Growing up in a middle class family with parents who worked on the production lines of local factories, it was instilled in me from a very young age that education was the ticket to a better life. While times have changed parents still want to see a better life for their kids and education is still the key.
American Dream: Worth Believing?
As a new parent myself (my other identity is as Spencer’s Dad), I want the same thing. I believe that the American Dream is founded on education which brings with it the opportunities for a high quality of life.
I’m not as cynical as my favorite comedian of all time, the late George Carlin, who once said in reference to the “education-industrial” complex: “ It’s not called the The American Dream for nothing, because you have to be asleep to believe it.”
But he did make some great points in his monologue: Our education system is sort of broken and there’s no real incentive to fix it.
Escalating Costs Threaten Future
Let’s face reality here. The cost of getting a baccalaureate degree even at a public university or college comes with an average price tag of $16,000 per year. And that’s typically before room and board. Private schools average in the $36,000+ range and elite schools are near $50,000. That’s per year. More than the cost of my parent’s first or second home.
When I was growing up, I entered the University of Lowell (now University of Massachusetts – Lowell) in the fall of 1982 and the cost for each course was about $400. When I entered Bentley University for my master’s degree in finance in 1991, the $1600 cost for one course was equal to what 12 credits cost for an entire semester at Lowell.
Since then inflation in higher education has been a given. Despite three stock market corrections in the past decade and a financial crisis that lead to The Great Recession, there has been no let up in the escalation of tuition and fees for school.
This is not good for individuals. Nor is it good for us as an opportunity society. This is not meant as a political statement but a recognition of reality. The wealthiest among us will be able to pay their own way. The poorest among us will get aid. But as noted in a recent discussion on NPR’s On Point on May 26 entitled “Affluent Students Dominate Top Colleges,” the reality is that higher education is not as diverse as our society at large. The consequences of this lack of diversity can be wide reaching impacting not just the individual but his interactions with others as well as developing the talents of people needed to deal with society’s ills and propel us forward in technology, healthcare and business in general.
It contributes to a perceptible widening between the ‘Haves’ and ‘Have-Nots’ and undermines the Middle Class foundation of our society. And when people feel disconnected from society and the glue that binds us dries up, our standard of living and global standing erode.
As someone commented on the On Point blog after the show:
As a community college professor, and the father of a daughter who just graduated from Wake Forest, I would like to have extended this discussion in a couple of ways. The real middle class (not poor enough to get Pell Grants, etc., nor rich enough to write the big checks) is the group that is really caught in this dilemma. More needs to be said about this.
The change in the student body at these colleges is very striking to those of us who graduated years ago. I worked summers and was able to pretty much pay my way through Wake 40 years ago. Most of my friends were lower middle class guys from small towns in N.C. Today more than half the student body comes from outside the state, and many are very affluent. My daughter, from a family with two teachers as parents, felt like the poor kid through most of her four years, and she was well taken care of. The only reason she was able to attend this fine school was my dear departed mother’s money (it took it all), and scholarships (which just seemed to increase the EFC). That, and being an only child. But “on point.” The economic imbalance that now exists on a small liberal arts campus is disturbing, as is the lack of not just racial diversity, but class diversity.
Paying for College – A Real Risk for Retirement, Too
Politics aside, this has been a real financial crisis in the making. Consider this: For every dollar that a parent uses to pay for a child’s college, there is one less dollar for that parent’s retirement. So the crisis in paying for school is also a retirement crisis.
We know that going to get a college degree is a positive financial decision. The often quoted number is that a college-degree holder earns more than $1 million more over his or her lifetime than someone without a degree.
Students are walking out with an average of $20,000 in student debt. That’s not terribly bad when compared to the lifetime payoff. (I personally think that it’s higher and the many “for profit” diploma mills that prey on people’s hopes and fears add to this as well. But that’s a discussion for another day).
But the problem is that Middle Class parents are squeezed from competing priorities: taking care of elder parents, saving to fund a dignified retirement and helping their kids attain the key to their own futures.
Help for Those Stuck in the Middle
Some solutions to this crisis are way above my pay grade. But to the college professor’s point noted above, the real middle class needs help with this dilemma.
Most financial advisers and even CPAs do a disservice to their clients. Advisers focus almost exclusively on investing. Accountants generally are looking in the rear view mirror and dealing with tax liability.
For those advisers like myself who recognize the link between college and retirement, we know that there has to be a better way to handle paying for college without having to go broke doing it.
Tips to Paying Less and Getting More
- Get a financial plan in place: There’s no reason to do this alone. The FAFSA and CSProfile financial aid forms are confusing. And like taxes, things change from year to year. Answering questions the wrong way can jeopardize chances to get all the financial aid for which a student may be eligible;
- DON’T become a victim: For late-starter parents there is a temptation to go with the easy fixes that sound good. Too often folks start getting invitations to “free” seminars which are usually nothing more than pitches to buy insurance. Yes, certain types of insurance can shelter assets that don’t need to be counted for the purpose of financial aid calculations. But there is a cost to losing that flexibility. And the time frame needed to make this strategy viable … well, let’s just say grammar school makes more sense than starting when your little tot is a high school junior.
- Don’t pay sticker price: The truth is that the price you see isn’t the price you need to pay. And good students who would do well at a particular school sell themselves short by self-selecting out of applying for fear that they can’t afford it. While that may be true, it’s also true that a financial aid package can be arranged. Students may actually end up paying less to go to one of their preferred schools than to a “safety” like a public school. (Let’s face it, even after a recession and the Flash Crash, universities still have endowment money but public schools are being squeezed by state budget concerns).
- Lower you Expected Family Contribution: There are a variety of tax-efficient cash flow and income strategies that late-starter parents can use to show lower income or assets that may help lower the EFC and increase eligibility for aid.
- Use a Cash Flow Model: Through smart planning a family can devise a plan on which buckets to pull money out of in a tax wise way and still fund their retirement plans. Believe it or not but it can be done.
- Become an educated consumer: Don’t simply rely on what friends and neighbors say. Get to know the process. Work with someone who can help show you the way. Realize that there are two prices for a college education: The one that everyone pays because they don’t know better or the one for those who know how to navigate through the system.
To learn more strategies that may lower the out-of-pocket cost for college costs, please join me for one of my free monthly webinars. The next one is on June 9 at 8 PM. Details can be found on my company website or by clicking here.
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