What your parents want you to know – but are too romantic to tell you!
Warning: you’re not gonna like what I’m about to share with you – but you need to hear it.
You may be thinking, ‘my parents – romantic?’ In this case – yes – they are. You see, this message should coming from them – but dog-gonnit – they’ve had a hopelessly romantic image of you sauntering off to college and merging into adulthood since the day they discovered you were on your way into this world – and it’s darn near impossible for them to get ‘objective’ enough at a time like this to convey reality with the sober frankness with which you need you need to hear it.
I know. I’ve been to college – I’ve now put my own kids through college (and am still paying for it) – and today, I help families navigate college planning as my profession.
You’re Not Entitled.
Moment of confession. I went to college largely because my parents wanted me to have the same four-year experience they had. From the stories they told – I wanted it too. So I went – and they paid. Don’t get me wrong, I cherish my college experience. But I really don’t know that the education added all that much to my success in life – and I’m quite certain I went there selfishly – under-appreciative of my parent’s sacrifice.
Sure the education was important. But my parents knew it was more about the experience. Most of us would admit the same – even if only under our breath. But that makes college a luxury, not a necessity – and certainly not an entitlement.
When tuition was $500 a semester as it was in my day, it was a relatively affordable luxury. And while that was a lot of money in 1980 terms – it wasn’t nearly as much as today’s $30,000 a year average tuition – and the impact it will have on your parent’s retirement (if they’re paying some or all of the freight), or yours if you’re paying the tab.
We all deserve a little luxury in our lives from time to time – but this is a four-year luxury that may be too extravagant for many – perhaps you and your family. It is neither a necessity, nor an entitlement, and part of adulthood is developing the capacity to think through things with more objectively than perhaps even your romantic parents can muster right now.
It’s Not Necessary
The social mantra back then was, ‘get a good education, so you can get a good job.’ The inference was that without a good education, a good job was elusive. That’s neither true today, nor is that the goal of many younger folks like yourself.
First, outside the professions (doctor, lawyer, accountant, etc..), there are fewer jobs that require skills that are taught only in college. Second, most young people today aren’t looking for a ‘j-o-b’ job – the kind with a good pension and a 30-year career. You’re probably looking for something different – something that is socially fulfilling – something that allows you a variety of experiences – something that appreciates and accommodates the non-work activities that are important to you.
And because so many young people of the last generation viewed college as the only viable post-secondary route, a shortage of tradespeople, entrepreneurs, and others ensued. That shortage has dramatically raised compensation for the kinds of jobs and professions we once looked down on.
Think of it this way. I went to college – all in – for about $15,000 – that’s for four years, not one! That was roughly what I earned at my first job after college. That let me get a car (a cheap one), an apartment, and a date from time-to-time.
Today, a college degree – all in – can cost $100,000 – sometimes as much as $200,000. Few college grads will get a six-figure job right out of school that will let them pay for school, get a car, an apartment, and the occasional date – particularly when it’s likely that part of that bill had to be financed, which adds a $500 – $1,500/month (or more) student loan payment. Point is, the economics have changed so dramatically that the whole college value proposition has to be reconsidered.
Do the Math
So let’s do just that. Before you decide to go to college, I encourage you to look at college as a math equation (I know – you don’t like them – but your going to college – get used to it!). Specifically, let’s look at the ‘return on investment.’ That requires us to look at college as an investment on which we expect to earn a life-long return.
Let’s use the example of a $25,000 in-state college. Based on today’s on-time, four-year graduation rate (just 41%), Politifact says it will take you 6-years to obtain a 4-year undergraduate degree. You’re smarter than that of course (right?) – so we’ll say it will only take you 5. That’s $125,000 in tuition, room and board.
Now because you’re smart, you got 30% of that in scholarships and gift aid. That’s 30% of the first four years, because there is virtually no financial aid after the first 4 years. So credit you with $30,000 in aid – for a net of $95,000 for a degree.
Unfortunately, colleges expect to get their $95,000 over four years – and that’s a challenge for most families and nearly all students. That means at least some of that cost is likely to be borrowed – either by you – or by Mom and Dad.
If half of it is borrowed at 6% and repaid over 10 years, there’s another $15,000 of interest cost, assuming you’re able to repay those loans over the standard 10-years. That brings the ‘out-of-pocket’ total to $110,000.
Sidebar: If you’re considering borrowing for part of your cost of college, understand what that payment will be when you get out. At 6% interest, on a standard 10-year repayment plan, your monthly payment will be $11.10 for every $1,000 borrowed i.e. borrow $25,000 – figure a payment of $277.50. That’s $3,300 a year, which is more than 8% of a $40,000 starting salary.
But wait. You gave up the opportunity to earn money for 5 years while you were studying. Let’s assume you could have earned a wage of $30,000 had you skipped college. That lost opportunity cost adds $150,000 to the cost side of the equation, for a total gross investment of $260,000.
If you want a 15% annual return on your investment (a quite reasonable expectation), then you’ll need to earn $39,000 per year more with that degree – than you would have earned without it. That’s a HUGE premium. And the math should influence both your go/don’t go decision – and your choice of major.
Of course the college decision can’t be all about money. You also want to follow your passion. The math just adds a reality check to the romantic idea of your passion.
If teaching is your passion for example, it is impossible to pursue that career goal without a college education. But since it’s unlikely that you’ll earn a wage that will yield a positive return on investment, it may not make sense to attend an expensive private school, and it certainly will not make sense to incur debt to do so. Both add to the denominator of the equation without the prospect of a big numerator.
If you can’t rationalize in your own mind, through objective research – that you’ll earn an adequate return on your investment in a college degree – maybe you need to consider other options. Whether it’s your money – or Mom & Dad’s – or a combination –it’s wise to make a financial case for college. If the math adds up – the decision is easy. If it doesn’t – well – you get the idea.
Are there jobs and professions that are likely to yield a sufficient return? Of course. But sociology, teaching, or underwater basket-weaving degrees are unlikely to get you there.
It may not sound fair that you have to consider college on objective criteria while generations past could rationalize it more for the ‘experience,’ but life isn’t always fair – and math can be a stubborn thing.
I’m neither ‘for’ college – nor ‘against’ college. This is not an editorial on the value or virtue of college. What it is about is making a rational, informed decision, and to do so, somebody’s got to tell it like it is.