College Funding: How Do You Finance a Dream?
Part I: It’s a Family Affair
It’s no wonder that planning for their children’s educational aspirations is at the top of most family’s priority lists when seeking assistance with their wealth management concerns. Financially, logically and emotionally, college planning is enormously expensive, enormously complicated and enormously confusing. For you and your child, it’s also enormously important.
The Empirical Challenges of Evaluating a College Degree
Consider this jumble of facts, the tip of an emerging analytical iceberg on the current state of higher education in America:
Fact: A new report shows that nearly half of the states have added good jobs in blue-collar industries for workers without BAs since 1991.
Fact: Weathering the Economic Storm: Those with Bachelor’s degrees fared much better recovering from the Great Recession than people with a high school diploma or less.
Fact: College tuition is still getting more expensive and the price of a college education rose faster than inflation again last year.
Fact: According to Boston University economist Laurence Kotlikoff, after factoring in the debt loads involved in a cost-versus-benefit analysis, plumbers have almost as much lifetime spending power as doctors.
Fact: Student debt is a bigger problem than ever with the student loan debt is now $1.5 trillion, the second highest consumer debt category - behind only mortgage debt - and higher than both credit cards and auto loans.
These and swarms of similar analyses stir up a buzz of questions in defining what’s personally “best” for each of us in the face of unfolding challenges found in the halls of higher education. And that’s before we even consider the weighty impact of our own beliefs and cultural influences.
Making It Personal
Like you, my wife and I have faced these same dizzying statistics for our own children, ages 21, 20 and 17. As do any parents, we wanted -and wondered -what’s best for them. In my conversations among clients, colleagues and community, I hear a wide range of views on the amounts parents want to contribute to the cause, from “Whatever it takes!” to “I paid my own way; my children can do the same.”
As I dig deeper in conversation, I often sense guilt, fear and doubts emerging. I hear it in their voices. I see it in their furrowed brows. As a friend expressed, “The cost of college is 10 times higher now than when I went to school. But my income is not 10 times that of my parents’.” His outstretched hands expressed it for him: What are we going to do?
At first, we joke about how our kids eat, entertain and travel at a level so much higher than we ever dreamed of at their age. We ponder whether that’s because we parents have upped the ante by doing so well for ourselves, enjoying increasingly finer dining, farther-flung travel, larger homes and the other trappings of success. Our lighthearted jokes take on a sharp edge as we admit that, sure, our kids have been enjoying the benefits of our ride. But to what end? Have we inadvertently placed them on an overly steep path that they may not be able to sustain-or may not want to-as they begin to make their own way in life?
We see influencing factors too, in the way that colleges market to parents. And make no mistake, that’s their marketing departments’ target audience. We visit prospective campuses. After covering the academic curricula to be provided, we are feted with tours designed to highlight luxurious accommodations and vibrant, extracurricular lifestyles to be enjoyed. Our children’s eyes sparkle and our own reflect their light. Or is that vice-versa?
When do the vital wealth management discussions take place-the ones about making sensible choices according to you and your child’s personal goals and financial circumstances?
When a family’s wealth has its limits, something’s got to give. And even when the assets are ample, there’s the matter of helping your children establish a healthy relationship with their existing or future wealth.
Consider the following real-life anecdote
I once met with a colleague whose daughter had been offered a full-scholarship, free ride to a pretty good state school, directly in her desired concentration. She was really excited about the offer. Then she was accepted to a more prestigious school, but with no financial aid offered. Her parents assured her the choice was hers alone (probably without any detailed financial discussions). She opted for the prestigious school, graduated and is living happily ever after.
BUT! I hear in her Dad’s voice and in his comments that he is somewhat bitter about the $250,000 he shelled out when there was a considerably less costly choice that would likely have delivered comparable results.
Time will tell how significant the extra cost will be on this family’s ongoing lifestyle. The point is, the subject was probably never discussed in advance as a family, so there was never the chance to factor it into the deliberations. Both parents and child missed an important opportunity to learn a life lesson about wealth. Instead, Mom and Dad probably told her not to worry about the money side; that they’d pay for any school she selected. And they did.
So how do we actually help our children keep their dreams afloat? How much of the responsibility should fall on their shoulders and our own? How can we bring their-and our own-dreams down from the stratosphere and into the realm of meaningful, personalized wealth management?
We’ve got to talk about how to pay for college - as individuals, family and community.
Admittedly, it’s not an easy conversation. You may feel certain obligations to maintain appearance in the college choices your family makes. Peer pressure, to be blunt. It may also feel alien to hold detailed financial conversations with your son or daughter who, in your mind’s eye, is still that achingly trusting child, clamping confidently onto your forefinger during his or her first wobbly stand.
But your peers don’t matter. Your child does. And that child is on the brink of becoming a man or a woman. Still mostly trusting, still a little wobbly but for better or worse, not for very much longer.
As a concerned parent, I’ve been giving these challenges a great deal of thought. As a professional wealth manager, I’ve also been closely watching the related financial facts and figures; familiarizing myself with economic realities; listening to the questions and concerns of my clients, friends and colleagues; and objectively assessing what practical solutions may exist.
My conclusion: I believe that many families are seriously overdue for some candid, in-depth conversations about the costs and benefits of higher education. From the standpoints of prudent household fiscal management as well as personal family well-being, we’ve got some sacred cows that need to be examined-and in some cases, put to pasture.
You have just read the first of three parts on this topic of College Funding: How Do You Finance a Dream? Continue to read part 2 HERE.