Archive for the ‘saving for college’ Category

While writing an article about college savings plans, the sheer number of plans in the marketplace struck me as slightly absurd — more than 100. Some states have multiple plans and there appears no sign that this trend will stop anytime, just as tuition and student loan debt continues to rise rapidly.

Check out these statistics:

  • Student debt load averages $26,600: The average graduate left college in 2011 — the most recent year for which figures are available — with $26,600 in debt, a 5 percent increase from 2010, according to The Project on Student Debt at the Institute for College Access and Success.
  • Underemployment rate for grads is 18.3 percent: The unemployment rate for recent college graduates averages 8.8 percent, according to the federal Labor Department, via CNN. Including those who are employed part time but who would rather work full time and those who have quit looking for a job, and the underemployment rate is 18.3 percent. More than half of these recent grads are working in jobs that don’t require a college degree.
  • College tuition and fees rose 5.2 percent per year over the inflation rate: During the decade between 2002-03 and 2012-13, college tuition and fees rose by 5.2 percent over and above the official inflation rate, with room and board increasing at a 2.6 percent rate.
  • The average balance of a college savings account s $17,174: While this balance is up 12 percent from 2011, it could be due as much to an increase in stock market values as an increase in savings. The College Savings Plans Network also reported that the number of 529 plans rose 4 percent to 11.1 million with total assets standing at $190.7 billion.

When you consider all these numbers together, the picture it paints is bubble-like and unsustainable. The pace of tuition, room and board increases is finally slowing somewhat after years of hyper-growth; unfortunately, the slowing pace is still way too high for the means of the average family that has hopes of sending their children to college.

And while college savings rates are increasing, they are woefully inadequate to pay for the rising cost of college. In addition, for middle class families, the burden of saving for college is likely distracting them from saving for retirement and is in many cases burdening them with loans, because many parents are forced to take out parent loans because their children can’t qualify for enough aid.

Moody’s Investor’s Service warned in January that the business models of most colleges are on a path to unsustainability as more parents and students are forced to choose a college purely based on cost. Americans have borrowed more than $1 trillion to fund college educations and spend more than $400 million per year.

As college debt loads rise, there is more doubt that a college education is worth the cost. I hate to see that because I value the liberal arts education that I received nearly 30 years ago and invested more to gain an accounting certificate four years ago.

My oldest son graduated Phi Beta Kappa from Vassar College in 2012 and is preparing to go the University of London for a MS degree in the Fall. Despite generous scholarships, he still has a debt load that I find somewhat worrisome.

What’s the answer to all this? Here’s some food for thought:

  • Colleges need to tame their mania for building, rising administrative salaries and the arms race to attract the most highly qualified students and think about what programs and services that they can deliver at a reasonable cost will result in the greatest return on investment for the average student and the community they serve.
  • Parents and students need to take a hard look at the types of schools that will best serve their ┬áneeds, not the school with the best name or reputation. Because even a degree from a top school may not come with a commensurate job that can pay off tens of thousands if not hundreds of thousands of dollars in debt.
  • Loan rates need to be cut drastically – Elizabeth Warrens’ bill to cut student loan rates to the rate that banks get from the Federal Reserve is a great start. Otherwise we’ll end up bailing out banks and the government when the student loan bubble bursts, which could also leave a generation of students unable to move forward in their lives as they are tied to huge debt loads that they have no realistic prospect of paying off or discharging.