Now that students are back in school, it’s time for parents (and grandparents) to take a breath and gain some perspective on the costs and benefits of a college education.
Yes, college can pay off in the long run. But you may be doing yourselves and your children a disservice with magical thinking about how to manage the costs.
Any cost/benefit analysis cannot exclude the burden of debt placed upon graduates, delaying their opportunity to be financially independent. Nor is it a good idea for parents to cosign or take out parental college loans without understanding the impact on their own retirement plans.
Saving for college should start when the child is born. But the family discussion about college costs should start before the child even enters high school. Only then can a family — especially those with multiple children — set realistic goals and avoid the pitfalls of overwhelming debt.
According to Fidelity’s 2018 College Savings Indicator Study, parents are falling woefully short of what’s needed to pay for college. On average, they are on track to meet just 28 percent of their college funding goals.
Only 49 percent of parents feel it’s their obligation to pay for the entire education. In fact, one-third of parents expect their children to have at least $10,000 in the form of part-time jobs, gifts and savings to contribute to college.
The study reveals that 40 percent of families with high school sophomores or older students have not discussed with their kids the fact that they will be expected to contribute to college savings.
It’s time to sit down with younger children and do the simple math of college costs and the burden of debt. There are multiple college-cost calculators that will make the situation clear.
Start with the future college cost calculator at Collegeboard.org. If you think the dollars seem astronomical today, you’ll be shocked at what tuition is projected to cost in 10 or 15 years.
Then go to the cost of student loan calculators at Simpletuition.com. You’ll quickly see that student loans aren’t the easy answer to covering college costs. And as interest rates may rise in the future, the burden will grow larger. And the way the math works, you’ll pay more than twice the cost of tuition by the time your loans are repaid.
So how can parents start the discussion earlier? You may not want your children to know your income, but you can demonstrate that a big hunk of your salary goes first to taxes. I’ve seen the shock when children realize that as much as 40 percent of a parent’s paycheck goes to pay federal, state and local income taxes.
Now you’re ready to set realistic expectations about the cost of college. Show them how living at home for the first two years and attending community college can cut costs and enable them to transfer to a university for the final two years.
Introduce them to Scholarships.com, so they can start preparing resumes to apply for deals that will cut their cost of college. Help them contribute to their 529 college savings plan out of part-time work.
Let them know well in advance that if they change majors, they cannot extend their college career for an extra semester. And do the math on cost savings from graduating in less than four years, perhaps offering your kids an incentive to keep half of the savings.
Americans now have a $1.5 trillion dollar student debt burden, which is not dischargeable in bankruptcy.
Don’t get caught in this trap. An education should be a benefit, not a burden. And that’s The Savage Truth.
Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." She responds to questions on her blog at TerrySavage.com.