Lazy Man and Money

College Costs: What We Owe Each Other

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I read a very thought-provoking article the other day from Early Retirement Dude: I don’t think we owe college to our kids. Does that make me a bad father?.

(Hat tip to Justin of Root of Good for sharing it on Twitter.)

I mostly agree with the title (more on this later), so I jumped into the article. You can click the link above and open it in a new window, because I’m probably going to be quoting some stuff.

It starts off powerfully and I think almost anyone would agree:

It’s not that you owe your kid a fashionable coat… it’s that you owe her a warm one… Anything beyond that’s a choice, not an obligation.

This is a cool illustration of needs vs. wants. This is an interesting discussion when put into the context of college. I usually think of this in terms of: My children may want to go to a small expensive liberal arts college, but their college needs may be met by our current state school (University of Rhode Island currently.)

The idea college isn’t a need is today’s world is something I hadn’t considered. I feel like a college degree nowadays was like a high school diploma of the generation before me. It’s hard to really say what a need is when it comes to education, but I think it’s best to have all the options open. Not having a college degree closes a lot of doors.

A few sentences later this hit me hard:

You don’t owe your kid college… you owe her a good start in life. Assuming the two are the same thing might be more harmful than helpful to both of you.

Doh! I had considered the two the same. My next thought is that this thought is going to be hurting my children. Fortunately they are 5 and 6, so I’ve got about a decade to think about this and solve the problem. (Of course, it will be here in a blink of an eye like the first 5 years.)

I don’t see where this harm would come from in most cases as long as people make reasonable choices.

Nonetheless, I’m excited to read the rest of the article, because Early Retirement Dude is going to give his ideas on what a “good start” is. I feel like my view is very basic, so I’m looking forward to seeing a new viewpoint.

We move on to the next section:

“A successful career isn’t the same as a successful life… We’ve all heard about the guy who’s miserable in a high-paying job.”

I think a successful career should be part a successful life. Who wants to feel unsuccessful roughly half of his/her waking life? That doesn’t necessarily mean that success is determined by a high-paying career. It could mean that you found fulfilling work. And finding that fulfilling work is probably easier when you have the option to do things that you want to do… and maybe change your mind as you go along.

I believe that a college degree helps with that.

It’s only been one generation since college became perceived as the gateway to success.

What’s been diminished, then, is the idea that the gateway to a ‘better life’ is ability and not pedigree. When hiring a candidate for a sales position, would you rather find a recent college grad with a degree in sales, or a candidate with a ten-year track record but no college on his resume?

This section changed my view of where the article was going. I just don’t buy these kinds of arguments. For example, it’s only been one generation since we felt the need to have internet access. A lot can happen in a generation with how fast news, information, and people can travel now. What happened in a previous generation might not relevant in the next one.

I think society has changed and we have to adapt to it. While society may need to rethink the value of a degree vs. experience, we can’t gamble our loved one’s future on society doing so. It seems that the vast majority of people are getting degrees and that sales position is going to have someone with the same or more experience AND the degree.

Sending your kids to college requires them to submit themselves to unreasonable strictures imposed on them by the university system.

I’m not sure that all colleges have the unreasonable strictures imposed on them. Some are pretty liberal. However, I’d say that every public high school and a lot of careers have these as well. It sounds a little unfair to single out college for this.

Not all kids can handle college

This is true. However, if this is the case then the question of whether you owe college to the child is trivial. Do you owe a two year old a family heirloom hunting knife? No.

If you’re carrying credit card debt or any other debt above student loan rates, paying tuition is a terrible economic inefficiency.

This is very true as well. In this case, I’d say that if you can’t afford to pay for college, you don’t owe it. I hope there aren’t too many people running up credit card debt to pay for their kid’s tuition.

Many of us will have to balance taking care of our kids against taking care of our parents.

This is a good point, but again covered by if you can’t afford to pay for college, you don’t owe it.

To wit: if you pay for your kid’s college you can forget about ever retiring yourself.

It is possible to pay for your children’s college and retire yourself. People have done it. Seriously.

