Hierarchy of Tuition Needs
Ranking college funding options, from best to worst.
Three dreaded words haunt students and unprepared parents alike this time of year: Back to School. The words settle in like a tall glass of acid on an empty stomach, just when it feels like the summer is in full swing. But here we are. Bottoms up.
It’s time to buckle down and face the band music. For students, that means waking up much earlier and using that lump of matter between your ears. For parents sending their kids to college, that means careful cashflow planning.
Use this resource as a North Star to help you navigate a complex issue. As you approach the problem of putting your children through college, first consider the following:
More than half of all college students take on student loans to pay for education1.
87% of undergraduate students receive some form of financial aid2.
The median student debt load for the class of 2022 was $21,5663.
Nearly all financial aid is awarded based on your FAFSA (Free Application for Federal Student Aid).
The average private nonprofit university tuition discount for 2022-2023 was 56.2%4.
Room and board is separate from tuition & fees and typically adds between $12,000 to $15,000 per year to the cost of attendance per year.
Median salaries for graduates can be found using the U.S. Department of Education College Scorecard5.
Tax penalties are waived on 529 Plan/ESA withdrawals equal to a tax-free scholarship or grant, or veteran’s education assistance.
High school & college financial aid offices are your friends (mostly).
What many may not realize is that the price of education has plummeted in the past few decades. The price of credentialing, however, has gone through the roof.
Want to become an expert at using Microsoft Excel macros? Forget college, just open a browser and go to YouTube or take a master class online. Need a teaching certification? That will be $25,000 please. See the difference? Money doesn’t.
Low-cost access to education has torpedoed the wisdom of ‘degree at any cost’ thinking. Several decades ago, it made sense because it was the only option for access to expansive knowledge. Plus, the overall value proposition was better with lower relative tuition rates.
Bottom line: make sure your student needs to get a degree or certification before committing financially.
Now that you have confirmed a degree is required for the career track your child wants to take, let’s look at your funding options.
One thing not included in this list are the education benefits that come with an employment arrangement. This includes military awards such as the GI Bill. While not technically scholarships, these should be treated with the same priority.
Using this hierarchy, go from top to bottom to source funding. Once the option above is exhausted, move to the next. Anything in the red range of color should be avoided unless there is a high degree of confidence in your student’s post-graduation earnings potential.
The further you move down the hierarchy, the more difficult it is to justify a degree or credential that will not meaningfully increase earnings potential. As parents, it is your responsibility to keep your financially naïve student and yourself out of crippling debt.
Student loans cannot be discharged in bankruptcy. There are no loans for retirement. Nobody will give you a refund if your degree proves to be useless. Approach college with the seriousness it deserves.
For more detailed information regarding the different funding options, connect with us by email: planning@nwmgadvisors.com.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Securities offered through LPL Financial LLC. Member FINRA/SIPC. Advisory Services offered by National Wealth Management Group LLC, an SEC Registered Investment Advisory and separate entity from LPL Financial LLC.
National Center for Education Statistics (NCES) & US Department of Education
https://nces.ed.gov/fastfacts/display.asp?id=31
Federal Reserve Bank of St. Louis
US News Education See the Average College Tuition in 2023-2024