3 Keys to Choosing the Right CollegeSubmitted by Reby Advisors | Certified Financial Planners | Danbury, CT on March 5th, 2016
It used to be a foregone conclusion that your house would be the most expensive purchase of your life, but if you’re putting more than one child through college these days, education costs may easily exceed the cost of your home. Simply multiply the numbers above – which include the cost of living expenses plus tuition of various colleges – by four years, then by the number of children, and you’ll likely come up with a number that looks like a decent starter home (unless you choose the 2-year community college).
Education is an investment in your child – or in yourself – and with that big of an investment, you want to get it right.
We’ve all seen what happens when the wrong decision is made. The student…
- Takes longer than required to graduate due to failed classes, changes of major, or transferring schools resulting in a lot more being spent on tuition…
- Can’t find a job after college despite a mound of student debt…
- Finds a job after college but hates it and wishes he/she had chosen a different major… and now wants to go to grad school for something entirely different…
- Finds a job in exactly the right field after college but it doesn’t pay well enough to cover living expenses plus college loan payments…
- Wants to live at mom and dad’s for another 10 years because the food and rent are free…
None of these are good scenarios. But we believe that with the right analysis and planning, you can help your college-bound child avoid these fates.
Here are three questions to get started:
What’s your passion?
It's far better emotionally – and academically – for a young adult seeking higher education to find a school that fits rather than trying to fit into a school. Better than first asking the question "Where should I go to college or university?" the prospective student might ask "What am I really passionate about doing with my life?"
By considering the best fit first, your college student can:
- Focus time and effort on studying what excites his mind and matters most
- Help clarify choice of major and finding life's calling
- Reduce chances of changing schools or majors mid-stream
- Lessen stress and anxiety related to succeeding in school
Taking this approach might also result in identifying the best long-term educational value that aligns with the student's academic interests. It forces consideration of where the student's passion-driven academic major fits into life after college, and what opportunities await with diploma in hand.
What’s the "return on investment?”
Inasmuch as students should follow their passions to be fully successful in life, economic realism can’t be ignored. Field of study – leading to a professional career and take home pay estimates should also be a consideration, particularly in relation to how much each college will cost and how much debt must be incurred. Factor in availability of scholarships and financial aid, including work study programs.
You may already assume as much, but the below chart illustrates how a student’s major impacts their total income and post-tax income (it’s not what you earn – it’s what you keep!) after graduation. This of course impacts their ability to pay off different levels of debt:
With the average college or university student in the United States coming out of school with $35,000 in loans to repay, the cost of servicing that sort of debt load can be a major consideration – not just for the student, but for you and the whole family. There might come a time when you and other family members might be called upon to bridge the financial gap in your child's life until things stabilize.
With the average student coming out of college owing about $35,000, annual student loan payments (over a ten-year period) can run between $4,000-$5,000. The average college graduate, meanwhile, can expect to earn about $35,000 annually after tax – with business, computer science, and engineering majors bringing that average income up to $41,000 or even $45,000 each year.
As a rule of thumb, it's usually recommended to carry no more than 1 year's salary of debt beyond graduation. If the student's passion lies in a field where the expected salary is lower, find ways to minimize debt. Consider a community college for a year or two, attend a nearby college and communit to avoid room and board, or pick up a part time job.
What are the best and worst case scenarios?
Hard-nosed analysis of the financial nuts and bolts of sending your child to college forces consideration of a number of variables and possible outcomes. You'll be forced to consider:
- What happens if your financial situation changes while your child is in school?
- How long will it take to recoup the costs of sending your child to college?
- What effect will servicing the student debt load have on your child (and the family)?
Factor in the possibility of changes in your economic situation over the four years of college. And don't forget that you and your family have other priorities to balance as well, such as retirement and an emergency fund.
Reby Advisors is here for you
If you have any question about college financial planning, please do not hesitate to contact us. Also remember that we have a Family Matters program, which gives complimentary advice for family of clients. We are happy to meet with your college-bound child, recent graduate, or perhaps any new parents in your family who want to get a head start on education planning.