It’s usually well-settled personal finance that you pay for your retirement first. As the saying goes, “You can’t get loans for retirement.” (Well maybe a reverse mortgage.)

In the end, all these last three financial situations are particular on your personal situation. Early Retirement Dude supports his points with a lot of good data about the average person in the situation. The good thing is the average may not relevant in your situation. Early Retirement Dude himself points out that he doesn’t have to take financial care of his parents.

The good thing is that you aren’t a statistic. Also, chances are, that if you are reading this, you are probably doing better financially than most.

So… College: What We Owe Each Other

With the background information covered, we can move forward.

The first thing I learned is that the question of whether a parent owes college is only relevant if:

  1. College is the right option for your child
  2. College can be afforded

The first one requires a subjective personal assessment of your situation. I can’t help you with that.

The second one is a complex personal finance question. It could be a good one to work on with your financial planner. That planner may be able to suggest a certain range of money you could afford for college. That could help pin down the college options that are a good fit.

If college is the right option and it can be afforded, I think we finally get to the philosophical question:

What do you as a parent owe your child when it comes to college?

When I was going to college, our family fortunately dodged this discussion by getting a full scholarship to an excellent school. I suspect there would have been an option of getting some help from my mother (my father had died a few years before), if I went to a public school. It could have been more, perhaps even 100% of a private school, but I want to say that this was a minimum expectation from me.

I’ve put a lot of thought about this question when it comes to our own kids, ages 5 and 6. However, my wife’s GI Bill may cover half of their college expenses if they choose to go to an in-state public college. For other colleges, it is a set amount of money per year. It’s a tremendous benefit. In a lot of ways, it could “take us off the hook” for what we owe our children.

That’s not to say that we haven’t saved some money in 529 plans. It’s just not going to be very much in comparison to what the financial planners tell you to save. If we don’t add to it, maybe it will pay for one more year for one child. That would cover 5 of the 8 years of school between the two children. We may also be able to save more, but we are investing it now in private school. (We qualify for a great scholarship.)

Hopefully there’s an educational snowball. My (completely based on nothing scientific) feeling is that if you get children started well early on, it will pay dividends down the line.

So what about the other three years? That’s where they are going to have to pick up the slack. Hopefully they’ll get scholarships. Perhaps they’ll get loans. Perhaps they’ll work. That’s what they owe us when it comes to college… having some skin in the game and doing the best they can.

In any case, I think there’s an expectation to have a clear, financial conversation about college. I’m not sure when those kind of conversations start, but I think I’ll drop dad hints for quite a bit, so they’ll have expectation.

Again, these are very early thoughts. My thoughts are likely to evolve over the next 10 years as we approach blastoff.

What are your thoughts about what we owe to each other when it comes to college expenses? Let me know in the comments.

P.S. The title “What We Owe to Each Other” is taken from The Good Place, which was taken from the real book.

Why is College in America So Expensive?

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I’m going to be at FinCon this week. For those who don’t know, FinCon is when many of the personal finance bloggers get together to network, learn, and just be around their own people.

It’s always the busiest time of the year for me. This year, I’m juggling bringing the family as well. On the day we get back, my wife may turn around and fly 90% of the way back to do a 2-week Hurricane Florence deployment. It’s a good thing it’s not my 6 year old’s birthday, their dentist appointments, or school picture day on that first week. Oh wait, it just happens to be all those not-so-oddly-specific things.

Aside from that, I’m super-excited for the closest I’ll ever have to a happy version of “Bring Your Children to Work” Day. I’m sure it will be much better than the alternative, “Turning Over a Tenant” version of the day.

P.S. If you are a blogger at FinCon and want to make some friends, just say almost anything related to Pokemon with my kids around.

I still got a lot of loose ends to tie up before I go, so today, I’d like to tackle something short and easy:

Why is College in America So Expensive?

Hmmm, that certainly doesn’t seem short or easy. In fact, it’s neither. The Atlantic recently wrote around 3000 words on that topic.

It’s a very good read. If you have the time, I suggest you just dig in.

It took me a few days to read over a number of sittings. (I generally work with very small blocks of time.) Here’s briefly what I learned. I’ll put it in a book report summary form to match with the topic of education.

