Harsh realities of college expenses

Kids & Money

I can always tell a topic I’ve written about has struck a chord when I hear from readers on both sides of the issue. The subject of the latest debate is the challenge of paying for college.

I’ve always emphasized it’s best for parents to start saving early — even before children are born — and to take advantage of as many options as possible to cover the gargantuan tuition bills.

Over the summer, I heard from several readers who sounded off about parents getting into eye-popping debt to send their kids to expensive colleges.

These readers, who acknowledged going to college in the 1950s, ’60s and ’70s, argue that students should look at junior colleges, working part time and living at home to cover the college tab. Just as they did.

Not so simple, say readers on the other side. The realities of college tuition today — along with trying to save for retirement — don’t fit for many lower-class and middle-class families. They can’t save enough, even with their child working part time, living at home and earning college credits while in high school. The solution? Go into debt to get an education.

“The world is a different place, and the middle-class student will simply not be able to afford college and graduate school. And the cost of junior college is not what it was either,” one Chicago-area reader wrote in an email.

There are “elements of truth on both sides,” said Mark Kantrowitz, a nationally recognized college financing expert with Cappex.

For one thing, he said, college admissions practices and financial aid policies change frequently, so the situation that existed a few decades ago no longer applies.

In the early 1990s, for example, half of college students graduated with debt, averaging about $10,000, Kantrowitz said. By contrast, more than two-thirds of students today graduate with debt of about $37,000.

Secondly, it’s harder these days for students to work their way through college. If you work a full-time job while going to school, you are half as likely to graduate within six years compared with students who work 12 hours a week or less, according to Kantrowitz’ research.

He also noted that minimum wage jobs don’t cover much of college costs.

On the flip side, there’s a lot of research showing that many families don’t save enough for their children’s college education, and they start late.

Kantrowitz recommends saving about one-third of future college costs. “Every dollar you save is a dollar less you have to borrow, and every dollar you borrow will cost about two dollars by the time you repay the debt,” he said. The bottom line: Saving for college will save you money over the long haul.

Students should keep debt at no more than $8,000 a year. Another rule exists for parents: Don’t borrow more for all your children, in total, than your annual income.

“That will let you pay off the loans by the time you retire,” Kantrowitz said. “But if retirement is only five years away, you should borrow half as much.”

To be sure, some families also choose more expensive colleges than they can afford, partly due to “an inability to say no to their children, and partly due to financial aid award letters that blur the distinction between grants and loans,” Kantrowitz said. Moreover, not everybody needs a bachelor’s degree; community colleges can be a great choice for many.

While it’s tough to predict what college will cost by the time your first-grader fills out admissions applications, a recent study by MassMutual offers some financial guideposts. The insurance and financial services company estimates that the cost to send a child to a private four-year college in 2030 will be nearly $370,000, about $288,000 to attend an out-of-state public school for four years, and about $163,000 to attend an in-state school.

The challenge is to get started on saving the money. And in the end, do the best you can to try to make informed choices.

Questions, comments, column ideas? Send an email to sbrosen1030@gmail.com.

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