Paying for College: Take a Pragmatic Point of View
Part 3 of College Funding: How do you Finance a Dream?
Last time we discussed how to speak with your child about choices you should make together, such as where they’d like to go, where they can realistically afford to go and how much each of you can and should expect to contribute. Read Part 2 HERE.
Higher Education is an Investment
For your children’s and your own well-being, remember that a college degree is an investment. It is not sacrilege to speak to your child about the return on investment of their degree, measured by the salary he or she can expect to earn with the degree. In fact I recommend it.
If music theory or Australian anthropology is your child’s reason for living, so be it. Dreams are hard to come by; I’m not recommending you dash them. But, truly, aren’t your children best positioned to achieve their dreams (or choose other, more economically favorable ones that are of equal interest to them) if they go in as fully informed as possible of the financial and logistical realities related to their choice?
In assessing undergraduate goals, it helps to include a discussion of what today’s employers are actually requiring in their desired field. Is a graduate degree going to be essential? How long will it likely take to unload the debt incurred? What jobs seem available and where?
To illustrate, say your child has his heart set on becoming a teacher. An admirable goal indeed. But say he chooses to pursue his education degree at High Dollar University, where one year of schooling is estimated at just under $58,000. Compare that to teacher’s median pay for mid-career of $55,000 (per payscale.com). That’s mid-career, starting salaries are closer to $35,000.
If you do the math, your son faces working around 9.4 years to earn the education costs back in after-tax income. To pursue his heart’s desire while reducing that tall number of years to a manageable leap, he might consider a different, more affordable institution for acquiring his degree. And/or, perhaps he can specialize in a field of education with more attractive employment prospects.
Often, financing higher education involves your child taking on some form of student loans to make up the difference of what parents want or are able contribute to the school of their dreams. We are not addressing the dangerous trend of how students are taking on a large amount of school debt in this article, but want to bring attention to the long-term effects on your children. Our friend, Allie, who graduated two years ago has this to say: “As a 17 year old, I didn't fully understand the importance of choosing a school where I could graduate with little or no debt when the emphasis instead was around finding the 'perfect' college. Now, two years after graduation, I am so grateful that big decisions about jobs or moving or traveling have not been commandeered by the need to pay off such an insurmountable debt. Instead, I can make decisions based on my curiosities or what I think might make me the happiest — even if only in the short term. That financial freedom is something I am so grateful for and has opened post-graduate opportunities I didn't even know I'd want when I was choosing a college.”
Prepare Your Child (and yourself) for Job Loss Due to Automation.
Career paths in the coming decades may not be as linear as it was for past generations. Automation may change, even eliminate, the jobs of today. It may also create knew and even unheard of new occupations. Prepare your child to succeed in this changing career environment to earn an income by having the knowledge, training and skills which will allow them to carry out an occupation that society will need and value. Discuss with your child the job market will reward careers that involve managing, creating, communicating and thinking skills. It will prepare them, and you, to avoid careers that will be lost to automation.
Don’t sacrifice your own well-being on the altar of college funding.
Don’t get me wrong. I love my children more than oxygen. But just as the airline stewards wisely instruct us to don our own air masks before placing them on our offspring, providing for your children’s true best interests may not be as obvious as a sky’s-the-Iimit approach to college funding. If helping your child pursue his or her life’s goals impoverishes you, puts your ability to meet future expenses at significant risk, or short-changes the younger siblings, the tale is unlikely to have a happy ending for any of you.
It’s important to consider a multitude of factors when deciding how much you should contribute to your child’s education. Instead of a wide-open wallet, look at your own current and future earnings from employment, the number of children you have and your own retirement needs. Read more of a fundamental problem: Education has been deemed invaluable – at any price.
I believe parents often have a skewed, if well-intended view of their responsibilities regarding their children’s college funding. I frequently hear my clients and peers tell me they must send their children to the best schools they can get into, which, as mentioned earlier, usually translates into the highest tuition. They justify the decision by proclaiming that no expense is too great for their children’s future.
As parents, this is a hard argument to refute. We love and want what’s best for our children. It’s why we willingly make personal sacrifices throughout our lives to benefit them. But maybe we become so used to making those necessary sacrifices that we lose sight of the end goal.
By approaching college planning as a family/team event, objectively considering the costs and benefits of higher education as an investment as well as a learning opportunity, you guide your child in making a successful transition from dependent youngster to self-sufficient adult - emotionally, intellectually and financially. When viewed from this perspective, your son’s or daughter’s dreams stand a better chance of elevating from flights of fancy into real-life adventures.
If you want to learn more on how to make the best use of the 529 College Savings Plan to meet your goals toward your kids’, grandkids’ or even your own college funding, see our blog post: Your 529 College Savings Plan Quick Reference.
Read Part 1 of our College Funding Series: Funding College: Have You Talked Through the Monumental Family Decision?
Read Part 2 of our College Funding Series: College Funding Factors: First Are Candid Family Conversations