Should I Go to College

One of the biggest decision we face in life is, “will I be going to college,” Not only is it a weighty decision that may control many outcomes in our life, but we often make the choice at an extremely young age. Most just ask, “Should I go to college?” For the most part, we have touted going to college as the greatest necessity to be successful in our country. However, with recent changes to the economy and the rapid growth of technology, views are evolving as fast as the next generation of iPhones. According to recent reports, college is no longer ‘prerequisite’ to success that it once was.

Currently, the job market is weak, and this means that fewer young people are willing to pay the high fees and go through four years of studying for the risk of not seeing a reward. Just recently, a poll showed that around half of white-collar workers believe a degree is necessary for their job. Additionally, nearly 60% of all US workers don’t need an undergraduate degree. Thus when your young adult asks, “Should I go to College” you can understand their questioning conventional wisdom.

However, the debate roars on because nearly 70% of executives and managers say that a degree is still required. With the cost of college steadily increasing, we are going to assess the benefits and drawbacks to see just how much of an impact this decision has on young Americans today.

The Costs of Going to College

Over the years, the average debt per student is on the rise. Many believe that young adults with less money will soon be priced out of an education. In turn, this will lead to a financial aid gap because they lack money to reach college while being too wealthy for assistance via a federal aid. In the past 35 years, tuition alone has risen by 700%. Of course, earnings for college graduates haven’t increased by nearly as much.

In an in-state public school, the College Board suggested that $22,200 was a reasonable annual budget for a student in 2013. When it comes to private college, this rises to $43,200. With most universities, you can find the cost of tuition, but this alone doesn’t account for the full cost of college. In fact, tuition is just a percentage of the total cost because you also have to factor in the following;

• All students will have to pay for room and board while at college. While some students choose to live at home and study at a nearby school, most prefer to go away and rely on the support from the universities themselves regarding on- and off-campus housing.
• Books and supplies also account for a substantial yearly cost. On top of this, current students need to have a laptop along with a host of other equipment and supplies just to stay abreast.
• Finally, the miscellaneous expenses such as clothing, transportation, insurance, and entertainment rack up fast. They aren’t usually a fixed amount and often depend on the student’s lifestyle.

The Benefits of Going to College

Let’s start with the advantages of going to college. For many years, the appeal has been the same – if you go to college, you have the opportunity to earn more money in the long run. Over a lifetime, the difference can be astounding. Some estimates project college students making $1 million more than those who stick with their high school diploma. For those who continue education into a professional or doctoral degree, life earnings can even reach $5 million. Ever since the beginning of the first college, there has been a strong correlation between college degrees and the best-paid jobs. Furthermore, most middle-income jobs will fall to graduates of high school.

While some struggle to find a job during turbulent times, research also suggests that undergraduates will be safer and that they boast lower rates of unemployment. Aside from money, college is also said to lead to higher job satisfaction. Above all, teachers, therapists, firefighters, and psychologists are supposed to be the most satisfying, and these all require advanced education.

Drawbacks of Going to College

Ultimately, the two main disadvantages of going to college are time and money. However, these are becoming more pronounced as time goes on and more young people than ever are weighing their options before making a final decision.

Many believe going to college doesn’t allow the development of critical, technical, or entrepreneurial skills; therefore valuable time is lost. As a result, many successful entrepreneurs choose to drop out to develop these skills while they’re still young. It gives them, this time, to focus on learning how to formulate and grow a business.

Previously, we pointed out the significance of having to make this career-shaping decision at such a young age. It’s an insurmountable amount of pressure for a kid. No matter how talented someone is in the classroom growing up, college is an entirely different lifestyle. Many simply aren’t ready for that type of huge transition. Going to college without the necessary preparation can lead to poor grades, dropping out, and unnecessary stress. That can cause more damage to a career than good. When this occurs, the possibility of a gap year perhaps should be encouraged or advised. However, all too often students feel pressured to complete college now.

Regardless of what teachers or parents say, the decision of whether to go to college or not is entirely personal. If a student is clearly ready, the application process should begin as soon as possible. If not, other avenues should be explored rather than seeing it as a cynical choice.

The Payment Process of Going to College

Although the cost of college is expensive, it should no longer be a shock to anyone. That’s why the best way to cope with the cost is to start saving as soon as possible. While aid will come in handy; research shows people that borrow for college pay twice as much than those who invest in a savings plan.

If you want to get a jump start on saving for your child, there are several methods to explore. Here, we will show you just a few options at your disposal. Be sure to speak to a finance professional if you want or need more help.

529 Plans

Legally called ‘qualified tuition plans,’ a 529 will allow you save money and grow it. When you withdraw the money, it’s tax-free if it’s used for educational purposes, making this option ever-more attractive.