The high cost of college in the United States is unique. It’s nearly twice per student of the average developed nation ($30,000). Two thirds of developed nations keep their college costs at $2400 a year or less, with many free.

There are few reasons why colleges are so expensive. I covered a couple of them 3 years ago. One of the reasons colleges got expenses is because they’ve spent a lot of money in luxury amenities such as lazy rivers, steakhouses, and ski resorts to lure students. However, the bigger reason is that student debt is the problem.

At the time, my thinking was:

“Access to money has gotten too easy for colleges. It seems to be a never-ending cycle. Raise tuition to build awesome stuff to recruit students. Students get bigger loans to cover tuition. Student debt grows and grows. It seems like the housing bubble to me.”

As one would expect, The Atlantic goes quite a bit deeper in their reporting.

For example, we learn that students in America spend around $3300 on things like housing, meals, health care, etc. In many other countries, students go to school closer to home and need fewer dorms and on-campus meals. The health care is covered differently. You could view some of this stuff as just showing up in a different line-item because there’s an inherent cost to feeding and housing students whether it is at home or at college.

In other words, it isn’t necessarily those lazy rivers that I suspected. I’m sure it doesn’t help, but we have to do dig deeper.

The Atlantic proposes one answer: It’s the cost of paying people’s salaries itself.

The argument (from a couple of cited researchers) is “… college is a service delivered mostly by workers with college degrees — whose salaries have risen more dramatically than those of low-skilled service workers over the past several decades.” The researchers argue that it isn’t much different than “doctors, dentists, and lawyers” who have risen at the same rate since 1950s.

The Atlantic agrees that this may be part of it. However, it makes a note that other countries have similar economic trends, so it doesn’t explain why American colleges are still twice as much.

Next, The Atlantic looks at the public university system where a large majority of students get their education. Funding for these schools have dropped off a cliff (my words) leaving them to try to recruit wealthier students with “nonteaching staff”:

“Some of these people are librarians or career or mental-health counselors who directly benefit students, but many others do tangential jobs that may have more to do with attracting students than with learning. Many U.S. colleges employ armies of fund-raisers, athletic staff, lawyers, admissions and financial-aid officers, diversity-and-inclusion managers, building-operations and maintenance staff, security personnel, transportation workers, and food-service workers.”

The Atlantic also points a finger at the college rankings. Published research ranks highly in the rankings and published professors are expensive. That doesn’t necessarily help the students. Student-to-teacher ratio in the US is slightly smaller. This may seem like it would the students, but there’s conflicting reports on that.

There is also a case to be made that the “net” cost of college, after grants, isn’t that far off from other countries. Costs may start out of higher, but come down quite a bit when you look at the final price.

This leads to a predictable problem that I’ve been struggling with (fortunately, I have a decade to figure it out). The “the price varies wildly depending on the place and the person.” It’s one of the reasons why college planning is impossible. While you might be able to figure out the cheapest (or the most expensive) college, it’s really hard to know what is going to be the best value so far in advance.

The Atlantic analysis takes a turn and compares college expenses to health care. In each case, America is terribly inefficient by paying twice as much for less than stellar results:

“Hospitals and colleges charge different prices to different people, rendering both systems bewilderingly complex, Staiger notes. It is very hard for regular people to make informed decisions about either, and yet few decisions could be more important.”

Finally, the Atlantic seems to get to the reason why I thought colleges were expensive all along:

“Ultimately, college is expensive in the U.S. for the same reason MRIs are expensive: There is no central mechanism to control price increases… In places like the United Kingdom, the government limits how much universities can extract by capping tuition. The same is true when it comes to health care in most developed countries, where a centralized government authority contains the prices. The U.S. federal government has historically been unwilling to perform this role. So Americans pay more for pharmaceuticals—and for college classes.”

The article then asks the question if Americans are getting more value from their colleges. That would obviously help justify the cost. Unfortunately, it seems like the end result of the education is not anything special in standardized testing. Graduates are getting more value in terms of earning more money:

“It’s a diabolical cycle: Colleges are very expensive to run, partly because of the high salaries earned by their skilled workers. But those higher salaries make college degrees extremely valuable, which means Americans will pay a lot to get them. And so colleges can charge more.”

