A college education is a financial equation of two halves:
the cost of the investment to attend and the potential
income related to the degree earned. In this article, we'll
summarize ways to meet the cost and introduce some
points to consider when talking with your child about
selecting a major.
As reported regularly in the news, student loan debt is
climbing to astronomically high levels–an increasing
number of graduates leave school in debt each year.
In fact, roughly 70 percent of undergrads leave school
with an average debt of over $37,000 according to
Further, there are 42 million Americans–that's 1 in 6
adults–who owe money on student loans. And the total
student loan debt is $1.5 trillion–that's a whopping
$620 billion more than total U.S. credit card debt. And
sadly, more than 25 percent of these loans are either
in delinquency or default, according to the Consumer
Financial Protection Bureau.
Rising costs of college
One of the reasons for such high levels of student debt
is because of the annual increase in college tuition costs.
The average annual increase in the past three years has
exceeded three percent, which is well above inflation.
Further, since the average cost of attending a private
college is approaching $47,000 per year (Source: 2017
Trends in College Pricing, The College Board), the projected
total cost for today's newborn is staggering.
If you're already juggling other financial concerns,
paying for your child's college education can easily
overwhelm you. Yet, the sooner you start saving, the
better. The longer you delay, the more difficult it may be
to reach your funding goal. Even if you can only afford
to put away a small sum, saving on a regular basis will
pay off in the long run.
Paying for college
Personal savings are especially important as a source
of college funds, since they are areas over which you
have the most control. While other sources of education
funding are also available, it helps to understand how
they work before considering them. Here are a few
Financial aid. This usually comes in
the form of loans, and rarely covers the
total cost of college. Even if your child
qualifies for financial aid based on need,
there is no guarantee that your chosen
college will have funds available to meet
Scholarships. While many scholarships
are available, there is no way to predict
whether your child will qualify for or
State-Sponsored Qualified Tuition
Programs (529 Plans).
These state-sponsored, tax-advantaged
savings plans are widely available and
designed to encourage saving for future
Personal loans. These are usually
easily available, depending on your
financial credit, history, and situation;
although, they generally prove costly
over the long run, due to interest charges.
Personal loans also typically require
payments to begin and interest to start
Future personal income
The best strategy for funding a college education is to start saving as soon as possible. It's unrealistic to expect to
cover the cost out of your expected future personal income. If you haven't managed to set aside funds by the time
your child is ready for college, how will you fund an entire college education out of your income while he or she is
attending school? This may prove especially difficult if you will be nearing retirement age at the same time.
What happens after college? Investing in the best major
Because college is likely one of the largest financial investments you'll ever make on your child's behalf, it's important
to consider the end-goal; namely, what does your child intend to do after graduation? Your family will make a huge
investment–between $100,000 and $150,000 for a degree from a state university. As with any investment, you should
consider what the expected return looks like for the degree. Majors most likely to pay the healthiest “return on your
investment" are ones that fall within STEM-related fields–STEM is an acronym for science, technology, engineering
and math. According to PayScale.com's 2017 College Report, STEM-related fields dominate the top 100 highest
paying Bachelor degrees.
If your student has an interest in or an aptitude for a range of subjects, it's worth including expected salary in your
discussion of college major–especially if your child will be responsible for meeting student debt obligations. A double
major, or a major and a minor, in math and fine art might serve your student better than just a degree in art.
There is a lot to think about.
Keep in mind that the decision to attend college and the choice of major
are very personal decisions. And how you pay for such decisions has
implications you might not be thinking about.
For example, did you know that earnings withdrawn from a 529 plan are
treated as income to your child and will show up on the following year's
financial aid application? Or that out-of-state plans may have in-state
income tax ramifications?
If you are like most parents, your focus will be squarely on making the
right decision for your child and your family.
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