Paying for college is one of life’s big ticket items, along with buying a home and the cost of retirement. Needless to say, there are two significant decisions to be made regarding college. First, should you go; and second how should you pay for it?
You Can’t Afford Not To Go
Average cost at four year colleges for tuition and fees, room and board, books, transportation, and personal expenses for the 2015-2016 school year is approximately $48,000 at private colleges, $24,000 for state residents at public colleges, and $39,000 for out of state residents attending public colleges. This information is from the College Board’s Trend in Pricing Report 2015. This is a significant sum of money – so does paying for college have a payoff?
The answer is Yes!
A 2014 Pew Research Center report provides significant indicators that support a Yes answer. The report’s findings include:
- The earnings gap between the college educated and high school graduates continues to widen. A study by the Georgetown University Center on Education and Workforce tells us:
- the difference between the lifetime wages of college and high school graduates is $1 million;
- the difference between the highest and lowest paying college majors is $3.4 million.
- Those who are college educated have lower unemployment and poverty rates than their less educated peers.
- College graduates are more satisfied with their jobs.
- College grads say their college was worth it.
Paying for College
There are variety of ways to accumulate enough money to go to college. It does, however, take considerable effort to accomplish. You may:
- Save after tax monies or use tax advantaged savings vehicles,
- Be eligible for financial aid from the federal government or your choice of colleges. This eligibility may allow you to obtain student loans, grants, and work study jobs,
- Apply for scholarships,
- Take out private loans,
- Apply for private grants, or
- Use military benefits or employer assistance, if you are eligible.
Certain funding sources must be paid back (public and private loans) while scholarships, grants, work study jobs and military and employer assistance may not.
Said another way, the alternatives to paying for college range from “pay as you go”, to saving religiously over an extended period of time, to saving nothing with the hope that grants and scholarships pick up the lion’s share and you can borrow the rest, or any combination of these alternatives.
Cash or Credit
Considering the cost of college today the “pay as you go” model is not attainable except for the very wealthy. Not too many people can afford to pay for four years of college on a “pay as you go” basis. Paying for college requires a significant amount of effort to save and invest for an extended period of time.
Applying for scholarships and grants should be automatic for candidates for higher education. However, there are not nearly enough scholarships and grants to go around. Work study programs can provide another source of funding but are only a small part of the college funding puzzle. The remaining amount may be funded with loans.
The average class of 2016 college graduate has $37,000 in student loans outstanding. These students may be paying off their loans for decades. Although new federal loan forgiveness programs have been implemented, the financial impact on college graduates is significant. This alternative requires putting many pieces of funding together and in the end usually requires a significant amount of debt. There are several shortcomings to this plan. First, the decision on who gets scholarships and grants, money you do not have to pay back, is not within your control. In addition, there are almost two decades before a child attends college. Scholarships, grants, work study programs and other funding sources may significantly reduced or all dried up by then. Finally, graduates with these large loans are starting their independent lives with huge debt.
Saving for college over an extended period of time using the various tax free savings vehicles requires a significant amount of discipline. This alternative may be unrealistic for many. However, the more that is saved, the more the student, parent and grandparent are in control of the future college experience. Remember, time is your friend while saving and investing. Working jointly to accumulate resources for college, with your future college candidate, will allow you to teach financial concepts. These concepts will be used by your college graduate for a lifetime. Believe it or not, financial literacy will make your child happier!
Paying for College: Which Road Will You Choose?
There is no right way of funding a college education. As you get closer to selecting which college might be right for you, consider the price tag. If cost appears out of reach, you can modify your plan. For example, you can save more, pick a less costly college or start at a community college. However, the earlier you start accumulating resources, the better.
Do you have college funding plans that you can share with us?