The final conclusion uses a few words to sum up just how difficult college pricing is:

“This convoluted, complicated, inconsistent system continues to exist, and continues to be so expensive because college in America is still worth the price. At certain colleges, for certain people. Especially if they finish. But it doesn’t have to be this way, and almost everywhere else, it isn’t.”

Sometimes it feels like it is enough to make my head explode. I want my children to have every opportunity to succeed, which seems like it’s necessary to engage in this game of Plinko. I just wish it made a little more sense.

My Great 529 Plan Motivation Experiment

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Happy 529 Day! Today, 5/29, is often cited as a day to look into and donate to 529 college saving plans. (Are we all too Foolish to associate 4/01 with 401K plans?)

I’ll get to all the exciting stuff in 529 Plans in a minute, but first I’d like to reflect on Memorial Day weekend. There’s a lot going on in our country (assuming you are reading this in the US) and it’s helpful to pause and reflect on the good things and those who fought for those good things.

It’s because of those brave people that I can experience stupid, insignificant problems like spending hours at IKEA to find that they were out of stock of everything I wanted. It seems like a big deal at the time.

Now let’s get back to the wonderfulness of 529 plans.

Eleven years ago, I was looking for some way that I could help get my newborn nephew started on the right financial foot. I didn’t have a ton of money, but I had time. Given that he didn’t have object permanence yet, I had years. If I had the chance, I might have opened up a retirement account for him. However, it seems that I’m the only one crazy enough to think of tax breaks on such things.

I went for the next best thing, saving money for education. With 18 years, I figured that whatever I contribute will likely be 4x for him. Mathematically, that is roughly assuming 8% return and using the Rule of 72 to double once by around age 9 and again at age 18 (72 / 8% = 9 years.)

Until I started have kids of my own, I put a few dollars in there for birthdays and Christmas. Now, 11 years later, it’s grown fairly nicely. A lot of that is due to the great run of the bull market. It might end up being enough to cover 1/3rd of a year of tuition by the time he gets to college.

It should make a very noticeable difference for him, but I barely even noticed the money was gone. I feel there are very few “no-brainer” decisions in the world, but this is one of them.

Last month, I came across a regular reader and commenter, Stephanie from Graduated Learning, and her Tweet:

I should have probably sent my guide on How to choose a 529 Plan, but I figured that’s actually the easy part. I just gave it a Google search and there are several high quality sources there.

Instead, I shared something extremely interesting that my state, Rhode Island, does. It gives you $100 grant if you sign up when your baby is born. It’s the opposite of the old Monopoly Community Chest card where you pay the $100 for a baby.

However, since Stephanie doesn’t live in Rhode Island, I figured I’d use the same motivation:

To my surprise a couple other long-time personal finance bloggers, Poorer Than You and My Journey to Millions saw this and decided to jump in:

The plan worked! Baby Stephanie has a 529 Plan.

With my 4x rule above, we can expect the $75 to grow to around $300, which isn’t even a drop in the grand scheme of college savings. However, Stephanie is going to start monthly contributions. Baby Stephanie should be the beneficiary of years of compound interest.

I’ll be the first to admit that I loved how this worked out. I often need a kick in the pants to do what seems like a small, insignificant thing. Now, I just have to figure out how to draw on this experience to motivate myself.

Hacking College Costs Through Adoption

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Today’s article is inspired by an email conversation with a complete stranger.

This needs a little explaining.

I have a personal email account with the form of first letter, last name at a very large email provider. For example: [email protected]

Parenting Funny

A few times a year people send me email thinking that they are emailing their friend Joe, Jen, or James. Whenever I get these, I try to help the person out by explaining that their email isn’t getting where it was intended.

This week an email came in from an “@princeton.edu” address. After I let her know about the error, I asked if there was a way that she could grease the wheels for my boys to get accepted there.

She came up with a great idea. As an employee, Princeton gives her 50% off tuition for her kids. Alas, she doesn’t have kids herself. She then offered to adopted my kids.

