Sticker Shock: The Cost of College (and Who Pays For This?)

The price tag of today's higher education is enough to send parents into a panic.Not only is it seemingly more and more competitive for the latest crop of high school grads to be accepted into their top choice colleges, but the price tag of higher education is enough to send parents into a panic… even those families who wisely began college savings when the teenagers were just a twinkle in their eye.

Let’s crunch the numbers…

According to Sallie Mae (AKA the Student Loan Marketing Association), the average cost of tuition plus room & board at a private college comes to $43,921 per year.

If you are reading this in California, please sit down: total estimated cost at Stanford is $62,801.

USC will be almost $70,000 this year, according to the LA Times.

How about Reed? If your child wants to experience Oregon – an estimated cost of attendance at over $65,000 a year.

Sallie Mae reports the average public tuition at state colleges to be $19,548 a year, with out-of-state students paying an average of $34,031. (Again, to California friends, here is an example: estimated cost to attend San Diego Sate this year is $21,896, and Cal will set you back $35,365. If the teen wants to get out of dodge: Oregon State is $45,744, and U of O rings up at $47,259 per year.)

So, where is the college money coming from?

Sallie Mae’s 2015 report explains it looks like this:

  • 32% from parent income and savings
  • 30% from scholarships and grants that do NOT have to be paid back (coming directly from the school, or the state or federal government, usually based on need and academic performance)
  • 16% is borrowed by the student
  • 11% from student’s own income and savings
  • 6% from parent’s borrowing
  • 5% comes from relatives and friends

College is an enormous investment, and during the course of financial planning with parents (and grandparents), I always encourage early planning to prepare for the ‘sticker shock’ — along with active investigation into the best choice for your student and your family. With so many variables to consider, the more information the better!

According to Kiplinger’s, for most families the sticker price does not equal the net price. Generous need-based financial aid can reduce the price to about half the published price… and merit aid (non-need-based aid) is offered by many private schools.

The College Conversation

The College Conversation should include the entire family – and must take place well before the high school seniors are sending in applications. Setting a responsible college budget will streamline the process, and protect against too much student debt (the latest issue of Consumer Reports asks, “Is student debt the next financial crisis?” and features a cover quote: “I kind of ruined my life by going to college”).

I also counsel my clients to avoid being a part of the 6% of parents who borrow to finance higher education… whenever possible, parents should not borrow to pay a child’s college tuition if it puts retirement security at risk! The family conversation about college expectations and finances can be empowering for teenagers — motivation to keep their grades up to qualify for merit-based scholarships, and understanding their active role in finding the best college fit: academically and financially.

Is a college degree still the key to the American Dream?

Are the opportunities accessed by this educational accomplishment still significant?

Even with the recent coverage about massive student debt, and the sensational stories about uber-successful college dropouts (hello, Mark Zuckerberg, et al!), the Federal Reserve Bank of New York’s recently published report on the labor market for college graduates confirms that college grads experience lower unemployment rates and higher income than their non-graduate peers. So is the cost worth it?

College provides young adults with a proven path for economic, social, and intellectual opportunity… but perhaps we need to shift in our vision of the ‘best’ schools for our kids, and teach this lesson: no one should go broke getting a college education.

Do you want to get serious about preparing for the future?

The Happiness SpreadsheetIf you want to think differently about the relationship between your spending, your values and your happiness, then sign up to get your FREE copy of The Happiness Spreadsheet.

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