To Be or Not to Be…A College Grad?

When you consider that Americans owe more than $1 trillion in student loan debt and that the average class of 2016 graduating student held over $37,000 of debt, it begs the question, “Does going to college make financial sense for my child?” Of course there are other factors to think about beyond finances, such as if your child even has a desire to attend college. But for now, we’re going to focus on the costs versus the benefits of college attendance.

Key Benefits

According to research by the Hamilton Project, workers holding a bachelor’s degree earn $1 million more over their working lives than mere high school graduates. Thus the data suggest that pursuing a college degree can pay off in the long run (presumably, as long as you enter a field that values having a degree).

But another not-often-mentioned benefit is that the greater one’s education, the less unemployment that person will likely experience. We saw this play out in the 2008-2009 “Great Recession,” when unemployment was much greater for lower-skilled workers. College graduates typically enjoy better job security even during bad economic times. They are more sought-after than their less formally educated counterparts.

The Costs

But all this comes at a price. The Bureau of Labor Statistics shows that the average annual increase in tuition has been over 6% since 1983. College tuition costs have increased at a far higher rate than other household expenses. And why are college costs rising? Apparently, colleges are spending more on programs and facilities to “entice” the best students to their institutions. There has also been an increase in hiring so that the schools can boast about their low student-to-professor ratio. The lower ratio implies that the student will enjoy more attention from the professor.

There is also a major difference in cost between public and private colleges. The College Board reports that the average cost per year for in-state students at a public college is $9,410; but for private colleges this figure rises to $32,410, meaning that private colleges cost 244% more per year than public ones! Since it doesn’t look like college costs will come down anytime soon but will keep increasing, how can you expect to pay for your child to attend college without either of you having to take on significant debt?

Assuming your child is young enough, you can start saving now using a college savings vehicle such as a 529 account. There are many advantages to using the 529 college savings account, which a financial advisor can explain to you. But basically, the account lets you make fairly generous contributions, which can actually grow tax-free as long as the funds are withdrawn for their intended purpose. And if your child chooses not to go to school, you remain in control of the funds and can pass the funds down to the next in line or even use them yourself to get that PhD you’ve always dreamed about.

Your child may also be eligible for financial aid including grants and scholarships, which generally do not require any repayment. It is a good idea to start reading up on the rules surrounding these types of arrangements now because, for example, some grants or scholarships will not be available to a child with too much in savings in his or her own name or who is living with you as a dependent. Again, your financial advisor can help sort through the various options to plan around your best-fit savings method.

Finally, student loans are another way to help pay for college. There are many types of student loans that are offered and before taking any of them, it’s important to understand how they work and what the payment schedule can be so that trouble can be avoided. Because choosing how to borrow can be a complicated decision, the financial advisors at Alpha Fiduciary can help you decide the best approach.

About Alpha Fiduciary

We are driven by a desire to help our clients in as many aspects of their lives as possible, often extending beyond rates of return. Wealth management is more than handling your money. The dynamics of life influence your financial stability and can impact important decisions. We strive to understand the complexities of our clients’ lives so we can develop complete financial solutions that address them adequately. We are an advisory firm that helps you recognize, deal with, and solve life’s challenges through Total Wealth Management.