THE REAL COST OF ATTENDING COLLEGE
The first clear indicator as to the cost of attending college is of course the tuition. But the problem is that the tuition expense you are currently budgeting on is at today’s prices. The fact of the matter is that school tuition has been averaging between a 6% and 10% yearly increase depending on the school. So, for a four year degree you could be looking at a 40% increase in your tuition by the final year of college. One of the only ways you can lock in you tuition prices at today’s dollars is with a college 529 plan; however, those plans have their own problems.
Next, you have to add in your intangibles, the highest of which would be your room and board. Are you going to live in the dorms or out in town? If you are going to live out in town have you factored in your utilities? Have you factored in the rising costs of food and other commodities? What about your transportation costs? As you can see there is a large list of items that need to be considered.
As a former financial advisor I can tell you that most families short change the actual cost of their children attending college by about $20K to $25K dollars.
According to the United States Department of Education; (based on the 1998-1999 school year)
– There is a significant cost difference between a public college over a four year college. The sobering statistic is that the difference is double! o Attendance at a two year public college is estimated to cost, in tuition alone, an average of about $1,600 compared to a two year private institution which runs at about $3,200. o Attendance at a four year public college is estimated to cost, in tuition alone, an average of about $7,300 where as a private institution would run over $14,500. – When added to books, fees, room, board and other intangible expenses the total cost of attending a four year private institution can run as high as $22,500.
As you can see that is an $8,000 difference which, over four years, equates to a $32,000 spread for your intangible expenses alone.
THE REALITY AT THE END OF COLLEGE
The fact is that more and more college graduates are having a difficult time entering a very competitive and distressed job market. There are plenty of people out there with college degrees and the much more viable trait of experience. The fact is that a college degree does not guarantee a job.
Furthermore, according to the Department of Labor, more than 50% of all college graduates wind up working in a career field that was outside the scope of their degree.
Now here is a very interesting piece of information. According to a report by the National Center for Education Statistics, the difference in annual earnings between a four year college graduate and a non college graduate differs by about $15,000 to $18,000 depending on a number of statistics. The point I am trying to make is that even though college graduates do make relatively more money, most of that money is spent on repaying their student loans thereby negating any financial gain that the degree confers.
For example, USA Today showed how a graduating student with a Doctorate in Pharmacy will be graduating with a debt load of over $150,000! When you consider that the new fixed rate of interest on student loans is averaging 6.8% most people could buy a house with this kind of money and have a lower interest rate to boot.
http://www.usatoday.com/money/perfi/general/2006-02-22-student-loans-usat_x.htm
So what is the answer? Is a college education worth it?
IS COLLEGE EDUCATION WORTH THE PRICE
Ultimately, over an extended period of time, the answer is yes. A college education is worth it, BUT NOT AT ANY PRICE! The key here is to mitigate your costs and liabilities.
First of all, seriously consider setting up a 529 plan if you are sure your child will be attending college.
Second, avoid student loans if at all possible; my recommendation, if you can afford it is that it would be cheaper to take out a cash out refinance on your home than it would be for applying for student loans. As the above article showed, many student loans are not forgiven in bankruptcy where as most home loans are in a worse case scenario. Also, home loans currently offer lower interest rates than Stafford loans so seriously consider this option.
Consider the cost savings advantage of having your child stay at home and attend, as a state resident, a school in state where by you can take advantage of lower in state tuition rates and lower housing expenses. Not to mention the peace of mind that comes with knowing where your child is.
Apply for every possible scholarship and loan grant that you can find. Every little bit helps.
My personal recommendation, as a financial advisor, is to get out there and get into the job market as soon as possible. If you get a job you will have four or more years of experience to add to your resume over that of a recent college graduate. Then with a job in hand and with the advent of technology you can go to school part time online saving on a number of expenses. Also, most employers offer some form of education benefits, take advantage of any education programs your employer offers. This allows you to get your college education at reduced cost while earning valuable experience at the same time.
It is how I did it in the United States Navy where I now have a degree in Criminal Justice with absolutely no outstanding student loans and a full four years of eligibility still left under the GI Bill.