There are two different types of 529 plans – the college savings plan and a pre-paid tuition plan. Because both are state sponsored, they carry tax benefits; how much of a benefit will depend on the state you live. Furthermore, the owner of the account will always retain control despite the student becoming an adult. Here’s a look at both:

Pre-Paid Tuition

• Money placed in the account, it’s guaranteed to grow at the rate of tuition increases at nearby colleges. With this in mind, it allows families to pay today’s price even if their child still has five years until they will be going to college. Of course, the downside is that the child must choose a school that participates in a 529 plan.

College Savings

• Unlike the first option, this one doesn’t offer any guarantees regarding the market. Despite this, there’s room for a bigger reward which is why some prefer it. Depending on the state, there’s likely a limit for contributions. A caveat to this plan is that when you withdraw money, and it doesn’t go towards education-related expenses, you are subject to standard taxes and penalties.

When deciding, you may want to discuss your options with a financial professional. If financial aid is part of your payment plan, these savings will affect those calculations. With that said, only 5.64% of the formula for financial aid takes ‘parental assets’ into account. On the other hand, money owned by the child counts 20%. If the 529 plan is in someone else’s name, other than the parent or child, such as a grandparent, the money will be treated as income which means that the calculations will impact the following year.

Stafford Loans

When it comes to financing college, student loans are the most common option. They mean that no preparation or planning needs to happen ahead of time. Typically, the loan is paid back after the student has completed their studies and finds a well-paying job. If you’re planning on applying for a student loan, it’s important to consider all the implications the loan will have in the future. Having too many student loans will increase your debt after graduation.

For borrowers, the loan rates were recently reassessed, making thing cheaper all around. However, keep in mind this does not cover private loans. Treasury yields cause rates to vary each year. However, like a fixed rate mortgage, your rate will stay the same for the duration of your loan.

If you’re looking for more information on loans, you can pick up the Free Application for Federal Student Aid (FAFSA) for Stafford loans. Both subsidized and unsubsidized are fixed-rate options. The good thing about the subsidized is no interest accrues after graduation. Additionally, PLUS loans are another alternative for parents of dependent undergraduates. Typically, the cost of attendance minus any other forms of financial aid will equal how much you can borrow.

UTMA/UGMA Accounts

These acronyms stand for the Uniform Transfers to Minors Act and the Uniform Gifts to Minors Act. These are custodial accounts that can be set up by the parent. Over time, family and friends can contribute to the account, and they transfer to the beneficiary at either 18 or 21 years of age ( depending on the state). Since you can use the funds can be for absolutely anything, some find this selection preferable. Furthermore, there are no contribution limits. However, there are some other considerations to look at;

• Once the money is in the account, there is no reversing the transaction.
• When the minor becomes an adult, they are free to use the money as they please.
• Because these accounts are set up with a single name as the beneficiary, they cannot be transferred over to a sibling or anyone else at a later date.
• In some scenarios, you may need to complete a tax return for the minor. If you’re unsure, contact a finance professional.

Coverdell Education Savings Account

If you are also looking to save for your child’s K-12 education, a Coverdell ESA will provide another option. Similar to a Roth IRA, these accounts allow you to contribute funds after tax and can, therefore, grow completely tax-free. When you use the distributions for educational purposes, they’re also free from tax. Under the necessary rules and regulations, a beneficiary has to be under the age of 18 or have disabilities. Also, there are some other considerations;

• Once the recipient reaches their 18th birthday, you can no longer deposit funds into the account. You will need to withdraw the case by the age of 30 or else various taxes, and penalties will apply.
• Much like the 529 plans, the parent retains control over the account, but the funds go towards the beneficiary rather than being transferred back to the originator of the account.
• Overall, no more than $2,000 can be contributed per child each tax year.

Your Choice

Regardless of which option you chose for financial backing a child going to college, your child is about to become a student at a university, and professional advice is the most sensible route to choose. While the internet and various blogs can help you navigate your options, no one will be able to give you the support a professional can offer. They can look into your individual circumstances and direct you based on your unique set of circumstances.

As we have seen, different accounts have different characteristics. While the student will take control of some accounts upon turning a certain age, other options allow the adult to remain in control even after they reach 18 or 21 which may be a deciding factor for you. Similarly, the limitations of contributions to some accounts may not work for your plan.

How Can a Financial Representative Help?

When a child reaches an age where college starts to become a topic of conversation, it can be a scary time for the family. While not wanting to discourage them, there can be a time of quiet conversations and worries of how to afford it. Financial representatives can help you deal with this particularly tricky time.

Many believe that financial representatives only help in regards to retirement, but that’s simply not true. In reality, they can help with any major financial decision you’ll make in life; paying for college very much falls under this umbrella. As we mentioned previously, a financial representative will sit down with you and discuss your many options. They will discourage you from venturing down certain avenues, and advise you on the best route for you to send your child to college without ruining your (and your child’s) financial future.

Whether you’re a parent reading this or a child looking into your college future, be sure to share it with your loved ones as soon as possible. The sooner you start to plan for college, the better position you will be in when the time finally comes. So there we have it, going to college has pros and cons on both sides of the fence. Make sure you consider the career path that you or your child want to go down. That will help you find the right answer as to whether going to college is necessary. Good luck!

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