The College Decision

This is the season of college applications. The season of campus visits, standardized testing, early admissions. With my oldest being a high school sophomore, I should not be aware of any of this process yet. But my daughter’s email inbox has been inundated over the last several months with communications from no fewer than 100 different colleges and universities.

As her parent, I am floored by the intensity and breadth of the marketing process involved in the College Decision. I admire my daughter’s hard work and growth to this point in her life, but quite frankly, she is in no way equipped to handle this kind of marketing at this age. I do not expect her level of preparedness to be much greater two years from now, when we as a family need to make our first of four College Decisions.

According to the College Board, the average cost of college attendance has risen by 110% over the past 20 years. For comparison, that is two times the 55% inflation the U.S. economy has experienced over the same period. Much of that cost increase has not been directed to the quality of the education offering. Rather, funds have funneled largely to the growth of administrative departments (including marketing departments!). Job growth in our country occurs in places where consumers are willing to spend money, and in the United States consumers spend a lot of money on college education.

As I review the College Decision from the lens of a CERTIFIED FINANCIAL PLANNERTM practitioner, I believe the fundamental question American families need to ask themselves is: Does an additional dollar spent on college education translate directly to a substantially higher future quality of life for our children? That is certainly the selling point many of these schools try to use: this is an emotional sell – more so than a home purchase, an automobile purchase, or any luxury item. After all, we’re talking about our kids: what amount of money would we NOT spend on our kids? If we spend more, aren’t they bound to live better?

I live in Maryland, and like most states, families have access to at least one solidly recognized in-state public university. The total estimated four-year cost of education (including tuition, fees, room, and board) for an in-state student at the University of Maryland is $88,388. Alternatively, the total four-year cost for an out-of-state student at the neighboring University of Virginia is $230,152. That is a difference of $141,764 – per child!

If we consider that the average parent of a college student is around 50 years old, earning a conservative 8% per year on their investment portfolio, then that investment portfolio can conceivably double two times in the next 18 years. That means parents who cover the entire bill for college education for their children could be shifting $550,000 of future retirement dollars to make sure their child can go to the school of their choice (assuming the child chooses an out-of-state public university), a school at which their child is likely to receive a relatively similar level of education to the in-state option. (As an aside, I would suggest that in many if not most cases, the quality of education our children will receive is far more strongly influenced by their individual focus and attention to their studies than by the school they choose to attend.)

Some families can “afford” to make this choice: they have saved sufficient funds to be able to choose to allocate their savings that way and still have sufficient dollars to meet their needs and wants in retirement. Many families, though, have not saved enough. As a result, the desire to send their child to a well-marketed “dream school” is funded through college loans, home equity lines of credit, 401(k) loans, and even credit cards. Many are mortgaging their retirement future on behalf of a child’s selection of school.

To expect our children to be equipped to make the College Decision – the significant decision of how much to spend on a college education with such profound financial implications on the family – as their first major life decision is simply expecting too much. More often than not, kids will make this decision based on how it will sound to their group of peers or how they were impressed by the student giving the college tour or how well respected the school’s sports program is. They will not base it on a sound cost-benefit analysis: most have not learned how to do that yet.

The job to educate inescapably falls on parents’ shoulders (though the responsibility can be shared with a good financial advisor!). We as parents need to involve our children in the College Decision. We can:

· educate our children on the differing costs of schools

· talk with them about what kind of career paths they may want to follow after undergraduate education

· research potential earnings of those possible careers

· discuss possible methods of financing college costs

· determine monthly cost and duration of debt after graduation based on various levels of loans

The ballooned cost of college education has brought us to a place where we must be educated consumers. We watch for the least expensive gas station to fill our cars. We shop in bulk at Costco and Sam’s Club to reduce our grocery bill. We cannot simply squeeze our eyes shut, swallow hard, and say “Go for it!” when our child’s College Decision threatens to derail our retirement goals! The College Decision needs to be framed for the important investment it is, not as a social choice to be made alone by the young and inexperienced.

Joel Cundick is a Financial Advisor at the McLean, VA office of Savant Capital Management. Joel can be reached at 703-288-0500.

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