Go to college, get a good job, work hard and save for retirement. That's the standard advice heard in households across America, but many college-bound teens — and even many college students — don't really understand how much getting that degree really costs.
Then there's the fact that simply getting a degree doesn't guarantee success; rather, hard work, experience and determination are just as important as that college diploma.
While many high schoolers and college students just assume that their parents will take care of the financial details, others blindly rely on student loans to get them through their four (or, as is more common today, five) years of higher education. They are then blindsided when they don't get their dream job — or their dream paycheck — once they graduate. Share these financial planning tips with your college-age children to help them avoid the twin pitfalls of student loan debt and unrealistic expectations.
Can Student Loans Fit into the Financial Planning Process?
With the average cost of a college education rising year-over-year, it's no surprise that many parents' and students' thoughts turn to student loans. According to 2014-2015 data from the College Board, undergraduate programs now cost an average of:
- $9,139 for tuition for in-state students at a public four-year institution
- $22,958 for tuition for out-of-state students at a public four-year institution
- $31,231 for tuition at a private four-year institution
- $9,804 for room and board at public four-year institution
- $11,188 for room and board at a private four-year institution
- $3,347 for tuition and fees at a two-year institutionIt's easy to see why many parents and student rely on student loans; in fact, as of 2014, 40 million Americans have student loan debt for a nationwide total of $1.2 trillion, a new high. The average college grad carries four loans for an average total of $29,000. For those just starting out, it can be difficult to save for retirement and follow a comprehensive financial plan when saddled with hundreds of dollars in monthly loan payments for the next decade.
That reality makes it necessary to sit down with your teen and discuss the true cost of college before they commit to years of student loan debt. If taking out student loans isn't absolutely necessary, encourage your student to pay for their education through grants, scholarships, 529 educational savings plans, and plain old hard work, i.e. getting a part-time job. While some students may dream of jetting off to a pricey private school on the other side of the country, the reality is that in-state tuition simply costs a whole lot less, as do public universities.
No Golden Ticket: Financial Planning Tools and College Costs
While those with college degrees do end up making more over their career — those with a bachelor's degree earn an median annual income of $45,500, as compared to $30,000 for those with some college (but no degree) or $28,000 for those with a high school diploma — a degree doesn't guarantee a high-paying job in your student's field of choice.
Indeed, despite the recovering economy, studies indicate that about 44 percent of recent college grads (ages 22 to 27) work in jobs that don't actually require a degree, and only 36 percent make more than $44,000 per year. However, a majority of college grads across generations still believe that the college experience was worth it.
The key lies in doing your research and discussing these issues with your teen before they make financial decisions that will affect their lives for many years. Your family wealth advisor can help you and your teen identify your short-term and long-term goals, and determine how education fits in.