College Dreaming

For those of you who are parents of high school seniors, you know far too well the agonies of  the college application season.  It’s a seemingly endless marathon of tests, applications, essays, recommendations, and documentation, and soon it will all be topped off with the heart-breaking thin letter of rejection or the joyful fat letter of acceptance. 

It’s easy for parents to get caught up in the excitement of the college application process, and normal to want to share your child’s happiness if they succeed, against all odds, at getting into their pricey “dream school.”

 But the college decision also needs to be a hard-nosed financial calculation, and sometimes, for a parent, it just comes down to saying “no.”

 If there’s a college decision looming in your family’s future, take a look at “The Parent Trap: College Edition,” in the February 6  Business Week.  The article talks about how many parents are taking on way too much debt to put their kids through college, jeopardizing their own retirement in the process. (We’ve always reminded parents that while their kids can take out loans for college, no one wants to give you a loan to finance your retirement.)

In our practice, we’ve counseled parents on how to save for college, and how much to spend, for over two decades.  And with one child in college and another just over a year away, I know first hand how the costs add up.  Here are a few of the key take-aways for parents:

From a financial standpoint, college is critical.  The only thing worse than paying for college is not paying for it.  College or other higher education is your son’s or daughter’s best chance to secure a decent financial future.  Not going to college could cost your child more than tuition, in the long run.  “College graduates age 25 and over earn nearly twice as much as workers who stopped with a high school diploma,” says the College Savings Plan Network.  So to put it in perspective, be glad if your child understands the value of higher education, wants to go, and got admitted somewhere. 

While college is a good investment, that doesn’t mean that college at any price is a good investment. Mark Kantrowitz, publisher of the great  website FinAid.org, says “a rule of thumb is to borrow no more than your first year’s salary for your entire education.” It makes no financial sense to pay over $50,000 per year in a private university if you plan to go into a career at the lower end of the salary scale.  You’ll be paying off your debt and making lifestyle sacrifices for far too many years. (Note: I didn’t say you won’t derive personal fulfillment, I just said it doesn’t make financial sense).  College is an investment in your future.  As with any investment, you have to weigh the costs against the expected benefits.

Open a dialogue with your child as early as possible to manage expectations.  If you can’t contribute at all financially to the college expense, say so.  If you can contribute only $5,000 per year, let them know.  That way, they can start early on to save money, locate scholarships, and most importantly, find the right fit between a college and their budget. Some friends with college-age kids get the guilt treatment when they refuse to take out loans to pay for Private U. Starting the college dialogue early may not spare you the sulks (after all, we are dealing with teenagers!), but should make you feel like you’ve played straight from the start.

To keep costs low, consider all alternatives, like community college with a transfer down the road to State U. Or, encourage your child to do a BA at an in-state public university, and save money so he or she can afford grad school. Your child can also save money by living at home, and avoiding room and board costs, if there’s a school nearby. Many in-state public universities offer a top-notch undergraduate education at rock-bottom prices. For a list of the “best values” in public education, see Kiplinger’s Best Values in Public Colleges or Kiplinger’s Best Values in Private Colleges.  We’re always proud to see several of our state universities on that list.  Some of our clients, who could easily afford any college in the nation, strongly encourage their kids to attend University of Florida, New College, Florida State, UCF or other top state schools.  They have become extremely hard to get into, and offer a great education for a very reasonable price.

The bottom line: do your best to make sure your kids or grand-kids go to college, but don’t confuse price and value, and don’t sacrifice your own financial welfare when lower-cost alternatives to expensive schools are readily available.

 

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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