College…It’s Not Just an Experience

Not so long ago college was not only a place to continue a youth’s education, it was a time for growth, maturity and to simply experience and enjoy life with a little more freedom. The rising costs of college coupled with the challenging economic times has, for most, completely changed the emphasis on what is most important about sending a child to college.

Job security and economic independence are what families are now looking for from their tuition dollars. Mom and Dad are simply hoping that their kids can obtain education and/or training that will allow them to obtain a job that will provide them an income and standard of living that justifies the expense of college.

Because of these changes the college selection process needs to change also, and so does the approach that Mom and Dad take to pay for college.  It boils down to an investment decision. In other words, the school and major selection are components of the “return” that one will receive on their tuition dollars.

School selection should take into account the percentage of students that graduate, the percentage of students that graduate within 4 years, the placement ratio of graduates into jobs of their field, and the net cost of college after factoring in financial aid and scholarships. Certainly, a proper fit for the student based on size, distance from home and geographical location are all also very important non-financial components that should be included.

Career or major selection should  be a good fit for the student’s “hard wiring” or said another way, what suits his/her personality. Future job outlook and earning potential for a prospective career should also be taken into account.  Considering these factors will increase the likelihood of providing the student a future that they are looking for.

School costs should be weighed against income potential from the desired education from that institution. Furthermore, consideration should be given as to whether or not the prestige of the school that one may be paying a premium for is justified based on the income potential. For example, a private school that has an annual cost of $50,000 per year that will likely provide a student a similar job opportunity from a public school that costs $25,000 might not be a wise financial decision.

Mom and Dad need to also determine how much of their income and how many of their assets they can pledge toward college before it impacts their own financial future. Once that determination has been made the residual costs of college will likely be financed by the student through loans.   Parents should make sure that their student completely understands the financial impact of taking on student loans. Based on the horrendous state of the student loan industry it is quite clear that individuals are obligating themselves to debts that they will have no ability to pay back without serious impact on their future.

College is big business and should be approached that way. All parents want their students to enjoy their college years however the emphasis needs to be on preparing for economic success after college.

One Comment

Thomas B Walsh

College…It’s Not Just an Investment Decision
Your family’s post-secondary education choice is also an exercise in “risk management.”
Investopedia defines risk management as,
“…the process of identification, analysis and acceptance or mitigation of uncertainty in investment decisions.”

There was a time when college was a slam-dunk, no-brainer path to middle-class, or better, prosperity in the US.
For example, a half century ago my tuition (for a year!) was $360. I could pay for that by working seven weeks at minimum wage. Tuition has gone up 200% in just the last twenty years. Today tuition at a state university would require you to work SIX MONTHS.
I graduated with a BA in Philosophy, answered a newspaper ad on a whim, and, lo and behold, was launched into a successful career in Information Technology. (I had never seen a computer.)
My starting salary was more than twice what I paid for my entire college education.
College in America doesn’t work that way anymore.
The simple explanation is that it comes down to “supply” (graduates) and “demand” (suitable jobs).
A half century ago only seven percent of high school graduates went on to college. In post-WW II America our economy was booming while the economies of many European and Asian countries were–only slowly–being rebuilt. The “Law of Supply and Demand” strongly favored the freshly minted college graduate.
Today, when forty percent go on to college, grads are “a dime a dozen.” In the last nine years we haven’t seen one year of 3% GDP growth. Post-Great Recession of 2008—we are slogging through the longest and slowest recovery since the Great Depression.
There just aren’t anywhere near enough suitable jobs for the army of high school graduates choosing to go to four-year colleges. College is a competition for a few good jobs, and many are going to lose.
Two decades ago in his book, Another Way To Win, Dr. Kenneth Gray coined the term “one way to win.” He described the OWTW strategy widely followed in the US as:
• Graduate from high school.
• Matriculate at a four-year college.
• Graduate with a degree in anything.
• Become employed in a professional job.

Dr. Gray’s message to the then “academic middle” was that this was unlikely to be a successful strategy in the future. The succeeding twenty years have proven him inordinately prescient and not just for the “academic middle.”
In addition to weighing factors involved in the investment, you need to consider the risks.
• Half of all graduate end up under employed or unemployed.
• Forty-four percent drop out and are stigmatized in the job market. (Drexel University study)
• There is little or no return on investment for many degrees. (We are headed into territory where going to college to become a high school teacher (starting salary of $40,000) doesn’t make economic sense.)
• Many students take out excessive student loans and end up financially crippled. (Twenty-five percent of student loans are in default or delinquency.)
• Many parents end up in default or delinquency with PLUS loans.
• Parents destroy their retirement plans in order to provide their students a four-year college education.
Making post-secondary education choices for children is the second biggest financial decision many families make. What was relatively simple fifty years ago, is very complex and risky today—too complex and risky to be left to teenagers.
Parents need to step up and do their homework.


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