College Costs: Are you Prepared?
American families are not sufficiently nor correctly saving for college. That is MarketWatch’s Catey Hill’s assessment of Sallie Mae’s “How America Saves for College 2014” study. This causes us great concern because, as tuition costs continue to escalate, future undergraduate and graduate students and their families will fall even further behind than they are today and not everyone can go to college on a free ride.
Scary School Saving Stats
Only half of all American families are saving for college. 45 percent of those that are saving for college are doing so in standard savings accounts. Savings accounts hardly earn any interest due to The Fed’s low-interest rate policy. Not using an account customized for college savings, such as a 529 Plan, makes adequately saving for college challenging.
What is more, 18 percent of parents plan to raid their retirement accounts to help their children pay for college. This selfless act could put many parents in precarious positions in their golden years, as they will lose both the time value on their retirement money and reduce their benefits of compounding interest. These miracles of investing cannot be recouped in later years.
To be sure, Americans have never been great at saving for college. This was not as big a problem prior to modern times as it is today because a college student used to be able to work their way through school and graduate with little to no student loan debt.
A Reddit post in which a user compared the cost of tuition per credit hour at Michigan State University (MSU) in 1979 to 2014 recently went viral. The user said, “A credit hour in 1979 at MSU was $24.50, adjusted for inflation that is $79.23 in today’s dollars. One credit hour today costs $428.75.”
The Atlantic elaborated on this and said that with the $2.90 minimum wage of 1979, it would have taken a student 8.44 hours, or basically one work day, to earn enough to pay for one credit hour. A student with 15 credit hours per semester could have paid for all 15 credit hours with three weeks of full-time work or six weeks of part-time work.
With today’s minimum wage at $7.25, it would take 59 hours to pay off a $428.75 credit hour. That is the equivalent of 22 weeks (five months) of full-time work or 44 weeks (11 months) of part-time work.
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All of this hurts American families and the American economy, both present and future. If and when parents raid their retirement accounts to help pay for their children’s college education, they will be even less prepared for retirement than they are currently. This ill-preparedness will be a heavy burden on the economy in about 20 years.
Millennials are graduating with record levels of student loan debt and not finding adequate jobs to help pay off that debt. The combination of record student loan debt and a poor job market has forced many millennials to continue living with their parents and not progress to the stages of life, such as getting married, having children and buying a home that previous generations enjoyed at the same age. Fewer weddings, honeymoons, new home purchases and home renovations and children have a negative impact on the current economy and will have negative consequences long-term.
A little-known fact is that there are more millennials today than baby boomers. Without sufficient population growth, millennials will not have a generation to adequately support them in their old age and millennials, therefore, will be a heavier burden on the economy in about 50 years.
Are you suffocating under the burden of student loan debt? Lower your payments now.
What should a family do? Parents are typically advised to save a lot, early and often, but with stagnant wages, high unemployment and everything from housing to food to college increasing in costs, saving for college is impossible for many and next to impossible for more. This advice is wholly inadequate, too abstract and simply outdated, which is why we wrote the #MoneyConscious Student eBook.
The #MoneyConscious Student is directed towards high school and college-age students to prepare them financially for college, or any post-secondary education, and help them manage expenses while there. We discuss viable alternatives to attending four-year colleges, creative ways to directly pay for and subsidize any post-secondary education and detail steps to keep all expenses low so students have less debt to pay off either directly or indirectly after graduation.
The #MoneyConscious Student is available for FREE using the link below and is just one tool in helping your kids go to school for free or close to it.
Get your copy today and help the student in your life.
Other great posts about college and student loans
- College Saving Rules: Invest Early & Often
- Extra Curricular Activities Can Help You Pay for College
- 4 Ways to Manage Costs in College