I explained that my kids were 4 and 5 and it would be a little too much to ask with it being so far down the line.

I hope it’s obvious by now that we were joking back and forth. However, let’s pause and thinking about the idea.

Is there an adoption loophole that allows college employees to make money with their benefit?

Princeton’s tuition is around $43,000 a year. It’s a little more, so let’s round it to $175,000 for 4 years. If my newfound friend were able to adopt one child the cost would be $87,500 with a savings of $87,500. (I love easy math like “divide by 2”.) It would make sense for a student to give $43,750 to the newfound friend to save the other $43,750.

To put it more simply, the employee discount is 2 years free, so a student would pay one year to the employee to get a year free. It’s win-win, right?

Of course the downside is that the adoption process might not be so simple. I don’t know how any of it works. There’s also the pesky problem of having a stranger be the parent of your child for a bit. On the other hand, we seem to have embraced the world of surrogate mothers, so maybe this isn’t so far-fetched? Of course, there might be options where the employee is a family friend and not a complete stranger.

I’m also sure that it might raise eyebrows to adopt a child just before he’s college age for the discount. Maybe colleges have a rule against that. I did a few internet searches and the schools I found didn’t seem to have anything outlined.

College costs seem to keep going up at an astronomical rate. As long as they keep going up, I expect more and more people will “think outside the box” to save money.

This is How Bad the Student Loan Epidemic Is

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Every few months I feel the need to share another story about how bad student loans have gotten. I find it interesting because for the first 5-7 years of writing this blog, the topic didn’t even occur to me. A few other personal finance writers would write an article or two, but I don’t remember reading much before 2010. Some advertisers asked me to write about student loans and I’d pass.

I didn’t feel qualified to write about student loans. I was blessed with a full scholarship. I didn’t have any clue how the system worked.

Fast forward to 2017 and it’s hard to stay away from the student loan news. Today, I wanted to share one instance of silver-lining to the student loan dark cloud.

“The system is broke and makes no sense!!”

Logan Ryan Hates Student Loans
Logan Ryan Hates Student Loans

A few weeks ago, NFL cornerback Logan Ryan announced something unusual on his Instagram. He paid off $82,000 of his brother’s student loans. Here’s what he wrote:

“Surprised my big bro and paid off his student loans for his 29th Bday!! My man got accepted to college, graduated with honors, and now works as an engineer. He did everything the right way and still lives with a ridiculous amount of student loan debt. The system is broke and makes no sense!!”

That’s a very nice thing that Mr. Ryan did for his brother. Of course Mr. Ryan signed a $30 million dollar contract for 3 seasons. On the surface, this isn’t too dissimilar than an athlete making millions and buying a new house for his parents.

However, let’s breakdown what we know (or at least what we are lead to believe):

  1. His brother graduated with honors.
  2. His brother graduated with a STEM degree.
  3. His brother is 29 years old. (We’ll presume he’s been out of school for 5+ years).
  4. His brother had $82,000 in loans (the check amount).

That’s a lot of student loans to have left after that long with what would seem to be a distinguished, high-paying degree/career. Logan Ryan is right, the system is broken and it doesn’t make any sense. It doesn’t take a financial expert to see it.

I wish there were a way to get some politicians elected who could help make things better. Just a few days ago, the LA Times wrote that “It’s Betsy DeVos’ job to protect students from predatory for-profit colleges. She should do it”. It’s so bad that nearly 20 states had to sue her andn the Department of Education over what she’s doing to prevent students from getting helped by what the times says is, “the worst fraud in the higher education.”

It is hard for me to wrap my head around so many states suing a government agency because the agency wants to protect companies committing alleged fraud. It makes as much sense as fire trucks going around burning down houses.

Sorry for the rant, let me reel myself in and close with a few words about Logan Ryan. He played for the New England Patriots until he was signed by the Tennessee Titans as a free agent. As a fan of the Patriots, I came to appreciate the stuff he did off the field. He’s been extremely active in rescuing dogs, which regular readers know is a cause near and dear to me. I hope Titans appreciate his performance on and off of the field as much as I did.

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