It is not news to the parents of college-age students that financial aid is not keeping up with tuition increases: the net price – the price after all financial aid is subtracted from all college-related expenses — that families pay became more expensive again this year, the College Board reports. Published tuition and fees rose about 3 percent from last year even even though the government reports there has been basically no inflation in the rest of the economy over the past 12 months. That is the bad news.
The good news is that it is inarguable that there are few investments that a person can make that are better than investing in education – especially in a college education. A college education has, throughout generations, shown that it produces better and more consistent returns than almost any other investment a parent can make.
Many studies have demonstrated, and many people know from experience, that a college-educated person generally earns more than twice the amount over a lifetime (up to $1.5 million) than does a high school graduate. It is also noteworthy that approximately three-quarters of future jobs are projected to require at least a Bachelor’s Degree.
The other good news is that making good decisions about choosing the right college in the first place and funding college education without jeopardizing parents’ retirement funds can go a long way in easing a family’s college funding burdens.
When it comes to choosing a college, many parents and students look at a college’s prestige, how it ranks in national rankings, its proximity to home (parents choose close; students choose far away!), and how good a party school it is (low on the list for parents; high on students’ lists!). But if parents and their children are smart about college choice they will consider college choice as part of their funding strategy.
Marcie Molloy, Director of Public Information at Chesapeake College in Wye Mills has a very important piece of advice for parents and students who are making college choices: “don’t dismiss smaller schools when you are choosing a school.”
Molloy urges parents and students to “look carefully at what smaller schools offer. Ultimately, entering freshmen will look at the programs and services a school offers. Even though we are a local community college, you will find the same services here – counseling, tutoring, financial aid information – as you will find at a larger school, and you will get those services with more personal attention from faculty and staff.”
Chesapeake College, which was the first Community College in Maryland and is celebrating its 50th year, has an average class size of 18 students. Molloy points out that, “Our faculty is used to teaching. They have timely office hours when they meet with students one-on-one. There are no 500-person lecture format classes. Someone is actually teaching you something, not just putting out general information and asking you to research on your own.”
In addition to the smaller classes and personal interaction that benefit students, smaller colleges may offer significant financial benefits to students of all ages. Choosing a smaller, nearby school usually means spending less money on transportation and room and board, and it often can mean significant tuition savings.
“Many or our students come right out of high school with the intention of transferring to a four-year school and pursuing a Bachelor’s Degree,” says Molloy. “They can save a lot of money those first two years.” And the savings and financial benefits do not stop there.
“We offer a dual-enrollment program where a high school student can take college credits at a reduced rate. It’s like getting a head start on college, and it allows parents to save money. Even those who take only one or two of our classes a year can save money.”
Chesapeake also houses the Eastern Shore Higher Education Center where four-year institutions such as UMBC, Salisbury University, Stevenson University, and the College of Notre Dame offer programs up to the PhD level.
So the decisions about size, proximity, and type of school can have a significant impact not only on a student’s educational experience but also on the cost of that experience.
The other often-overlooked and misunderstood aspect of college funding is choosing to divert parents’ retirement funds to a child’s college education. Often this seems an easy and logical solution to the college funding problem, but with longevity on the rise, retirement savings may need to last for 20 to 30 years or more. Many people are surprised to hear that most financial advisors believe that saving for retirement needs to be a higher priority than saving for college.
Christopher Parks — a Certified College Planner and Investment Advisory Representative (IAR) with Andersen Wealth Management of Easton, a Registered Investment Advisor Firm — knows all too well the problems encountered when parents use their retirement funds to pay for their child’s college education.
“With the ever-rising cost of college, parents want to help their child pay for as much of their college education as possible,” Parks explained recently. “Although this is a generous gesture, many times parents are not prepared for this financial burden.”
Parks points out that while parents and their children can borrow to pay for college, no one can borrow to fund retirement.
“Generally, parents and their children are still working during the years they pay for college and can take on a greater financial burden during those years because they are making more money then than they will have from their retirement funds or even from part-time work during retirement,” Parks notes.
Parks also notes that withdrawing money from retirement plans may incur penalties and tax consequences. He advises parents to plan carefully and to consider using a professional who knows – and can help you navigate — all the complex aspects of financial aid, scholarships and grants, and college and career/major selection.
“We offer comprehensive college funding planning to help guide people through the complexities of the financial aid process. We develop an overall strategy for a family and explore many different programs, such as our SAGE tuition rewards program that allows families to earn up to an entire year’s worth of tuition at more than 350 participating colleges.
“Parents need to be informed of the availability of different loans that have competitive interest rates. They need to understand the investment options that do not count against federal aid calculations, and there are tax-advantaged plans for parents who are paying for college and do not need financial aid.”
Parks points out that keeping retirement funds intact does not necessarily mean that his clients’ children must assume significant debt to pay for their college education.
“Although student loans may be a large part of many families’ college funding plan, we help them reduce the entire cost of college and pay for it without having to take on an undue burden of debt and without jeopardizing their retirement funds,” Parks says. “Reducing out-of-pocket costs; knowing how to get financial aid, scholarships, and grants; understanding work-study programs and internships; making the right college selection choices – all of these things are part of the comprehensive plan that we work with parents and students to develop.”
Parks also points out that different time horizons require different investment approaches. When your children are toddlers, college can seem like a distant goal. In reality, however, a 5-year-old is only 13 years away the first year of college. It is wise not to wait until that first year approaches to solidify your college funding strategy – and do not forget to consider the importance of choosing the right educational institution for your child in the first place – without jeopardizing your retirement.
Letters to Editor
Todd Brace says
We’re looking at college funding options not for our children, but for our 4 year old grand daughter. I’ve been involved in learning (education and workplace learning) for most of my working life, so I have a professional interest in this as well.
As my son and I began evaluating how his mom and I can help save for our grand daughter’s college, now 14 years in the future, something occurred to me: what passes for ‘college,’ or post-secondary education, 14 years from now will be something very, very different than what we understand it to be now. From a philosophical perspective of how higher education helps one establish and grow a career, to rapidly improving learning technologies, to shorter shelf lives of knowledge and competencies, one thing is sure: the concept of a campus based 2 or 4 year curriculum resulting in a degree won’t look, feel, or carry the same weight as it does now.
So using today’s savings vehicles to try to anticipate a need a decade and a half in the future is quite a gamble. In fact, we no longer think of the savings as a ‘college fund,’ rather we consider it her ‘options fund.’