Here's a piece from Money Central lamenting the fact that college is so expensive. The piece notes that there are five main reasons college costs so much:
- Capital spending: Cornell economist Ronald G. Ehrenberg, in his book “Tuition Rising,” describes a kind of “arms race” among the nation’s top schools to have the best of everything: the best facilities, the best faculty and strong sports teams to engender loyalty among alumni donors.
- Faculty: Half to two-thirds of the typical college’s budget goes to paying instructional salaries. So rising paychecks are indeed a factor in higher college costs. The tenure system and the lack of mandatory retirement can make it tough to oust high-earning but less productive employees.
- Productivity: One factor that keeps inflation muted in the private sector is worker productivity. Technology, equipment and experience tend to help the average worker make widgets faster over time. That growing productivity allows a business to create more products for the same cost. But colleges aren’t in the business of making widgets. Those that try to force greater “productivity” out of their professors -- by increasing class sizes or class loads -- often find their strategies backfire. The best instructors leave for better environments, and the colleges’ reputations suffer among students and the ranking services that gauge university quality.
- Financial aid: As we’ve seen with the health-care system, if people aren’t feeling the real cost of their purchases, they have less incentive to change their behavior. If you’re paying the full tab and Elite University jacks up its rates 10%, you might opt for Just Fine State. If enough others followed your lead, Elite might rethink its pricing. As it stands, however, Elite just needs to boost your financial aid package by 8% or so, and you’ll grumble but stay put.
- Bigger pool of qualified applicants: This is the big kahuna and perhaps the strongest force affecting college prices: demographics. The number of college-age people is expected to grow from 17.5 million in 1997 to 21.2 million by 2010. The percentage actually attending college is bound to increase further, as fewer and fewer decent jobs remain for those with just a high school education. Meanwhile, the most selective schools haven’t expanded that much, even as the number of qualified applicants keeps rising. That’s why the SAT scores that would have gotten you into Harvard a decade ago might not get you accepted at your “safety” school today. With that kind of demand, college and universities can continue to boost prices almost at will.
Let me be sympathetic for just a few seconds. Yes, higher education is expensive. Yes, it's getting more expensive every day. Yes, the combination of paying for college while also trying to save for retirement is a tough financial challenge. I certainly can understand people's pain.
Ok, now back to reality.
Come on people, it's not like this expense is sneaking up on you. When you have a child, you know that in 18 years there's a good chance that you're going to have a major expense for four years. So, what do most people do about it? Nothing. (other than keep spending their money like crazy.) They don't even start thinking about it until their kids are in junior high (if that). Then they are appalled at the cost of college and complain that they can't possibly pay for it. Sheesh!
You think I'm making all of this up? Money magazine quotes Vanguard and Upromise in its May issue when stating:
The amount the average family with a teen has saved for college: $6,625.
This is for families with a TEEN -- translation: at least one child will be starting college in a maximum of five years!!! And this is all they have saved -- less than one semester's tuition at many colleges. I have more than twice this saved for each of my kids -- and they are both under 10!
Alright, enough said on the "why aren't you saving for college?" issue. The fact is, even at these high and increasing costs, a college education is still a great financial deal:
Despite two decades of rising prices, 68% of full-time undergraduates attending four-year colleges still pay less than $8,000 in annual tuition and fees. The payoff: post-college incomes that are 60% higher than those of high school graduates and that, on average, mean $1 million more in lifetime income.
Yes, there is a big, big difference in starting salaries and earning power over a lifetime with a college degree versus not having one. Want to earn even more? Get an MBA, then manage your career to maximize your net worth. Couple these with spending less than you earn and it's nearly impossible not to become wealthy.
So how should you save for college? Here are some tips from Money Central:
- Save early and often.
- Learn how to maximize your chances for financial aid.
- If you don’t expect to get financial aid, prepaid tuition plans might be worth investigating.
Then, here are some suggestions from Money:
- Tighten your belt. Every dollar that can be squeezed out of the family budget is worth two in loans and interest.
- Spend 529 money first. Spending it may qualify you for financial aid in later years.
- Share the cost. Overwhelming a kid with student loans isn't a good idea, but letting him take on some debt for his education is appropriate.
Finally, here are some posts from Free Money Finance that can help you out as well:
Yep - people need to keep the ROI in mind. Getting my MBA is rather expensive, but it's expensive because you'll be more than making up for it in your post-MBA career! Think long term!
Posted by: Amanda | April 21, 2006 at 12:32 PM
I am no finance geek, but I subscribe to the "pay yourself first" mantra -- and pay money into the 401K and 529 before doing any expenses. And our family -- inc grandparents, aunts, etc, all does Little Grad (www.littlegrad.com) which gets us rewards from our online shopping. (The latter contribution going into the 529 will get us WAY past the 6K mentioned above...)
TylerT
Posted by: Tyler | May 03, 2006 at 05:40 PM
Some parents really have no idea. My folks went to college in the early 60's, and were well able to finance their education themselves with little or no help from their parents. Since they were willing to help their only child with tuition and expenses, they assumed I'd have it easier than they did.
When they finally checked out what tuition would cost for 4 years at a private university (starting in 1999), they were in for a big shock. They still paid the majority of the "expected contribution", but I still came out with an unhealthy amount of debt. When I married my husband, our combined student loan debt was more than our combined yearly income!
Was it a good investment? Probably, but if I were going to do it again, I would have spent half the money and gone to a state school. As soon as we have kids, we'll be putting money away for their education. When the time comes to select a school, we'll encourage them to consider the cost.
Posted by: Anitra | January 30, 2007 at 03:45 PM
Well, I really don't like the approach that is always taken when it comes to college. I am sorry, but kids need to be working while they are in school, at least part-time. Further, I really don't think that parents should fully fund their children's college expenses. They are of age, and I really want them to be successful, but part of that is developing a good ethic in regards to work, and earning things. They will appreciate college all the more if they have to work for it, more than just earning grades.
This does two things:
1) They can pay for some of their expenses with their work funds, and possibly get some tuition reimbursement.
2) They can get some real work experience under their belt that will certainly help with that all important starting salary when they graduate from college.
For instance, if you are going to school to be a pharmacist, look at becoming a pharmacy technician for one of major pharmacies (Walgreen's, CVS, etc.). You will get first-hand experience in a pharmacy, you will know if you even want to continue down that road, you will receive great tuition reimbursement, and you will have a job lined up already when you graduate. This same thing can apply to IT work (find a helpdesk/tech support job), financial services (bank teller), engineer/architect (draftsman or surveyor), accountant (bookkeeper), etc. Just find an entry-level job in a field relevant to your degree of pursuit, and look for tuition reimbursement benefits.
The pharmacy idea is a goldmine because they will cover most-to-all of your tuition/book expenses if you promise to work for at least two years there when you graduate. It is a built in job recruiting tool!
This way, you do not forgo earning, you develop experience, you lessen your debt obligation, and you are ready to hit the ground running immediately after graduation. Sounds like a win-win-win-win situation.
Posted by: Compounding | November 14, 2007 at 10:59 AM