The Real Cost of College: The Tale Of Two Students

Are you anxious about funding college for your kids?

You are not alone.

Let?s face it: ?college is expensive. Very expensive. And yet, studies tell us that college graduates significantly out-earn non-graduates.?We want our kids to do well in life, and college can be a very important step toward a fulfilling future. Does that require families to make significant financial sacrifices?

Before you decide, consider the tale of these two students.?Their stories may help you realize how fulfillment can come from different paths. These are true stories using current numbers. Only the names have been changed.

Related: Saving for College – An Overview of 529s

Eric: From Engineering To Education

Eric was a high achiever in high school. He earned good grades and was accepted into a large in-state public university.

His family has a modest income and two kids. Eric received financial aid which covered half of his tuition and fees. The financial aid package was based on high school grades and his declaration of an engineering major.

Cost the first two years: ?$17,000 per year. In his third year, difficult coursework and poor grades caused Eric to change his major to education. He therefore lost his financial aid. Since he changed majors, Eric also needed an additional year to graduate. Additional cost to graduate: ?$20,000 per year for three years.

Results: Eric became a successful high school chemistry teacher. He was named Teacher of the Year in his second year of employment. ?Total cost of a 5 year education: ?$94,000. Without other parent contributions or loans, the student loan at the end of 5 years is $94,000. Monthly payment estimate: ?$1,373/month at 6% for 7 years.

Rachel: A Gap Year

Rachel enjoyed high school, received average grades, and was uncertain about her course of college study. Rachel took a gap year to work and snowboard. She decided at end of the year that minimum wage was not cutting it.

She enrolled in a large degree-granting community college to explore her interests. By the end of her second year, Rachel had discovered deep enjoyment in computer graphics and animation. ?She graduated in 4 years.

Results: Rachel received an excellent job offer at a well-known west coast graphic arts company.

Cost of gap year and living at home: ?$7,000. She paid for this via part-time work and with her parent?s support. Cost of college: ?$9,000 per year. No financial aid received. She worked as an intern in a computer graphics firm during her senior year. Cost of living outside of parent?s home in the fourth year: ?$8,000, which was paid from student earnings.

Total college costs $36,000; potential cost to parents $21,000 (3 years at $7,000.) Student loan: $36,000. Monthly payment estimate: ?$526/month at 6% for 7 years.

Both Eric and Rachel pursued their passions. Yet, Eric?s loan is almost three times larger than Rachel?s.

Bottom line:?it?s crucial to think critically about your choices before making a huge investment.

How To Reduce College Planning Anxiety

Measure your expectations

Not every kid will be ready for the traditional on-campus college experience at the end of high school.

Maybe a ?gap year?, community college, or vocational option might be more suitable.

Some personality types are more likely to thrive in the unique college environment. Is your child one of them? Are they outgoing and natural networkers, or more thoughtful and prefer alone time?

Be realistic about costs

  • Two-year college tuition and miscellaneous costs average $8,920 per year, with aid covering an average of $4,000. Net: $4,920.?[1]
  • Public four-year schools average $24,610 for in-state students with aid at $5,880. Net: $18,730. ?By 2030, annual cost goes up to$40,935.
  • Private colleges average $49,320, with $19,290 in average aid, for a net cost of $30,030. By 2030, annual cost goes up to$90,576.

The sooner you start saving, the larger your college choices will be.

Be honest about your financial capacity

  • Are you a high-income earner?Your kids are less likely to get aid. Make sure your savings or assets grow at a healthy rate to match the rapid rise in college costs.
  • Are you a lower income earner? Your kids are likely candidates for aid from schools and government programs. Save as much as you can.
  • Are you in the middle? You may have the biggest challenge. Your income may be just high enough to eliminate most aid, while you?re unable to save for the entire college. Here, you need to be a very precise planner.

Bring your kids into the conversation

  1. Honest discussion at an early age may be necessary to avoid major disappointments. Consider narrowing the list of schools.
  2. The realities of large parent or student loans should be understood and avoided if possible.
  3. Let your kids know that effort and good grades will help expand their school and scholarship choices and reduce their net cost.

If you start preparing for the college experience now, you?ll save yourself anxiety down the road.

[1] Money Magazine October 2016 Cost of College issue

The Unleashed Advisor has been providing financial advice to individuals and small business owners for over 35 years. He has been a Certified Financial Planner since 1992. ?Formal financial planning has been provided to clients since 1989. This experience has produced a wealth of interesting events that allows the Unleashed Advisor to understand and navigate the complex and confusing world of finance.

The Unleashed Advisor is motivated by the opportunity to help people reduce the anxiety surrounding financial decisions, subscribes to the principles of servant leadership with clients and readers, and is untethered from traditional concepts of finance or any one strategy to solve problems.

*Unleashed – to let go, to release. ?To bring about, to precipitate.

Photo by?Alexis Brown

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