College costs are (and have been) on the rise. Should we be worried?
College, wow! What a great four (or five, six or even seven) years.
If I were asked to explain the best parts of college, I don’t know if class and education would even fall into the list.
My favorite parts were the late nights at the town house or fraternity house, the pool parties and nights on Mill Avenue (the main strip at Arizona State University). It was the four days a week that we were able to play golf, and the minimal worries that we had.
I mean how often does someone respond with, “the physic classes were LEGIT!” when asked what they loved most about college? Likely their response would be more like, “those physic classes sucked!”
College is an opportunity for everyday people to live the life of a movie. It is the opportunity for all of us to create our own Animal House!
In my view that’s what college is all about. It is an opportunity for everyone to grow up, learn to live on their own, and experience a bit more diversity than they had when living at home.
However, with all the benefits of college, the price to create our own Animal House experience is becoming more and more expensive. As our generation begins to have kids now, a constant worry is how much we will need to save for the education for them.
WARNING: Don’t let this lead to a decreased desire to have kids. There is optimism for all of us!
Price of partying on the rise
Just talk to someone that has kids. One of the topics of conversation usually tends to be “how the hell are we going to pay for their college.”
This tends to be a top topic for the media when discussing education… just after they talk about the increased amount of student loan debt that we’re all also working to pay off.
It is no question; the rise in college tuition is pretty ridiculous.
In 1973 a public in-state school costs $2,175 on average, while now it can cost over $8,000 per year ($33,300 for 4 years) for a public university.
Just think about it; the number of people wanting to attend universities has been rising and everyone still tends to want to go to the same universities as they did in the past In the South it’s Georgia, Auburn, Alabama, Tennessee, North Carolina, etc.
Thus, demand is on the rise and supply is staying basically the same. Simple economics point to a rise in tuition in this scenario.
Many people are beginning to take into account a constant 5% rise in tuition costs every year going forward.
Savingforcollege.com is suggesting that in 18 years (from 2013) four years at a public in-state college will cost $92,200. To put that in perspective, in 2013 the cost was $38,300. That 5% per year increase is pretty painful.
As is the case in most everything, things can’t go up (or down) forever.
It is out of whack that we go to college to better ourselves, but the cost of college is moving up faster than the wages we get out of college. This isn’t something groundbreaking, either. It’s been happening since the 70’s.
Eventually this tuition party has to come to an end.
“Oh, these kids just don’t understand”
If one of our parents were reading this blog, I believe the above would be their reaction to this next section.
Let’s play devils advocate for a second.
College as we know it will be different for our kids. In fact, it’s pretty likely our kids won’t even go to college.
Back in the 90’s this thing called the internet was created, and it has since evolved and now runs our lives. The internet has created billionaires who aren’t even over the hill yet.
The youth of America utilize the innovations of their young minds every day. They see what can be done and do it. Technology and energy (which we will discuss another day) are the future of this country, and the jobs that these create aren’t going to be the same that were created (or lack thereof) for us.
The tools needed to be successful in these fields don’t necessarily need to be found inside a university classroom. Coding skills are becoming more and more available online. Kids will be able to teach themselves.
Technical schools may become the norm as our kids need specific skills. Why go to a large public school to learn generalities when you have the basic set of skills and just need to refine a more specific skill? These technical colleges are able to provide the more refined needs of our children’s generation.
Some may be reading this worried as Hell. Why? Being able to wander outside of the ridged box that colleges provide with their curriculum could cultivate more innovation and create more entrepreneurs. You can’t just learn to be an entrepreneur; it is fostered through trial and error.
These are both aspects (innovation and entrepreneurship) that we need in order to make our country better.
So, maybe it won’t be a bad thing.
Paying for college, while also remembering your kids’ ages
Alright, I’ll get off my soap box.
No matter what we believe, saving for college is necessary. Whether it is used for college or not is another question. One thing we don’t want is to be left with our pants down. When our kids go to graduate high school and want to go to college, we want to have something saved.
Let’s use the figures that savingforcollege.com used in their article. We need $92,200 in 18 years to pay for four years of in state tuition.
It’s too boring to just say well that means you need to save $286 per month for 18 years and earn 4.5% every year to reach this goal. If you are not up for a challenge then read no further.
Let’s instead tie it to something to help us be better people and not forget things!
Let’s tie it to that little munchkin’s age that we are saving so furiously for. The day the little booger is born, put $300 into a savings account.
Then do this every month for the first twelve months of your rascal’s life. On their 1st birthday, invest that lump sum in order to be able to get that 4.5% growth rate (because we know banks won’t provide that to us!)
Also, on their birthday put $301 into that same savings account. Do that until their second birthday. Repeat the process each year moving forward of putting the lump sum into investments and upping the monthly amount saved by $1.
Now, whenever you are asked the age of your kid, just look to the last digit of your monthly education draw.
This will lead to a little more than $92,200 being saved, but what the hell. More tends to be better!
Flexibility over taxability
This rambling about saving all sounds great, but where the hell should we put the money?!
Here is a question that can create multiple views. I’ll give you mine.
Personally, I like the option of saving this money in a joint brokerage account with mine and my spouse’s names on it. Others like to utilize 529 plans or Coverdell plans, which are great and provide great tax benefit. These education specific accounts, though, will penalize you for using this money for anything other than education.
Given my view on the future of kids going to college, I like the flexibility of a brokerage account over a 529 plan. A quote that I often hear also makes a good case for flexibility, “You can take a loan out for college, but you can’t take a loan out for retirement.”
For this reason, I like the flexibility of a joint account because the money can be used for kids’ college if they go. If our children decide not to go to college we can then utilize the funds for a house down payment or a car. It’s also a good cushion if my spouse’s and my savings for retirement are lagging, then we can keep the savings for us without a penalty. Maybe I’ll even give it to my kids to use as seed money for that startup they want to create.
Flexibility in this situation with the invested money seems to outweigh the tax benefits of other college savings vehicles. If you are interested in opening an investment account with a low cost, open an account with Wela. Our team of experts will help grow your investments without pressure or excessive cost.
Times are a changing
College was great for me.
In all honesty I do hope my kids go to college and get those great experiences that I did. It helped me grow as a person, and the lessons that I learned are endless.
However, college for me was different than it was for my parents, and I expect my kids will likely write, text, video (or whatever they are doing at that time) the same thing when their collegiate experience rolls around.
For me college wasn’t about what I learned inside the classroom, rather it was what I learned outside the classroom: commitment, drive, responsibility, friendship.
The skills that I have accumulated with regards to finance started in the classroom, but they aren’t the only ones I carry into my profession now. It’s the lessons I learn within the workforce and through career specific studies that have really built the knowledge base I have now.
We don’t know what the future will hold. We can only plan based on what we do know, and we can gamble on what we believe.
Planning seems to be a better option when it comes to our kids and their future. Starting to plan the day they are born is the best route.
But don’t be stiff when it comes to saving for college; be flexible as times are always a changing!