Happy Labor Day! Our summer school valuation series has wrapped up, just in time for the kids to go back to actual school. So let’s talk for a second about actual school. Specifically, college...or not.
College costs have gone up by about 2.5-3% a year for the last couple decades. That’s not bad in and of itself, but that is still about 8 times more than wages have gone up in the same time period, which leads to a problem with affordability.
So how does one go to college these days? With debt. Student loan debt in the US just passed $1.6 trillion, with a “t”. One in every four people under age 60 has student loan debt. 11% of them are currently in default, and that number could grow to as much as 40% in the next four years.
Student loans are particularly insidious for two reasons. First, they are among the only debts that can’t be discharged via bankruptcy - right up there with alimony and wrongful death payments. Second, instead of coming out of college with nothing and starting to build wealth and save money, you come out of college in debt, and every financial decision you take is influenced by that fact. Trying to network for the job you want? Too bad, you’ve got loan payments to make, go get whatever part-time job you can as soon as possible. Want to save up for your own place? Too bad, any excess income is going towards your student loans.
The Fed itself has said that every $1,000 of student loans equates to 2.5 months delay in a home purchase. The average student loan balance outstanding is about $37,000, so that makes it a 7+ year delay to buy a house.
College is one of those major life decisions that we make before we really have any idea what we’re doing. In retrospect, it doesn’t matter what degree you get, or really even what school you go to. What does matter, and matters every day, is how much it cost to go to that school or get that degree.
Consider: the average cost of for public in-state university (tuition plus room/board) is about $20k/year. Out-of-state is more like $36k/year. And a private university will run closer to $47k/year. That’s a lot of saving to do.
If you want to provide four years of private college education to your child so that she can start adult life debt-free, that’ll be roughly $1,000 per month from the time she’s born until the time she starts college. Eighteen years of $1,000 per month. Per child. The best way to save for college is a 529 plan. They’re administered by the state, offer tax deductions, and can be used down the road tax-free as long as the money goes towards education expenses. Georgia’s is called Path2College and offers up to $2,000 in deductions on your state income tax per person per beneficiary.
Or, consider a trade school. We as a country force feed the 4-year university ideal like we’re making foie gras. But there are viable alternatives out there. A trade school degree will take you two years and about $33k. Total, not per year. So you come out with skills, job prospects and little to no debt, which is a great place to start from.
Remember that show Dirty Jobs with Mike Rowe on the Discovery Channel? Most of those people he worked with owned their own companies and were millionaires. Just sayin’.
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