The Truth about the cost of college

If you are a parent who plans to send your child to college READ THIS POST

As a parent today, you live in a unique situation when it comes to planning and paying for your children’s college education. We work with many parents and find that their child’s education is often a big goal, but is often an area where there is a lack of understanding of how to plan for this goal. Here are a few items that need more awareness in terms of college costs.

#1 The price of college tends to double every 9 years[i]

On average tuition tends to increase 8% per year. This means that from the time a child is born to when they would be at typical college-age the cost of their tuition would have tripled. In addition to tuition costs, there is also the increased cost of room and board, books, meals, etc. that should be factored into your plan.

#2 College isn’t a 4-year proposition anymore

The adage of squeezing 4 years into 6 is no joke anymore. More and more programs at colleges and universities are expecting the student to be on campus for a longer period. In fact, according to a 2016 study, the average time a student spends in college is now 5.2 academic years.[ii] The extra cost of one or two years can be debilitating when not factored appropriately.

#3 College can just be funded through student loans

While this is true, student loans can be the easiest types of loans to qualify for and the hardest to get rid of. Unlike an auto loan or mortgage, student loans are not tied to a tangible asset. 

So student loans create a liability that cannot be undone. Student loans are even difficult to discharge during bankruptcy.[iii]  Additionally, unlike other forms of debt where you understand the liability that you are taking on upfront, student loans tend to operate on a bit of a “blank check” principle where the cost increases year over year with the only recourse being to pull your student out of school.

These are just a few challenges that families face when it comes to understanding college costs and how to plan for it.

Now here are a few recommendations to help you with these challenges.

1. Understand how to construct your balance sheet to lower the cost of college.

Lower the cost of college? 

That is correct. Whether it be a public or private institution there is need-based assistance to families based on the completion of a FASFA and potentially the CSS profile. Understanding the types of assets that are counted and not counted on these forms, and letting that influence the construction of your balance sheet can make a big difference when it comes time to qualify for assistance. In fact, a good rule of thumb is that for every $100,000 of countable assets, your student's need-based aid is reduced by 5.6% (and that is even higher if the assets are in your child’s name…)

2. Have an accurate understanding of the costs of particular schools your child is interested in.

Just because a school looks to be less expensive on paper or even their website and another institution to be more, that is not always the case. When comparing different schools a proper analysis of the needs-based methodology used, institutional scholarships available and an accurate price of tuition is vital to making an informed decision.

3. Look at funding your child’s education in a balanced perspective with your other goals.

Going off to college is a very emotional time for the child and parent. We all know that making large financial decisions amid an emotional time is not a good idea, but this is exactly what tends to happen when it comes to a college decision. When a parent funds their child’s college experience out of context from their other goals (retirement, experiences, starting a business, etc) the result can be damaging on all parties. For example, a funded college that creates an underfunded retirement will only cause a burden on the child and parent in the future. College planning should be in coordination with all of your goals, not in opposition to them.

Now if you require some additional help, then you want to take advantage of our 30-minute complimentary consultation. In this short 30 minute consultation, you and I will discuss what you are trying to achieve, where you stand in your progress today, and afterward, we will be able to give an analysis of areas we may be able to help.

 To schedule your session, you can go directly to my calendar by clicking HERE.

Thanks

 Joel

PS: Just in case you skipped reading the entire article (like what I do sometimes??) here’s a summary:

• College cost doubles every 9 years
• College is often a 5 or 6-year proposition

SO… look for ways to reduce the cost of college (other than hoping your kid is the next Lebron James) by constructing your balance sheet wisely, understand different schools and their real cost of admission and make an informed, non-emotional decision.

I am offering a 30-minute complimentary consultation. To schedule your session click HERE.

  [i] https://finaid.org/savings/tuition-inflation/

[ii]https://nscresearchcenter.org/signaturereport11/#:~:text=For%20bachelor's%20degree%20earners%20who,of%20active%20enrollment%20within%204.8

[iii] https://www.studentloanborrowerassistance.org/bankruptcy/

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and Advisory Services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America? (Guardian), New York, NY. PAS is a wholly-owned subsidiary of Guardian. Consolidated Planning is not an affiliate or subsidiary of PAS or Guardian. 2020-105616, Exp. 7/22