The goal of attaining a college degree is deeply ingrained in the American dream. It’s both aspirational and practical. Almost 70 percent of high school graduates will head to college in the year they graduate high school. And while not all of those kids end up graduating (only about 50 percent do), those who do earn their degree can expect to earn an additional $17,500 each year for their efforts, compared to their peers with just a high school diploma.
So it is safe to say college is a good investment, when we look at the return that graduates can realize. But looking at it in this way is only a wild simplification. It fails to account for the many realities surrounding a family’s and student’s preparedness to actually make that investment in a prudent way.
So how do you nail down your own realities on how to pay for that college tuition? It certainly calls for planning: ideally, planning well ahead. The reality is that college has gotten a lot more expensive over the past few decades, and is expected to continue to get more expensive. According to the U.S. Bureau of Labor Statistics, tuition increases have averaged between 6 and 9 percent per annum since the 1970s. Even though it’s closer to 6 percent now, college tuition costs increase far more than typical inflation, and the prospect of ever-increasing college costs is daunting.
Which raises the uncomfortable question: Given the prospect of spiraling costs, how do you decide what tradeoffs and compromises will you be willing to live with?
So, in order of ease, I offer the following on dealing with the tuition dilemma.
First, be wealthy enough to simply write that check for $30,000 to $65,000 each year. Then move on to all of your other, more pleasurable pursuits. Life is grand. This is ideal, but just about nobody is in this position.
If that’s not an option, start saving when your child is born. Ideally you would consider a 529 college savings plan. This allows after-tax contributions which grow tax-free, much like a Roth IRA. With enough diligence, time, and market returns, you could easily save $100,000 or $150,000 by the time the money is needed. And maybe that’s enough. But if you are starting a new family, money is often in short supply. Just save whatever you can. You may be surprised what you end up with.
What if you saved, but it won’t cover the costs completely? Or even partially?
Consider what kind of financial aid you may be eligible for. This requires planning and forethought. If you make good income, but are still facing a shortfall, you may decrease the amount of aid you are eligible for. Ideally you would look at this two to three years prior to college. That’s where planning comes in. There are specialists out there who can counsel you on how to best apply for aid packages and how to arrange your affairs before you apply.
You got a good financial aid package, but you are still short? It’s worth trying to negotiate a lower tuition. This may sound kooky, but it is becoming more common, and is certainly worth a try.
Still short? What about loans? Loans may seem like a panacea, but as millions of graduates will tell you, they frequently turn into millstones around your neck. That doesn’t mean you shouldn’t consider them, but do look at them with a realistic eye to what servicing the debt will actually cost you. If the loans are in the student’s name and it is understood that they will be responsible for those costs, then some kind of estimate on what they can expect to earn is needed. Then prepare a budget and get a glimpse of whether the student can realistically pay this debt, start saving for the future, and not live a life like an ascetic monk. If this debt management is unrealistic, then loans may not be the answer.
Way behind, with a significant shortfall? Maybe this is when expectations need to be set about what is actually feasible. It may mean focusing on lower-cost, in-state schools. This may be one of the easiest ways to close a savings gap. In-state schools are frequently 50 percent less in tuition costs, depending on the particulars of the situation. And there are lots of great state schools. It is a fundamental truth that the name of the school on your diploma is ultimately less important than what you do and achieve in a college program. Once those graduates are out in the big working world and advancing in their careers, what they do will always be more important than where they studied.
Numbers still won’t work? If a four-year degree is still the goal, then consider the option of going part-time and working a job. This may feel like a disappointment, but there are real benefits. Your student is working toward that degree, but also making money to help defray those costs. This should reduce or eliminate the need for loans. And they get the benefit of starting to live a more adult like life of working and saving.
And finally, it is also worth considering whether a traditional four-year degree is absolutely needed. Pursuing a two-year associate degree, or even going to a good vocational school, has some real benefits. Costs are much lower, and additional education is still available when the student has more money in the future. Maybe an employer helps with tuition. It also has the benefit of allowing a young person to start earning money sooner, and begin the savings process for all those things they may want in the future. Things like a first home, an advanced degree, and even saving for retirement. And that earlier start can help young people reach their goals even if they make less money to start.
Another option is to attend a lower-priced state school or community college for the first two years while knocking off a lot of the required “general education” courses, then transferring to a more prestigious (and expensive) state or private college or university.
Advancement through education has been a successful path to a better life for a long time. And there are a lot of roads to that goal. But it calls for planning and flexibility. Tradeoffs don’t always feel great, but they can get you to where you are going. And getting there is simply the goal.
John Kageleiry is a freelance writer on a range of personal financial topics. He has worked in the financial planning and investment world for over 20 years. He can be contacted at firstname.lastname@example.org.