Some Thoughts on College Funding

By Glenn J. Downing, MBA, CFP®

As many of you know, I am a CFP instructor with Zahn Associates and have been for many years. Currently, I am reviewing the material for General Principals of Financial Planning, which I’ll be teaching soon. Part of that course is college funding.

In the context of the material, this section teaches the time value of money calculations. For example, if the client has a newborn who absolutely will be attending Harvard at age 18, how much new annual saving is necessary assuming 5% inflation and 8% earnings? Siri tells me that the full freight now is $78,200.

Ready for the answer? Sitting down? $18,743.42/year. Something most new parents can do, right?

I personally feel that if I have brought a child into the world, I have a responsibility to that child to give him or her the best start possible, and that includes a solid education. Yet college funding numbers look stratospheric. In this example, one year of college may very well cost more than one parent earns in a year. So how do people do it? What follows is a bit of musing on where there’s a will there’s a way.

Child’s Savings
Whenever I wanted something as a child (or teen) my dad always made a deal with me: he’d provide some if I provided some. At one point in my teen years, I wanted to spend a few weeks in London with family there. The deal was that if I came up with my airfare ($300 RT on TWA) Dad would provide spending money. I did it in just 10 months! For college, the deal was that Dad would pay everything except my own spending money. I was on my own for that. So summers and breaks I picked up any work that I could and learned how to stretch it and make it last through the semester. I appreciate my father’s wisdom: I built self -esteem, self-reliance, and confidence.

Loans
Lots of students take loans. We hate to see it. Why? Students in college have no idea how much $100,000 really is, or how difficult it is to repay with interest attached. We’ve seen extremes: first, a medical specialist with several hundred thousand in loans, who came out of school with a very high income and planned to do not much more than work for the next 5 years and knock out all the debt. Then there was the physical science Ph.D., who loaned his way through his academic career. Earning a teaching salary he may never get out from under. Our position on loans is this: they make more sense in graduate school than undergrad. Higher incomes are generally earned by those with advanced degrees. Still to be avoided if at all possible.


Working Through School
This is a tough one. One undergrad semester at FIU costs $3958 for tuition, fees, and books (from the website). If the student is working for, say, $12/hour, 20 hours/week, for 4 months, the potential earnings are $3840 before taxes – not enough. Imagine UM?!

Start out at MDC and then Transfer
This is a viable strategy. Miami-Dade College is very well respected in the community. What costs $3958 at FIU costs only $2169 at Dade. Now working through school becomes much more of a viable option, or at least for the first few years. All Dade AA graduates are guaranteed a place at any of Florida’s 4-year universities.

Military Service
The VA provides generous education benefits. For in-state public schools, they pick up as much as 100%. For private schools, as much as $24,276.76 per year. This education benefit is in addition to all the other benefits veterans are eligible for, including TriCare (health insurance), discounted shopping at military posts, and pension benefits for continued reserve service.

Gap Year
This is the year between high school and college. Some students use the gap year to travel the world. For others, the economic necessity may be that they need to work every hour available to save toward the education goal.

Stretch it Out
Finally, there’s no rule that college must be completed in 4 years. Nothing bad happens if it takes 6 years. In the span of a 90- or 100-year life, a few years here or there means nothing. Whatever we work hard for we appreciate the most. Personally, in my own dealings, I always have a fuller kind of respect for the self-made man.

People stress about college funding. Rightly so; it is expensive! But somehow things have a way of working out. To my clients, I say this: Do your best. That’s all you can do, after all. We’re here to help you figure it out when the time comes.

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