The Best Way to Control Costs Is to Buy the Right Things and Do It Right
College Degree — 5 Ways to Ensure the Value, Minimize Costs
Higher-ed costs have skyrocketed over the past 40+ years, but are still worth it — here’s how you can help your kids maximize the value at the lowest cost
If you have (or plan to have) kids, encouraging them to get a college degree and helping pay for it may be one of the greatest gifts you can give them.
The Value of Higher Education
A college education offers great benefits.
- According to American Radio Works, even having “some college education” increases lifetime earnings by 13 percent, an Associates degree by 24 percent, a Bachelor’s 66 percent, a Master’s 97 percent, a doctorate 158 percent, and a professional degree 174 percent! Britannica’s ProCon.org updates for 2020: “Career earnings for college graduates are 71% to 136% higher than those of high school graduates. The Federal Reserve Bank of New York calculated a 14% rate of return on a bachelor’s degree, which constitutes a good investment…” A report from the Social Security Administration confirms this benefit.
- Higher education also promotes a healthier life and greater happiness, according to Walden University: “Research has shown that a college degree can help you live longer. According to a recent study published in the Journal of Health Economics, an additional year of college lowers mortality rates by as much as 19%. A major study by the University of Maine in 2012 found… Americans with a bachelor’s degree are 21% more likely to be married and 61% less likely to be separated or divorced, and their likelihood of being happy is significantly higher.”
However… the $1.7 Trillion Elephant in the Room
The top argument against the value of post-secondary education is its ever-increasing cost.
Forbes says the full cost of attendance (including fees, room, board, etc.) nearly tripled from 1980 to 2019 after adjusting for inflation — in nominal dollars the increase was nearly nine-fold!
By contrast, CNBC says, the wages of young workers have only increased by an anemic 19 percent!
To cover the huge gap, students have had to rely on student loans and parental support. The former has led to average student-loan debt per graduate increasing from about $13k in 1985 (in 2021 dollars) to $31k in 2021.
Nationwide, Forbes reports, this works out to a record total of $1.7 trillion!
Some of my clients report student-loan debt of up to $350k, for a single professional! And that’s many years after graduation!
If you want your kids to reap the highest benefits without such massive debt, it’s up to you to help them make the right decisions, and do what you can to help them cover their cost of attendance.
The Best Ways to Control College Costs and Maximize the Benefits
As I’ve written elsewhere, there are five ways to get the most and pay the least for a college degree.
- Choose the major wisely — not all degrees lead to high-income careers
- Focus on studies while in school
- Forgo expensive private schools (unless they give you a free ride)
- Consider starting off in your community college and transferring in junior year to the state university system
- Minimize spending in school to reduce how much you borrow (ideally, zero)
1. Picking the Right Major
Using a military metaphor, it doesn’t matter how good your weapons or soldiers are (or worse, those may become counter-productive), if you use them against the wrong target.
So, your priority is helping your kids pick the right (educational) target — their major.
While it isn’t easy to do early in adulthood, if you can help them figure out which of the many possible professional paths they might be interested in combines as many of the following benefits (in no particular order) as possible, the better.
- Good fit for their interests
- Good fit for their talents
- Good work/life balance
- High demand
- High diversity
- High flexibility (geographic, remote/in-person, etc.)
- High income
- They have access to mentors in the field
Finally, consider that there are career paths where a college degree is a waste of money and time better spent gaining experience and making money. Some examples include electricians, plumbers, carpenters, etc. If your kids would enjoy a career in one of these, they should skip college.
2. Focusing on the Main Thing
Another hard thing as a young adult is to keep their eye on the prize and not let social activities distract them too much from Job One as a student — doing well in classes. That’s why three in five students fail to complete their “four-year degree” in four years.
Adding a single year until graduation increases costs by over 25 percent, and will likely increase student-loan debt by even more!
3. Not Paying for Private Schools
If your kids can get a “free ride” at an elite school, and it’s a good fit for their personality and talents, by all means encourage them to go for it.
Otherwise, you’d be paying a premium of over $100,000 for something that makes no observable difference!
According to the National Bureau of Economic Research, while the differences in results observed for students at different school selectivity levels is substantial, “…when we adjust for… the average SAT score of the colleges that students applied to, our estimates of the return to college selectivity… are generally indistinguishable from zero.”
In plain English, paying premium prices to attend an elite school provides no more “return” than what students of their level can be expected to get from a public school that costs far less.
4. Using Community Colleges to Save Even More Money
If your state is like Maryland, your state university system must accept transfers from the state’s community colleges after two years, assuming the student’s GPA is at least 2.0.
Since even at in-state levels, state-system schools can cost double what community colleges do, attending such colleges for two years can save the equivalent of a full year’s cost of attending the state school while graduating with the same degree from as if the student studied there the full four years.
5. Being Frugal Saves a Lot More than You Think
When you’re living off someone else’s money, it’s easy to go overboard.
Ordering meals from restaurants every day instead of using much lower-cost (but less appealing) cafeteria meals, going out to clubs and bars, buying the latest tech and/or the latest fashions, etc.
However, if your kids are using student loans, the money they spend really isn’t someone else’s. It just feels that way, until it’s time to pay it back.
With interest!
What I Learned Putting Three Kids Through College
Now that my youngest has graduated, I’ve experienced putting three kids through college, and each was a completely different experience.
Without going into specifics, here are the lessons we learned (some of which is mentioned above):
- Your kid can do a lot to help control college costs:
- Pick a good school in your state’s university system
- Do well in high school to win merit-based scholarships
- Take Advanced Placement (AP) classes and get good grades on AP tests
- Attend community-college classes while in high school for relatively inexpensive credits
- Share rental costs with other students when living off-campus
- Graduate in four years (which likely means don’t change majors or schools in midstream)
2. One of the biggest gifts you can give your kid (or grandkid) is to help them graduate without any student-loan debt
3. A 529 plan can be valuable even if you don’t save ahead of time
The Bottom Line
A college degree can make a huge difference for your kids’ future. Use as many of the above tips to maximize your kids’ results from their degree, while minimizing the cost.
In an upcoming piece, I’ll walk you through the best ways of funding your kids’ college education.
For now, here’s a bonus tip — use a 529 plan. Most states offer state income tax benefits that let you save thousands of dollars on a single child’s degree in tax benefits.
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Disclaimer
This article is intended for informational purposes only, and should not be considered financial, investment, business, tax, or legal advice. You should consult a relevant professional before making any major decisions.
About the Author
Opher Ganel has set up several successful small businesses, including a consulting practice supporting NASA and government contractors. His most recent venture is a financial strategy service for independent professionals. You can connect with him there, or by following his Medium publication, Financial Strategy.
