by avoiding the bookstore’s outrageous prices and using a variety of alternative methods to get textbooks.

3 steps that must occur for a student to save thousands on textbooks during college

1)  They must use their schedule and visit the campus bookstore’s website before school begins to see which books they will be needing for the semester. Too many students blindly walk into the bookstore on the first day of class and pay whatever price is listed on the book.

2)  Once the student knows which books they need, they can explore the variety of options available to college students for getting textbooks. Utilizing amazon.com, public libraries, and book swaps are just some of the ways students can find textbooks for prices that are often 50% cheaper than the bookstore. See my two favorite tips for getting textbooks below.

3)  Students must sell their textbooks at the end of the semester. Too many students keep their Biology 101 book because they think they might need to reference it at a future date. Chances are they won’t and if they do, the information can be found elsewhere. As soon as the semester is over, have the student sell their books online to maximize their value before a new edition comes out.

The 2 Steps that Saved me Over $1500 in College

In my e-book, Save Thousands on Textbooks, I released the 8 steps I used to save money on textbooks in college. Here are the two steps that made up 75% of my savings.

Interlibrary Loan

Every college belongs to an interlibrary loan system that connects its library to other libraries in the state. Even though I went to college with just 2,500 people, my library had access to over 73 libraries in the state, including huge universities. Every semester, I would check the interlibrary loan to see if they had any of the textbooks I needed for class. Almost every semester I would receive 2-3 textbooks from some random library in my state and this would provide me with hundreds of dollars in savings every time. For more information on how exactly to work the interlibrary loan system at your school, check out Step 3 in my e-book.

Get the Edition Down

Many students cringe at the thought of getting the wrong edition textbook for their class. I did too, until I saw two editions of the same textbook next to one another. Besides a new cover, the 2 differing editions were the exact same book! These textbook companies are pretty lazy and this happens almost every time with new editions of textbooks. Occasionally, a chapter is flipped or an image is different, but nothing significant is ever changed from one edition to another.

Once your student has this knowledge, they can either search for lower editions on interlibrary loan, or purchase them on amazon.com or half.com.

Need to see the savings to believe it?

As of August 15, 2009 the 14th edition of Smith and Robertson’s Business Law cost:

$142 on Amazon.

And how much did the 13th edition cost?

$11.

Getting the edition down will help your child save hundreds of dollars every semester.

By learning these textbook saving tips before entering college, your child should be able to avoid credit card debt and keep the money they’ve work hard for, in their bank accounts. Teach them a lesson that counts; teach them to save.

Editor’s note: I have a couple friends who have had success renting textbooks from Chegg.com.  One even referred to it as the “Netflix of textbooks.

Best 529 Plans


My weekend financial project is to shore up the kids’ 529 plans. With my oldest child a mere eight years from starting college, and us dreadfully behind in accumulating savings, I have decided it is time to move college savings up the list of priorities a bit. Time to hunt down the best 529 plans available.

The first step will be to conduct a more thorough review of our current investment elections, including the 529 plan itself, and the investment elections within the plan. Like most people, we went with our in-state option since it was a decent plan according to most rankings, and we could benefit from a state tax deduction on contributions. However, after reviewing performance of the limited fund options I’m not so sure it is the best place to park the kids’ college savings funds, tax deduction or not.

Which States Have the Best 529 Plans?

Utah

According to a recent Morningstar article, The Best and Worst 529 College-Savings Plans, it would appear both Utah and Virginia offer solid plans. Morningstar’s write up about the Utah plan sounded the most appealing to me:

For those who want a tax-sheltered way to save for college using Vanguard index funds, this is the plan. Utah’s 529 plan has long been a favorite of ours and remains a strong choice for its low costs, flexibility, and tried-and-true Vanguard index funds. The plan’s fees are a rock-bottom 0.22% to 0.35%, making it one of the cheapest plans in the country.

Hard to go wrong with “rock-bottom” fees and Vanguard Index funds!

Virginia

Virginia offers two 529 options: a direct-sold plan managed by the state gives the flexibility to invest in a variety of different mutual fund companies, and an advisor-sold CollegeAmerica plan which offers a nice mix of American Funds with relatively low fees. From Morningstar’s review:

The state’s other topnotch choice, the advisor-sold CollegeAmerica plan, remains a favorite for its large selection of mostly first-rate American Fund mutual funds that give investors access to a broad array of asset classes, including emerging markets, small-cap foreign stocks, and foreign fixed-income securities. Fees are attractive, too, as most of the plan’s A-share options are below 1.00% in total annual fees.

It is still a good idea to check out your in-state 529 plan, because the ability to deduct your contributions, up to a certain amount, is very appealing. But don’t fall into the trap of investing in a bad plan for a tax deduction. Over the long term, you will come out further ahead by investing in a healthy plan out of state, if necessary.

