This is a re-run of one of Certified Financial Planner Jim Heisler’s most popular columns. He’ll return in two weeks with new content.
There have been a number of articles appearing in the mainstream press and higher education journals about the value of a college education and how unaffordable it now is.
With costs escalating from 5 to 7 percent per year for the last 20 or so years, it is easy to see how higher education is on an unsustainable path. Incomes have risen at a much slower rate. The byproduct of all this has been the huge expansion of student loan debt. College graduates now carry more debt than in any previous generation. They also face significant challenges in finding employment in their chosen fields. A combination of older workers remaining in the workforce, companies cutting back on staff, and students with degrees in fields that are not in demand have made it that much harder.
Many people believe that the surge in costs is primarily due to the fact that the government has put so much money into higher education in the form of financial aid. Now that many states and the federal government are cutting their budgets, colleges and universities are scrambling to find ways to adapt. During 2012, California state universities saw huge tuition increases (20-30 percent) due to cuts in state funding. With the looming fiscal cliff, it is a real possibility that the federal government will pull more money out of higher education. This will force some colleges and universities to take drastic action just to remain open. This includes cutting out programs with low enrollment or fields with low probability for securing a job. Some states are now means testing their financial aid grants and giving money only to those schools who can document student success (defined as degree completion or securing a job).
The middle class is probably the most impacted segment of society. Middle-class families typically do not receive very much in financial aid and the increase in cost falls almost completely on their shoulders. How are families supposed to deal with this especially if they have more than one child? Many who live in Northeast Philadelphia choose to send their kids to Catholic or private grade school and high school. Doing this alone is a sacrifice, and many live paycheck to paycheck.
The cost of one year of college can be as much as half or more of a family’s annual income. How is a middle-class family supposed to deal with such a burden? Even though the average student in the U.S. graduates with approximately $27,000 in debt, I have heard many stories about students graduating from colleges in Philadelphia with $60,000 or more in student loans. How is a new graduate supposed to start life having to pay off that much debt? If they get married, there is a good possibility that their spouse will also bring a significant amount of debt into the marriage. The impact of this debt could have a profound effect on the lives of future generations.
So what can be done to deal with this? A lot of students are choosing to go the community college route. Saving significant costs on the first two years of college can help reduce the amount of debt students will have when they graduate. Also, if a student is really unsure about what career field they want to pursue, it is far less expensive to take courses in different disciplines while in community college instead of a four-year school.
Good luck with your planning!
The views expressed are not necessarily those of Cambridge and should not be construed as an offer to buy or sell any security.
Jim Heisler, CFP®, CDFA™, CASL™ Family Wealth Services, LLC 8725 Frankford Avenue Philadelphia, PA 19136 firstname.lastname@example.org 215-332-4968