Grow: The College Conundrum
By: Ian Maddox, CRPS®
By the beginning of a student’s junior year of high school parents and kids (typically an emphasis on the parent part of the equation) become hyper focused on the next steps. College entrance exams, career preparedness, school selection and ultimately how it all gets paid for are top of mind. I know because I have a daughter on the threshold of 11th grade and many of my friends are in the same boat. In addition to reading several books and many articles that address this subject, I have observed dozens of clients walk through the post high school decision making process with their children and two things jump out at me: Is a traditional state or private university education worth it, and how will the tuition be financed?
Since WWII, successive generations have completed some sort of post high school education at increasingly greater rates, and this advanced education has served its recipients well. Post high school education is important, but a college diploma in and of itself is no longer a golden ticket. Course of study and school selection are more important now than ever and attending universities, trade schools and technical schools that are known for a specific curriculum can set a graduate apart from their peers when entering the workforce. The bias towards a traditional four-year college education has depleted the reservoir of those in the skilled trades, a career path that can pay very well and is in high demand. If a traditional college education is chosen, it is 100% O.K. to split your education between a junior college and a four-year university. Both trade schools and junior colleges cost substantially less than a typical university, while not excluding students from a lucrative career or further education.
I do believe that education is an investment just like stocks and bonds. With that said, I personally have dealt with poorly directed student debt and have seen many students take out loans that will prove a burden during early adulthood and beyond. With the rising costs of education, what should students and parents do? The first answer to this question is knowing yourself, and if you are a parent (or guardian), knowing your student. Unless you have substantial margin in your budget, the least practical thing you can do is to try to figure out a student’s career direction while forking out tuition. Yes, people change paths, and sometimes with good cause, but taking out loans for educational experiments is not a formula for financial success. Take the time to determine a clear educational direction, especially when budgets are tight.
A minority of people will have set aside enough money to cover educational expenses in their entirety. Some may have a portion set aside and/or the cash flow to cover systematic expenses over time, but many will have little or nothing set aside and little margin in their budget. If you are in the first scenario, that’s wonderful! In the second scenario, parents and students need to work together. Merit and specific career field scholarships are available and part-time work can close cash flow gaps. If you are facing scenario three, the most practical solution is to pay as you go. Yes, this may extend the duration of your education, but you will avoid taking on debt. If debt is necessary, students may qualify for better terms than their parents, even if the parents end up servicing the loan. Remember, a lender can be a useful tool, but should be embraced with a pragmatic mind. You should always conduct your own analysis, not depending exclusively on what the lender says you can afford. Willingness to take on debt should always be run through a filter that considers the parent’s or student’s ability to pay. If the student will service the loan, then consider the intended career path, starting pay, and salary growth potential. Student debt is the least desirable option, but in specific circumstances it can make sense.
This process is challenging on the mind and pocketbook, and while I hoped to present a few important concepts, this brief synopsis will fall well short of addressing the many scenarios a family might face. That said, what I do suggest for everyone is to have direction going into college, and if you are a parent, please be confident in helping your student know themselves and where their skills should be directed. This may save you and your children from making harmful financial decisions and help your children to work toward a successful and fulfilling career path.
About Hitchcock Maddox Financial Partners (HMFP):
HMFP is a comprehensive and collaborative financial planning firm headquartered in Trussville, AL, serving clients and their community since 1999. Collectively, HMFP advisors have provided guidance in the areas of Financial Planning, Investing, Retirement and Insurance for over 35 years. For more information please visit www.hmfp.us or call 205-201-1401.