Alternative Thoughts on Education Funding

The world changed with the discovery of a hidden stairway in Egypt’s Valley of the Kings in 1922. Tomb raiders plundered the pharaohs’ tombs for centuries. And extensive excavations by archaeologists in the late 1800’s uncovered what they thought were any remaining secrets. However, British archaeologist Howard Carter and his team unsealed the door to King Tutankhamun’s tomb. The Boy King, his treasures, and new discoveries about Egyptian life were found largely undisturbed. This wealth remained hidden and overlooked for over 3,000 years. Tut’s father had been unpopular and Egyptians wiped history clean of Akhenaten’s legacy, and the boy king’s reign fell to obscurity. Tomb raiders overlooked Tut – in their books, he never existed.

Solutions to life’s mysteries often require persistence, new thinking, and a little luck.

The incoming class of 2018 anxiously awaits their letters of acceptance. College education is important for educating, preparing and re-tooling our workforce. It provides professional, personal and social benefits as skills are developed and networks are created linking people, talents and opportunities. And it enhances lifetime earnings potential. I’ll share alternative thoughts about college planning – “college” might be community college, vocational school, four-year college or graduate and professional degrees.

Should education funding take priority to retirement funding?

  1. It’s important to start early – time value of money – but savings can be “lumpy.” Young adults may be focused on paying off student loans and building reserves, shift to home acquisition and family, and finally, focus on retirement funding. If that’s the progression, then recognize the potential conflicting tendencies of “being safer because I’m not 30 anymore” (looking backwards) versus “need to stay growth-oriented to fund a three or four-decade timeframe” (looking ahead).
  2. Ironic situations can arise when life intersects with financial advice. One family sets limits on what they will fund such as X dollars or four years of in-state tuition. Should they feel guilty about saying “no” to their kid’s #1 school choice, or that the kid takes out student loans? Or consider retirees who preserve their retirement assets (don’t spend it) and pass it on to heirs who may become wealthier than they.

How active is the student involved in the planning process? It’s helpful to have both parents and students involved in conversations about the implications of college decisions. Issues include what’s the college choice priority – academic fit versus affordability? Who is primarily responsible for funding – parent versus student? And how school/career ready is the student – GPA, career or major, and drive?

What costs are being considered?

  1. Financially, you have tuition and fees (averages range $10k for in-state, $26k out-of-state, and $35k annually for private). There’s also room and board, books/computers/supplies, and personal/transportation.
  2. How long is school? Two-year program, four or more? What about potential over-enrolled public colleges where it may take more than four years to get the necessary courses versus private schools who say, ”We’ll get your kid out on time?”
  3. Opportunity costs? Consider a student entering the workforce with a technical or vocational degree at potentially less cost, debt and time than a four-year college graduate taking a position different than his major. Or alumni networks or specialty programs at various institutions.
  4. Weight of debt? Recent statistics show about $1.5 trillion of student debt (exceeds credit cards by $620 billion). Average 2016 graduate had $37k of debt. Graduate and professional students were higher – MBA $42k, law $140k and medical $162k. Debt service means less money to buy cars, make house payments, etc. and it gets more expensive as interest rates rise. A 2% rise in interest rates extends the payoff period ($37k of debt at 6%) by 2.6 years or increases the monthly payment 27%.

Planning involves working multiple dimensions simultaneously, not unlike the search for treasure. Good luck.

About Brian Loy

Brian Loy writes insightful and inspiring articles about the ever-changing world of personal finance and the global trends that affect the risk and return on investments and shape the financial- and retirement-planning process.
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