College Knowledge

We recently hosted an event for our clients focused on how to navigate college admissions. This was not about the financial aspects of higher education, but given the massive amounts of money that families spend on college, it was impossible not to touch on the monetary implications of the process. After reading a recent report about the cost of college, it is not surprising that any conversation about those four years would have to include the dollars spent on the experience.

According to the College Board, a non-profit education group, tuition and fees at four-year public universities are up a staggering 6.6% from a year ago, with the average price at $6,185. If your scholar attends a private university, the average cost is $23,712, up 6.3%. Of course that’s just the tuition---if you were hoping to get your kid out of the house and into a dorm with some food, the annual costs for public and private are $13,589 and $32,307 respectively. The past five years have seen the steepest rise in tuition and fees at four-year public colleges of any five-year period covered by the survey, which dates back 30 years.

Perhaps these trends are part of the reason that our guest speaker, Bill Caskey of AdmissionReady encouraged our clients to look beyond the “usual suspects for college”. He talked about state schools that offered excellent academic programs for gifted students and acknowledged that college is indeed a major investment which requires a fair amount of due diligence. From the perspective of a non-parent financial advisor, it was staggering to hear that despite the rising costs of education, the process is more competitive than ever. We saw it ourselves, when our program was sold out within a few days of the initial announcement!

If colleges were for-profit entities, their stocks would be soaring. After all, how many businesses have increased prices at about twice the rate of inflation and have not only maintained market share, but increased it? Unfortunately for many American families, the way to finance education is debt. A separate report on trends in financial aid from the College Board shows that over the past decade, increases in grant aid, or the money that students do not have to repay, have covered only about a third of the increases in the private college tuition and half the increases in at public four-year schools.

Students are footing more of the bill with private loans from banks and student-loan companies. Undergraduate private borrowing increased 12% to $14.5 billion 2006-07 and borrowing from private sources has increased tenfold over the past decade. As a result, the typical student with an undergraduate bachelor degree from a public university will graduate with over $15,000 in debt, while the private school student will accumulate close to $20,000 in loans. Those loan amounts are the average, which means that many students are graduating with the equivalent of a hefty mortgage payment.

The good news is that college still remains a good long-term investment—workers with college degrees earned almost two-thirds more than those who held high school diplomas. But like any investment, to be as successful as possible, college funding requires a plan. Regardless of where you are in the planning stages, you can benefit from thinking about these issues. Given the trend, the one thing you know is that education costs are likely to continue rising in the future, so get going right now!