Many of my clients are extremely concerned about the cost of college, and its impact on their overall financial situation. These costs are increasing tremendously each year and at least for now, there seems to be no end in sight. We need to look at this from a financial standpoint and see if it truly makes sense.
Please understand this: I am a huge fan of education, and I think that everyone needs to continually challenge themselves to learn more and be better. It is great for our kids to see us doing this, it helps us with our careers and personal growth, and I feel it makes you a better person. But do the costs outweigh the benefits? In many situations.yes!
I live in New Jersey where even the public schools are very expensive, but let's just use this as a base. The cost of Rutgers with room and board is around $24,000. This does not include spending money for other uses such as food or books. If I just take Fairleigh Dickinson, Drew and Seton Hall (two private schools in New Jersey), you are looking at a price range between $45,000-$55,000k with room and board. More important, going to a private school does not necessarily mean that you get a better job or even a job after you graduate.
Over a course of four years, this can cost you an additional $80,000-$120,000 per child for a four-year program. If you have three children, you are looking at $240,000-$360,000 in additional costs that are not tax deductible. This means that in order for you to have that $240,000-$360,000, you need to save an additional $350,000 to $515,000 in income, pay the taxes, and then you have the additional funds to pay for the school. Assuming a 7% interest rate, the interest alone on let's just say $300,000 is $21,000 annually in additional interest, that does not count principal or that you may have financed the rest of the cost. That will destroy your retirement plan.
Also, you need to have a realistic idea of what the income potential is for your child based upon their field of study. I am not sure if it makes sense to pay close to $300k in college costs, for a position that maybe will make $30-$50k annually. I have nothing against any form of learning. I have a major concern with the cost and future benefit that you are giving your child and if it makes financial sense to pay the extra money if the income potential is simply not there.
I have met a lot of parents that take real pride in the schools that their children are going to. They wear the hats, have the stickers on their cars and watch the sporting events on TV. The problem is that most of these people simply cannot afford it. Either they or their kids take on huge debt that they have to pay off for many years dragging them down financially. I have two clients who are physicians from great schools in their mid-40s; they make very good incomes and are broke due to a huge amount of debt from college and medical school. They are living paycheck to paycheck, trying to make ends meet. I am not knocking their education, but rather, I am saying, could they have achieved the same results for a lot less money and be in a much better position today?
Over the years, I have met many very successful people who either no longer work in their field of education that they started in. I have met others who started in a public school and went for their advanced degrees on the company's dime. The difference is that those who went to public school and got their advanced degrees paid for (while they were working in that profession) are out of debt, and are better off financially.
At this point of my career, nobody asks me where I went to school. They only care about my reputation and that I can do what we tell them we can do. I do not think that any education is wasted; however, getting a law degree, for example, racking up $150,000 in debt, and then deciding that you do not want to be an attorney is not a very good use of money. I would rather give them a down payment on a nice home if cost is not an issue.
The purpose of an education is to educate, so let's make an educated decision. I do see a substantial benefit of going to a Harvard, Yale or a Princeton as that will help open doors for you. Many of the other (good) schools are simply not worth the additional price, unless cost is not an issue for you.
I think the most important thing we can do for our kids is to give them a good education and instill a powerful work ethic in them, as well as a drive to succeed. Use every resource in your means to help them get summer jobs in their field of study to build their resume. Help them network and meet people who can open doors for them so they have contacts when they graduate. Most of all, help them prepare their interview skills so when they have these opportunities, they can get the job.
College is about education and preparing your children for the real world. Let's start with some real world decisions that we have to make as parents with our children on how we can make them productive adults, without breaking the bank.
Jerry Lynch is president of JFL Total Wealth Management and has more than 25 years in insurance and financial planning. He has been a regular guest on CNBC, WABC and does regular articles for the Star Ledger. He can be reached at firstname.lastname@example.org. Securities offered through Comprehensive Asset Management and Servicing, Inc. ("CAMAS"), Member FINRA/SIPC. Investment Advisory services offered through Comprehensive Capital Management, Inc. an SEC- Registered Corporation. (JFL Total Wealth Management is independent of CAMAS.)