[Editor's Note: This guest post is written anonymously by a CPA who is currently working as a community college Chief Financial Officer. On a personal basis his six children have attended various public, private, and military colleges and graduate schools. On a professional basis, he has observed many financial errors made by students and their parents with regards to paying for college. In this piece he tosses WCI readers a few pearls of wisdom. We have no significant financial relationship at this time.]
One of the major expenses for all families is paying for college. In many ways it’s a nice problem to have as every parent wants to do all they can to help their children be successful and providing them a good education is probably one of the most important ways parents can help. Unfortunately, a lack of planning and unchecked parental ambition can make realizing those dreams more costly and perhaps less successful. As high income parents your children aren’t going to qualify for need based aid –it’s all on you and your preparation. Allow me to pass on a few observations as a parent and college administrator that may be useful as you prepare for your children’s future success.
Everyone Is Different
Each child has their own set of motivations and ambitions. You can create opportunities but ultimately it is their vision of their future that will lead them to educational success. College isn’t for everyone but everyone needs a skill. If your child doesn’t enjoy traditional academic success, encourage them to explore other career training options. Math may seem much more exciting and relevant when they can apply it to a “hands–on” skill. Pushing them in a direction they aren’t ready to go will be a waste of their time and your money.
You Don’t Necessarily Get What You Pay For
There is a huge price variance in higher education. Much of that is to be expected in that public institutions should be charging far less than actual cost due to their taxpayer subsidies. In some instances elite institutions with need-blind admission policies can actually be less expensive for low income students. However, with the exception of a few institutions with large endowments, it is the tuition paid by high income students' parents that is subsidizing the cost of education of the low income students. Merit based scholarships also vary widely. You need to look at the net cost of attendance including living expenses before you can make any meaningful comparisons. A very common mistake is to conflate cost with quality-especially at the undergraduate level. Quality is more a function of the student than the school. A community college with typically smaller classes can be a much better value for most students for the first two years. While it may matter where you graduate, nobody cares where you got your general education.
Begin With The End In Mind
This second of the late Stephen Covey's Seven Habits Of Highly Effective People is particularly important to planning an academic program. Currently only 57% of first time full time students are graduating with a bachelors degree within six years. Most of that is due to a lack of a plan and students wandering aimlessly with a lack of focus. Certainly students should be able to change their minds but the sooner they explore their options and the more specifically they plan their programs the better. Another application of this principle is to help students be realistic about the graduate training requirement for many vocations. For example, most students understand that if you want to be a doctor you have to go to medical school but few seem to understand that professional work in a social science has similar extended graduate training and doesn’t have nearly as good a return on investment. I’m not suggesting that a good liberal education is without value but far too many students are graduating without realistic preparation for what is needed in the employment market. That is proving to be true for even those that get jobs. In a recent report by McKinsey & Co. less than half of American employers believe their new employees are adequately prepared in their post secondary programs. There is a huge mismatch between what students are studying and available jobs.
Ensure Your Child Has Some “Skin In The Game”
Your love should be unconditional, your financial support should not be. Your child should be incentivized to succeed academically. Promises and expectation of unconditional support can be very destructive of personal ambition in high school and college. Preparing for college and even applying for merit-based aid is a lot of work and no normal adolescent is going to put forth their maximum effort if it makes no difference in the end. A recent study using federal data from across the country reports that the greater parental contributions were, the lower the student grades were. Another related study reported that the lowest grades were earned by students where there hadn’t been much discussion about the student’s responsibilities. However, the same study also found a positive correlation between parental support and graduation. The message is not that parents should stop paying for college but evaluate expenses and make smart investments with some accountability. With modest means and six children I, out of necessity, put my children on a “fixed contribution” plan from an early age which set my parental contribution at four years of tuition at a state university or equivalent. They were to receive it even if they received scholarships. The requirement of personal responsibility proved to be a powerful incentive and five of the six qualified for scholarships and now have at least a masters degree with no outstanding student debt ( the last went directly into the military). Setting aside your commitment in a 529 plan is a good investment that can also make it seem more real.
Make High School Count
Over 20% of new college students aren’t prepared to do college level work and consequently are paying college tuition to learn material typically taught in high school. On the other hand, well prepared students are able to save time and money by participating in more advanced coursework. Most states now have “dual credit” arrangements with the local community colleges or advanced placement options that will enable students to get a head start on their undergraduate education by fulfilling many of their general education requirements while in high school. These classes are obviously a lot more work than typical high school courses but can save thousands of dollars in future college costs.
Planning in advance for post secondary education will make a big difference both in the success of your child and in your own finances.
What do you think? What steps are you taking (or did you take) to control college education costs for your children? What did your parents do that worked and didn't work? Comment below!