Yellowstone Financial, Inc.

Guilt About Higher Education

This time of year can be bittersweet for members of the upper muddle class.  Every week high school seniors receive packages and emails from their prospective alma maters.  There can be elation when they find out years of hard work have been rewarded with an acceptance to a good college.  But this is tempered by fears about how their families will pay for school.

Those who come from families with low to average incomes ironically may find elite private schools within their financial reach, if they can secure admission.   Harvard for example will cover tuition, fees, room, and board for students with families that earn less than $65,000 a year.  Even those that earn under $150,000 will pay no more than 10 percent of their income to send their child to college.  That’s why it’s vital to understand the net price of schools given your income profile.

Think about a student from an upper middle income family of four that earns $125,000 a year with $150,000 saved in other non-retirement investments, 529 education savings accounts for both children, and bank accounts, along with $150,000 in home equity.  At Harvard, the family contribution is $19,600 a year, while at Colorado College (arguably our state’s most selective college) the net cost is about $37,000 a year.   Public school is not much better as this family would most likely not receive need-based assistance at CU, resulting in a first year cost of over $28,000.

It wasn’t always this way.  According to the Institute of Higher Education Policy tuition costs have increased 538 percent since 1985.  This is compared to a 121 percent gain in the consumer price index.  While this arresting figure may overstate the case as financial aid is more available today than in 1985, many middle income families earn too much to qualify.  I haven’t seen a reasonable explanation for this phenomenon beside the decreasing support for state funding of public education, which can’t explain but a portion of the increase.  Gone relatively unnoticed is the high inflation of on-campus room and board costs at CU, which total $12,258 this year, exceeding costs of some private institutions such as Duke University.

This is hard to hear for parents of future collegians.  Your grandparents may have put your parents through public or private school on relatively modest incomes.  For your education, your parents may have borne most of the costs.  But what about you?  Understand that it’s an entirely different proposition for you to pay for college than it was in previous generations.  For many of the middle to upper middle income families out there, the covenant of an affordable, traditional four year college education has been broken.

Despair of course is not the only option.  Well known are Colorado 529 education savings plans which give you a state income tax deduction and are a form of an “Education Roth IRA,” where earnings are not taxed if used for higher education.  You have been warned, so start saving now.

More than anything, we need an open conversation between parents and children.  Let them know that there aren’t unlimited funds for college, if that’s the case, and that taking out huge student loans is not the best option.  Nothing sours the elation and promise of college graduation more than a six-figure student loan balance, which can be had with a few strokes of the pen at the bursars office.   Shed your guilt at not being able to pay full-price for four years of private or public education.  Be a smart college consumer using resources such as the net price calculator available on college web sites to determine what your child’s net college costs are likely to be given your financial situation.