• markstruthers

The College Approach

Parents take many different approaches when it comes to college funding for their kids. The approach taken will often be influenced by the approach their parents took, or the approach their culture takes.

On the one end we have the parents that participate little in the child’s college funding. And on the other end we have the parents that will pay almost anything for the child’s higher education. The minimal-participation group is often driven by two major themes, “retirement-first” and “skin-in-the-game”. The retirement-first folks believe that “you can’t borrow for retirement, but you can for college”. And the skin-in-the-game folks believe that the child won’t appreciate the opportunity and won’t work hard if college is paid for them.

The all-in parents usually fall into three groups. The first believe that “our kids are our retirement”. This is common in many cultures. They invest heavily in their children and in return the kids will care for them in their old age. The second group believes that education is a right of passage and should be paid for, regardless of the cost. The last group is the status-symbol group. Being able to tell their friends that their kid goes to an elite school is worth any price. The parents caught up in the admissions scandal probably fall into this camp. The amounts they were paying to get the kids in college would probably never have enough return on investment to justify the cost, much less the unethical and illegal activities. The motivation had to be one of status.

Subscribing to one end of the spectrum or the other made much less difference 20+ years ago. The reason being is the affordability of college was much greater back then. The stats below tell a very compelling story. Compounding of interest is a magical thing, allowing it to build and build. When that compounding is working against you, the impact can be more devastating than the Ice King getting ahold of your favorite dragon.

A common theme is that wages have not even kept up with normal inflation, much less college inflation. Even if we give wages the benefit of the doubt and say they have kept up with normal inflation, education inflation has increased by almost 4% above normal inflation over the last 30 years. From the College Board: https://trends.collegeboard.org/college-pricing/figures-tables/average-rates-growth-published-charges-decade

This means the ability to buy an education has decreased by two thirds. Your income dollar will only buy 0.33 cents of tuition now compared to 30 years ago. This means the ability to completely ignore college funding is less and the ability for the parents to pay for everything is less.

What is probably more critical than deciding the level of participation is for the parent and the child to educate themselves early on as to the possible cost of college and if debt does have to be taken out, what that looks like after college. If I had been informed what servicing my student loans looked like on my salary out of college, I would have done things differently.

The approach parents take to college funding is personal. There are no wrong or right answers. What is wrong is for the parents and student to go into the process and make the investment without knowing all the costs and consequences. Twenty-five years ago, you could do that, in most cases. Now, the costs are too life changing. Too much debt can keep us from being the best versions of ourselves, which is the reason for higher education.

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