The Price You Pay For College - Part 2
In part 1, I discussed considering the net cost of college when forecasting what you may spend. Today, I'll throw out a few other perspectives around cost.
First, it's been commonplace when doing education planning with clients to see something like the following:
The hypothetical investment results are for illustrative purposes only and should not be deemed a representation of past or future results. This does not represent any specific product.
We have x dollars today. We are contributing x dollars per year into a tax-advantaged 529. What are the projected earnings on those dollars? What's the projected cost of education, and how much are we inflating that number per annum?While there's some value in this exercise, it dramatically understates the realities of the education marketplace. Many times, one may not know what they'll owe within tens of thousands of dollars, until choices have become limited, post application process. This comes down in large part to how merit aid works, which I won't get into here.
"I spent a couple of years in a state of reportorial rage over the fact that at many of the more selective schools that offer merit aid, there is no surefire way to know even within a five-figure amount how much of a discount a school might provide. I made my case for change in the offices of twenty or so college and university presidents and vice presidents of enrollment, occasionally raising my voice in frustration. Did these people, I wondered, have any idea what it was like to try to pick schools to apply or to plot a financial strategy while having no early idea how much it might costs? They do and they don't. They do and they don't. They certainly hear it from the few families who are bold enough to complain and ask pointed questions. Then again, many of the enrollment management professionals work for schools that offer tuition breaks of various sorts - often quite large ones - to children of staff members. They are quite literally not operating in the same marketplace that were are when they go shopping for colleges for their own kids."
Here's another perspective. The narrative of higher education going down the tubes is in hyperdrive after COVID-19. But before you assume college will be free to anyone in 20 years, consider that the demise of higher education has been talked about for decades.
"In a 1971 report titled "The New Depression in Higher Education," the author claimed that the cost of college was reaching a 'saturation point.' The next year, Amherst's assistant director of admission worried aloud about the children of white-collar workers and possible anarchy if schools had to give out more financial aid. Stanford's dean of financial aid chimed in too and seemed ready to throw up his hands, owing to the fact that the financial sacrifices he was asking families to make 'border on the ridiculous.'
By 1984, insiders were predicting that somewhere between 10 and 30 percent of colleges in the United States would close in the next decade. In 1986, others became more pessimistic, thinking that close to 30 percent of schools were in imminent danger. The one self-styled see asserted that the right number was actually 50 percent. That prediction arrived in 2017 out of the mouth of the late famed business guru and Harvard Business School profession Clayton M. Christiansen. He figured it would take until 2030 or so to happen."
There are many factors and a lot of variability that goes into the cost of higher ed. Don't get pigeon holed around planning towards a hard number. That being said, it is not an excuse to avoid the responsibility to save. Use those present value calculations to see if you're in ballpark, but nothing more. We'll get into the specifics on that later next week.
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Source: The Price You Pay For College (Ron Lieber)
The content in this article was prepared by the article’s author. Voya Financial Advisors, Inc. does not endorse its content, and the views expressed may not necessarily reflect those held by Voya Financial Advisors, Inc.
