Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.
The soaring cost of higher education has prompted talk about a “college bubble” and raised questions about the value of investing in a college degree.
The debate is legitimate, but it’s still important to get that diploma. On average, college graduates earn $1 million more during their careers than non-college grads. What’s more, those with a college degree are better insulated against job loss. For example, the current jobless rate for college degree holders is 4.2 percent, while those without are suffering an 8.3 percent rate.
Of course, higher education isn’t free — unless you are extremely good at a certain sport. The rising cost of college combined with greater access for more students has pushed total student loan debt to $1 trillion – more than we borrow to buy cars. The average loan balance student carried by college borrowers is upwards of $25,000, according to the Project on Student Debt.
As a result of their debt obligations, many college grads don’t begin out-earning their high school grad buddies on a net basis until their early thirties. But again, at the career finish line, the college guy or gal will have dramatically out-earned the high school grad.
And there is no tuition relief in site. I predict that in just over a decade, an in-state University of Georgia four-year degree will cost about $128,000.
That’s just too much for most parents to scrape together, especially on top of retirement. So how will modern families send their kids to college? Here’s a common arrangement I think makes sense – chopping the tuition monster into thirds:
Savings: One-third of the college cost comes from a lifetime of saving, ideally using a tax-advantaged 529 college savings account.
Cash flow: One-third comes from the family’s current income while kids are in college.
Loans: The student pays one-third of his tuition from loans and/or money they have earned. I especially like this because it forces the child to have “skin in the game” and truly appreciate the sacrifices being made for his or her education.
Remember, too, that higher education is like any other investment or product — you need to shop for the best value. Prestige and exclusivity are nice, but how much are you willing/able to pay for that — especially when in many fields, including entrepreneurship, public college grads achieve more success than peers who attend elite private schools?
Kiplinger’s list of the best values in public colleges is a great place to start your shopping. My alma mater, UNC-Chapel Hill, frequently holds the top spot on that list, and to my delight this year UGA is in the Top 10. That’s a ranking I really need the Dawgs to maintain!
How do you plan on paying for college…and do you think high-priced schools are worth it?
– By Wes Moss, for Atlanta Bargain Hunter