A Word About Age-Based Allocations

Nearly all 529 college savings plans now offer various levels of age-based allocation, from the most aggressive to to very conservative. One problem with these types of plans, and any targeted-allocation fund for that matter, is that the person managing the fund may have a much different risk tolerance than you do. This could lead to funds being invested too heavily in higher-risk investments too close to college age. A sudden downturn, like the one we saw in the fall of 2008, could quickly pull the rug out from under college plans by decimating a 529 plan balance.

Parents, Secure Your Own Retirement First

I love my kids more than anything, but I also recognize that if I don’t manage to sock away $50,000 in a college fund for them, life goes on. They can work their way through school, like I did, and they can apply for financial aid, grants, scholarships, etc.

I’m not particularly fond of student loans, although some small amount of borrowing could make sense to supplement other funding options. And before all you student loan fans email me, let me just say that I’ve heard from too many 24 year-olds drowning in $75,000 of student loan debt to be persuaded to like them.

For Canadians, a plan similar to a 529 is an RESP (Registered Education Savings Plan). In basic terms, this is an account you can start for your child and make contributions to over the years; it’s a great way to save for post-secondary education in Canada. Be sure to look into this as an option.

As parents, our top priority should be taking care of our own financial futures so that we are not a burden on our children. Once we have paid down debts, built a solid emergency fund, and are contributing to our own retirement plans, then we can turn our attention to college savings. Remember, there are no scholarships for retirement.

Save for College with Upromise – College Dream Sweepstakes – Win $10k


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Ways To Fund College


The stories are endless.  Joe and Sally saved their entire lives for their kid’s college education, but the recent market downturn has cut their college savings fund in half.  Now they are desperately searching for ways to fund college.  Often times this report is followed up by a tearful high school senior explaining their dream of attending an Ivy League school has been crushed.

I’m a father of two kids, and I know how it feels to want to give your kids everything.  But I honestly think parents are unnecessarily beating themselves up over these college fund balances.  Parents and college-bound kids are going to have to make some tough choices between now and next fall, and the toughest of those choices will be dealing with the financial reality that a large portion of their college funds are gone.

These days most families turn to student loans, particularly those who lost half the value of college savings in a matter of months.  Their story is a cautionary tale for those invested in risky investments too close to a financial goal, but since they all recognize that now there is no sense beating them over the head with portfolio allocation instructions.  No, we are where we are, and we have to figure out where to go from here. Because I generally dislike student loans, the following tips will intentionally leave Sallie Mae out of the mix.


Photo courtesy of StuSeeger

Seven Ways To Fund College Without A College Fund

1. Reconsider your choice of school.  I sound like the guy who doesn’t read his own articles.  I made the mistake of getting hung up on an out-of-state school because my best friend was going there, and I liked the football team, and it was my favorite college town.  Big mistake.  While I do have the ultimate souvenir from those days away at college (my wife), I also came home after 2 1/2 years with a pile of student loans and credit card debt.  After enrolling in a local university it was obvious the quality of education was just as good, and the tuition was considerably less.  Lesson learned.

2.  Ask for help from friends and family.  One of the more interesting concepts I have seen lately to formalize this process is a type of social investing market lead by Freshman Fund.  Students and parents tie the child’s Freshman Fund account to existing 529 college savings plans, and then share the student’s profile with family and friends.  Contributions are collected and deposited directly into the 529 plan behind the scenes (no need to share account numbers, etc. with extended family).

3.  Apply for every scholarship under the sun. I mean that quite literally. If I were a high school junior facing rising tuition costs and a small balance in my college savings fund I would make it my part time job to apply for as many scholarships as possible.  I would enter writing competitions, join various associations, and basically spend every free moment researching scholarship opportunities.  Even if you applied for 1,000 scholarships and 990 of them turned you down, there is a chance those remaining 10 could finance a year of school (or at least offset some of the costs of that first year).

4.  Get a part time job.  This one is a little controversial because some argue that part time work detracts from the college experience, or leads to lower grades. I started working my freshman year to cover books and miscellaneous expenses, and later worked even more hours to pay for an apartment and utilities. Admittedly, it was a drain, but I appreciated things far more than if my mom paid for everything.  I think it helps kids to have at least a little financial skin in the game.

5. Work full time for tuition reimbursement.  Many companies offer tuition reimbursement plans to their employees.  Start by researching companies in the field you are ultimately interested in studying. Most company websites offer a list of perks included in their benefits package, and if you have questions about tuition reimbursement eligibility contact the company’s human resources office (or recruiter) usually listed on the job search page.

6. Live at home and stay local, or commute a short distance. Room and board can add significant costs to already inflated tuition costs.  If you are short on cash you might be able to pull off tuition-only and stay and stay on the “Mom and Dad” meal plan. As a compromise, at least consider living at home your first year or two and then look for a reasonable off-campus option for the final years at school.

