Photo by David Menidrey on Unsplash
(This is an updated repost of a blog post from a few years back)
When my kids were little, we looked forward to Halloween. Every year they would dress up in their scariest costumes and we would walk them through the neighborhood as they bashfully went up to each house to trick or treat.
Our biggest fears at the time were that they would eat too much candy or stay up too late on a school night.
Today my girls are both in college. Their trick-or-treating days are behind them and their choice of Halloween costumes has changed considerably.
Now we worry about how to help them pay for college, and how the choices they make during these early years of adulthood will affect their lives. Their college years are likely to be some of the best of their life. Nevertheless, we are parents. So, we worry.
As you get your kids ready for the Halloween weekend ahead, try not to be too scared as you read these five frightful facts about paying for college …
Cost of attendance has never been higher. When I went to the University of Minnesota in 1989, tuition and fees were less than $2,500. Today, tuition and fees top alone $16k. If you add in room and board, the total cost of attendance exceeds $33,000 a year.
Private colleges and universities can cost more than double that amount. In extreme cases, the very best schools may come with an annual price tag of over $80,000. Sometimes with little, if any, financial aid to help pay for it.
On the bright side, there are less expensive alternatives. State colleges in Minnesota and Wisconsin still cost as little as $25,000 a year or less even without financial aid. Some local community colleges and technical schools have price tags under $6,000.
For more information on how much college costs, don’t be afraid to spend some time on the MN Office of Higher Education website. You can visit their website here.
Student loan debt for women is much higher than for men. According to the American Association of University Women, women account for nearly 2/3 of the total amount of outstanding student loan debt in the U.S. – nearly $1 trillion.
Their research showed that women are more likely than men to borrow for college (41% vs 35%), they tend to take on larger loans ($2,700 more over 4 years), often get paid less than men for comparable work, and are more likely to enter career fields that have lower income potential.
In addition, women are more likely than men to take time out of the work force or work part-time to care for their families, making it even more difficult to pay their student loans. Add it all up and you have a serious student loan debt problem that affects women disproportionately to men.
Your student may not graduate in 4 years. 4-year graduation rates at the best colleges often exceed 85%, meaning the likelihood of graduating in the traditional 4-year time frame is quite high.
However, that’s not true at every school. According to College Factual, the University of MN Twin Cities has a 4-year graduation rate of 64%. Not ideal, but way better than the 41% graduation rate at the average public school across the country (CNBC: National Center For Education Statistics).
Private schools in Minnesota report an average 4-year graduation rate of 67%, third highest in the nation. Note: The phrase “MN private colleges” includes only the 17 member schools of the MN Private College Council. You can find a list of them here.
Adding a 5th year to college increases the total amount spent on college by at least 25%. What’s more, many scholarships may not carry over to a 5th year adding to the total cost, not to mention the opportunity cost of delaying entry to the work force by another year.
As you research schools for your student, ask “What is your 4-year grad rate?”. The higher the number the greater the odds are that your student will finish their degree in that time frame.
Paying for college may come at the cost of your retirement. 73% of parents with high school aged kids list paying for college as their top concern. However, funding your retirement should be an even bigger priority.
I started offering college planning workshops at local high schools 20 years ago because I realized that the biggest obstacle many families face when saving for retirement is the college tuition bill they will pay when their kids go to school.
Too often I see parents liquidate retirement accounts, take on debt or reduce their retirement savings to pay for college. Not only does this threaten their financial security in retirement, but it results in needless taxes and penalties, and will reduce any need-based financial aid that you may have been entitled to.
As difficult as it is, parents must pay for college while at the same time planning for their own retirement. Pro tip: this is where working with a financial advisor with expertise in college planning and retirement planning comes in handy.
4-years of college may not be enough. Your kids likely come home from high school with dreams of becoming a doctor, lawyer, veterinarian, educator or pursuing other professional careers that require more than a 4-year college degree.
According to research by the Association of American Medical Colleges, the median student loan debt for med school grads is over $200,000.
At the University of Minnesota, 41% of medical school students graduate with debt loads between $200,000 and $299,999.
That may be on the extreme end, but many other careers require advanced degrees as well. Often the cost of a graduate or professional education program may be double what you were paying for undergraduate tuition.
One more scary fact…
You know how in the movies when you think the bad guy has finally been vanquished then, suddenly, BOOM! there he is again? Well, read on for one last frightful fact sure to keep you up at night, if you dare.
People over age 65 are the fastest growing group of people with student loan debt. Many parents struggle with their own student loan debt for years, sometimes decades, after completing their education.
Often when I do my Pay Less For College presentations a parent will tell me that they still have their own student loans even as their kids are about to start college themselves. In other cases, parents co-sign loans for their kids, often resulting in mom and dad being responsible for the loan payments. In the event of default, the government will garnish wages or even Social Security payments to collect on these loans.
The Government Accounting Office (GAO) reported that between the year 2005 and 2015 the number of people over age 65 with outstanding student loan balances increased by over 300%, and the total amount of outstanding debt increased nearly tenfold during that decade. This trend shows no sign of slowing. In a recent interview on the Marketplace Morning Report, economics journalist, Chris Farrell, commented that about 3.5 million people age 60 and older owe more than $125 billion in student loans.
Paying the bills in retirement is hard enough. Adding student loan payments to your retirement income need may just be the final nail in the coffin.
Don’t be afraid.
Paying for college may be a big, scary goal, but it shouldn’t leave you paralyzed with fear. An affordable college education is within reach if you make yourself a smart consumer of a college education.
A financial advisor with expertise in college and retirement planning can help you pay for college without risking your retirement. Knowing what college will cost, developing an action plan to pay for it, and creating a long-term financial plan to meet your retirement goals is the key.
To discuss any of the topics in this blog or to learn more about how we can help you Cross The Bridge To A Confident Retirement, please contact me through my web site mikebranch.net, call me directly at 651-379-3935 or email me at mpbranch@focusfinancial.com.