Investing in College
Last spring, a friend of mine at his daughter’s high school graduation party stated -- only somewhat jokingly, that he wanted to buy her a utility van and some tools, and encourage her to get a plumbing apprenticeship. He figured that it would cost him less and give her a better chance at success than sending her to college. I have worked with many clients on planning and saving for their children’s college education, as if it was simply a given. It was definitely a requirement in my parents house, and I am certainly heading that direction with our oldest child, now a mere year and a half from heading off to college himself. But IS it still worth it?
I recently read the book Is College Worth It?, by William J Bennett, former Secretary of Education, and David Wilezol. In it they state that college costs have exceeded overall inflation by a wide margin for decades. At the same time, based on a recent study, eighty four percent of employers rate college graduates as unprepared or only somewhat prepared for the job. How can students/parents pay for it? In many cases, the answer has been debt. Availability of student loan programs has grown significantly. Average debt load per student upon graduation is $23,300 –And that is just undergrad. Median debt for an MA is $25,000, a PhD $52,000, professional degree is close to $80,000, up to $150,000 for a JD.
A common statement has been that on average, the difference between a high school diploma and a college degree is $1 million in lifetime earnings. But this does not take into consideration the cost of that education and the portion of the graduates’ income that will go towards repaying students during their lifetime.
Now before I get a call from my Dad (thanks for sending me to college), about how important education is, I will state that yes, it is worth it. –IF it is the right degree, from the right institution, for the right student. Think of your tuition dollars as an investment. Will the money you spend on education generate sufficient income over their lifetime to make it worthwhile? They want to study Petroleum Engineering? Sure. Smart and motivated enough to get into Colorado School of Mines, Harvey Mudd, or Stanford? Sure. –If that is what your student is cut out for. But clearly those schools and those programs aren’t for everyone. So what about the rest of us?
If they aren’t sure what they want to do, spending big dollars at a big name school until they do decide may not give you or them the return you are looking for. If they are determined to go to college, Bennett and Wilezol urge you to consider the following:
Examine the data: Ask the schools financial aid office about the average students indebtedness upon graduation. If they offer non-loan financial aid ask if it will be the same all 4 years, check the Department of Education’s database of student loan default rates for various schools, PayScale.com has a useful chart calculating 30 year ROI, average financial aid, net cost, etc for colleges. This data can also be viewed by geography and by degree field.
1. Be smart with student loans: Pay as much as possible out of family resources/income, using debt as a last resort. If you do borrow, make sure you and the student know the total cost of borrowing over the lifetime of the loan –it is not going to pay itself back. If you aren’t confident that the prospective income from the degree will be more than sufficient to repay the loan, reevaluate other educational options. This could include going to a less heralded school or living at home instead of on campus.
2. Get a good education – STEM(science, technology, engineering and mathematics) graduates have a greater probability of getting hired upon graduation and on average, have higher starting salaries. Although liberal arts (history, literature, philosophy, religion) or social science (psychology, sociology, political science) may be extremely intellectually rewarding, the student should understand that their employment prospects may be quite limited, particularly in the current economy. Yes they can also give a strong foundation for graduate degrees, but then you need to consider the additional investment that would entail as well.
3. Set Expectations Appropriately – manage expectations of what you/the student can expect to obtain from their college education. If they are hightly motivated to get excellent grades in a high-demand field, they will have a much better chance of getting a job with a good salary after graduation. On the other hand, if they take on a large amount of debt to major in a subject for which employers have little demand, there is a high probability of significant student loan payments without adequate salary to cover them.
An undergraduate degree is not the sure thing it used to be (if it ever was). Many recent grads find themselves with piles of debt and jobs that do not provide adequate income to repay the cost of their degrees, much less provide them the lifestyle they hoped to achieve. But students have more non-traditional options, including online education, apprenticeship programs, trade schools and Massive Open Online Courses (MOOCs). Regardless of which direction your student heads, they should be aware of the total cost and consider the overall economic expectations for their chosen path.
I recently read the book Is College Worth It?, by William J Bennett, former Secretary of Education, and David Wilezol. In it they state that college costs have exceeded overall inflation by a wide margin for decades. At the same time, based on a recent study, eighty four percent of employers rate college graduates as unprepared or only somewhat prepared for the job. How can students/parents pay for it? In many cases, the answer has been debt. Availability of student loan programs has grown significantly. Average debt load per student upon graduation is $23,300 –And that is just undergrad. Median debt for an MA is $25,000, a PhD $52,000, professional degree is close to $80,000, up to $150,000 for a JD.
A common statement has been that on average, the difference between a high school diploma and a college degree is $1 million in lifetime earnings. But this does not take into consideration the cost of that education and the portion of the graduates’ income that will go towards repaying students during their lifetime.
Now before I get a call from my Dad (thanks for sending me to college), about how important education is, I will state that yes, it is worth it. –IF it is the right degree, from the right institution, for the right student. Think of your tuition dollars as an investment. Will the money you spend on education generate sufficient income over their lifetime to make it worthwhile? They want to study Petroleum Engineering? Sure. Smart and motivated enough to get into Colorado School of Mines, Harvey Mudd, or Stanford? Sure. –If that is what your student is cut out for. But clearly those schools and those programs aren’t for everyone. So what about the rest of us?
If they aren’t sure what they want to do, spending big dollars at a big name school until they do decide may not give you or them the return you are looking for. If they are determined to go to college, Bennett and Wilezol urge you to consider the following:
Examine the data: Ask the schools financial aid office about the average students indebtedness upon graduation. If they offer non-loan financial aid ask if it will be the same all 4 years, check the Department of Education’s database of student loan default rates for various schools, PayScale.com has a useful chart calculating 30 year ROI, average financial aid, net cost, etc for colleges. This data can also be viewed by geography and by degree field.
1. Be smart with student loans: Pay as much as possible out of family resources/income, using debt as a last resort. If you do borrow, make sure you and the student know the total cost of borrowing over the lifetime of the loan –it is not going to pay itself back. If you aren’t confident that the prospective income from the degree will be more than sufficient to repay the loan, reevaluate other educational options. This could include going to a less heralded school or living at home instead of on campus.
2. Get a good education – STEM(science, technology, engineering and mathematics) graduates have a greater probability of getting hired upon graduation and on average, have higher starting salaries. Although liberal arts (history, literature, philosophy, religion) or social science (psychology, sociology, political science) may be extremely intellectually rewarding, the student should understand that their employment prospects may be quite limited, particularly in the current economy. Yes they can also give a strong foundation for graduate degrees, but then you need to consider the additional investment that would entail as well.
3. Set Expectations Appropriately – manage expectations of what you/the student can expect to obtain from their college education. If they are hightly motivated to get excellent grades in a high-demand field, they will have a much better chance of getting a job with a good salary after graduation. On the other hand, if they take on a large amount of debt to major in a subject for which employers have little demand, there is a high probability of significant student loan payments without adequate salary to cover them.
An undergraduate degree is not the sure thing it used to be (if it ever was). Many recent grads find themselves with piles of debt and jobs that do not provide adequate income to repay the cost of their degrees, much less provide them the lifestyle they hoped to achieve. But students have more non-traditional options, including online education, apprenticeship programs, trade schools and Massive Open Online Courses (MOOCs). Regardless of which direction your student heads, they should be aware of the total cost and consider the overall economic expectations for their chosen path.