7. Take a year off to save up the cash. Again, not a popular option for most high school seniors eager to get started on college life. But families need to be realistic; if the money isn’t there it just isn’t there.  And with many people being laid off, or at least fearing they may be laid off, most parents are reluctant to try to cash flow tuition at an expensive school.  It might make sense to take a year off, work full time while living and home, and save every single dime you earn towards the next year’s tuition. I wish I had chosen this route – in fact, I ultimately did. I went to school right away for a couple years, returned home and worked for a couple years, and then wound up working my way through my remaining time at school.

Again, I want to stress to those parents and students out there who might be reading this that it is not healthy to play the blame game. Many parents are mad at themselves for not rolling funds into cash last year, and many students are equally mad at parents for losing so much of their college fund.  Being mad at yourself, or resentful towards your parents accomplishes nothing.  Now is the time to pull together as a family and work to find a solution that works best for everyone involved.

High school seniors, resist the temptation to take out huge student loans. I know the money is there, and you don’t have to pay it back for a few years, but you will have to pay it back.  When you graduate college you will be filled with the excitement of getting started in your career, and finding your first home. Don’t spoil it by tying a noose around your neck and hanging four years of student loans from it. Those loans will limit your options, and are often the gateway to other forms of debt such as credit cards and car loans. Make the sacrifices now so you don’t have to make them later.  I promise, ten years from now you won’t regret it.


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Stretch Your College Fund


Are you a parent interested in helping your child earn a college degree? Are you a student looking to save money on tuition? Having completed a B.A., M.A., and a Ph.D, I have perfected the art of stretching my college dollar. I was fortunate to have assistance from my parents, but I also saved them money by graduating from my undergraduate program in 3 years by following many of these tips.

Here are 10 ways to stretch your college fund:

1. Open a 529 savings account. Instead of putting your child’s college fund in a regular savings account, open a 529 account. A 529 plan is a state-run investment program that helps parents and children save for college. The value of your investment grows tax-free until withdrawn. In the years when withdrawals are made, the growth is taxed to the student not to the investor. This can be financially beneficial because a student’s tax bracket is usually lower. A 529 account can be used to pay for any accredited college and graduate school.

2. Take Advanced Placement (AP) courses. Incoming freshmen can literally shave off an entire term with the appropriate AP courses. Many high schools offer AP English, History, and Calculus. If your high school does not offer AP classes, check out your local community college (these courses are often offered at community college in the evening).

3. Start with community college. So you want a degree from the most prestigious university? Great, you can still start at your local community college! Community college is a great deal – lower tuition, smaller class sizes, and fewer impacted courses. And, students can transfer from community college to even the most prominent universities.

4. Attend a public university. Tax-payer dollars supplement public education for many reasons, among them so you can afford higher education. Public universities tend to be bigger than private institutions, but the education is not necessarily any different. In fact, large universities tend to hire big name faculty and have additional amenities.

5. Submit your FAFSA early. Although the FAFSA deadline is April 1, many people do not realize that the earlier you submit your application the greater your chances of being awarded financial aid. The FAFSA allows you access to loans, grants, scholarships, and work-study.

6. Apply for scholarships. Scholarship search engines such as www.fastweb.com, www.finaid.com, and www.petersons.com can direct you to thousands of internet based scholarships. However, the most fruitful scholarships searches are usually done in your local area or directly through your university. You should never have to pay for a scholarship application.

7. Supplement with online or community college courses. You may be attending an expensive liberal arts college, but you can take online and community college courses that count towards your degree. Check with your academic advisor to find out which courses are transferable towards your major. You can take these courses during the academic year or during the summer.

8. Utilize federal work study. If you submit your FAFSA and are not awarded a grant or loan, you may still qualify for federal work study. When you have a work study job your employer only pays a percentage of your full wage and the federal government picks up the rest. These jobs are typically offered on campus, which makes it easier to work while going to school. If you qualify for work study, you are obviously a more attractive candidate for the job.

9. Consider being a residential advisor. If you plan to attend a campus with on campus housing, you may be interested in becoming a residential advisor. These are students who live in the dorms and oversea the other students. Being a residential advisor also provides valuable life skills, such as mediation, time management, and communication. Typically, residential advisors receive room and board as compensation for their duties.

10. Know your limits. College is a transitional time and involves exploration of personal and educational interests. While you want to enjoy these exciting years, for every term you spend in school you will be paying for tuition, housing, food, textbooks, clothes, and extracurricular activities. Therefore, it’s important to maximize your chance of being successful – and this means knowing your limits. Enroll in as many units as you can realistically complete successfully, join as many clubs and organizations as you can reasonably attend, and enjoy as many social gatherings as you can without compromising your real purpose for being in college.

This guest post was submitted by Joy.  Joy is a new mom living in a small community in California. She blogs about simple living, budgeting, balancing home and work, and finding joy at www.JustPlainJoy.blogspot.com. She recently completed her PhD in Education and works as a Volunteer Coordinator at a state university. Check out Joy’s blog for more tips on Investing in Your Child’s Future.


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Money Saving Tips For College Students


With summer winding to a close many families are beginning the annual back-to-school trek with cars loaded down with dorm room goodies and eager college-bound students. College is one of the more exciting phases of young adulthood, but unfortunately it has also become one of the most expensive.

Opportunities abound on college campuses to separate you and your money. In fact, textbooks alone have killed many budgets (unless you’re like me and rented textbooks from Chegg.com). Worse yet, being a frugal college student can be potentially damaging to your social life. Here are a few money saving tips for college students to put to use their freshman year and beyond.

Student Loans

With rising tuition costs making a college degree as expensive as a small home, many families are turning to student loans to finance education. I’ve heard many families express that student loans are the “only option,” and when I was heading off to school I felt the same way. However, hindsight has helped to change my views on student loans, and recognize that there are other options.

First of all, loans may not be required if you opt to attend an in-state, public institution. It may not be the college you dreamed of attending as a kid, but chances are it is more than adequate in terms of the educational opportunities offered. I chose to go out of state myself, and that single decision added thousands to my tuition that could have been avoided by staying closer to home.

Room and Board

College dorms are not exactly known for four-star lodging, but are often much cheaper than off-campus housing and typically include a meal plan. Speaking of meal plans, if you are the type who just refuses to eat anything cooked in a cafeteria you may do better to skip the meal plan and load up on Ramen noodles. Just remember, there is a trade off for eating on the cheap–your health.

Unless you want to experience the “Freshman Fifteen,” or worse, I’d recommend sticking to the meal plan and eating a variety of fruits and vegetables with each meal, as a rule. Easier said than done with no less than seventeen pizza places within five miles of campus! And believe me, I made my share of late-night runs to Taco Bell!

Later in your matriculation you may find that joining up with roommates to split the costs of an off-campus apartment is cheaper than staying alone. If you go this route, be sure to fully investigate individual college housing contracts so you aren’t on the hook for a roommate who has a change of heart and goes home half way through the semester.

A Word About Credit Cards

Next to football fans, the loudest group you will find on your campus may be those soliciting credit card applications. If I should ever be in charge of a school one day (not likely) one of the first things I would do is end the agreement than allows credit card companies to sign up students on my campus in exchange for a free t-shirt. I don’t think credit cards are evil, but I do think they should be avoided in college.

Don’t fall for the “you need to build your credit” sales pitch–there will be plenty of time for that later when you have a solid job and can afford to repay your debts. Because I was strapped for cash while away at school I accepted a credit card to fund “life expenses” such as groceries, gas, and occasionally the utility bill! I left school with a free t-shirt and a pile of debt as souvenirs.

Entertainment

One of the perks of being around a college campus is that there are no shortages of opportunities for free or low-cost entertainment. Check out bulletin boards and websites at student unions or near the campus bookstore to stay up on the entertainment offerings around campus. Many times schools will offer free outdoor movies, or guest speakers.

When my wife (then girlfriend) and I were in college our first date was attending a motivational talk by the real life subject of the movie Rudy, Dan “Rudy” Ruettiger. As a football junkie, and a sucker for a motivational talk, this was right up my alley. I knew my wife was “the one” when she agreed to wait nearly two hours for a chance to meet “Rudy” and get my book autographed.

Keep your college ID on you when out and about your college town. Many stores and restaurants offer a nice discount to college students, especially around back to school shopping times when students are loading up on textbooks and other supplies.

Start a Savings Plan

One of my favorite lines from a great Chinese proverb reads, “The best time to plant a tree is twenty years ago.” As I sit here some thirteen years after my freshman year of college it is easy to play the “what if” game. What if I had started saving a little money all those years ago. I spent most of my college years broke, and working just to keep the lights in my apartment on and gas in my tank. At the time the last thing on my mind was trying to save money. After all, how much could I have really saved? Open a savings account (check out my review of the best online banks) and try to save 10% of any earnings, or $5 a week, or $25 a month. Don’t be overly concerned with the amount you are saving, just start saving something, consistently, to reinforce the idea that saving money is a good habit to develop at a young age.

Early Frugal Living

It is difficult when you are young to fully appreciate the benefits of living frugal. However, many special life events will likely occur in the decade after graduation. Most of you will get married, start a family and a new career, and maybe even buy your first home. Resist the temptation to saddle yourself with debt during your college years so you can enjoy these life experiences debt free.

Other “Back to School” Series Articles from The Life Skills Network:

Other “Back to School” Series Articles from The Money Writers:


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