It’s no secret that getting a college education is still widely considered the “best next step” for high school graduates. And while there’s much to be said about higher education, many families treat college as a given for their children. What’s more, they don’t consider that one day their child may not want to go to college… and that that is okay. With rising tuition costs and crippling student debt, the more important question is: who should be at the table when discussions about education and savings are happening? What factors should come up, and how early should you start these talks with your clients?
A Look at the Data
Despite the increased talk of student debt forgiveness, there’s a high probability that debt isn’t going anywhere: at least not through taxpayer coffers. It’s best for your clients not to hang their hat on the elimination of all tuition and debt. Especially since college costs can be estimated to increase by 8% each year. If that doesn’t sound like much, consider that this rate means tuition is doubling every nine years.
That means for many of your clients, the savings benchmark they set for tuition could double twice by the time their child actually goes to college, depending on when they get started. And many people forget to factor inflation into these savings objectives.
Putting Rising Tuition Costs Into Perspective
When we use the 8% inflation rate in a calculation, the result is sobering. In the Education Calculator, we’ve input a hypothetical scenario. In this case, 35-year-old parents have a five-year-old child, and they want to start putting aside money for her. They expect she’ll go to college at 18, so they have 13 years until she’s ready.
Note: The following calculations have been made in Truth Concepts 3.00.0.05.
The college the parents hope she’ll attend, their alma mater, is currently $30,000 a year. If we can expect that cost to rise 8%, tuition will be $81,589 her freshman year. If she graduates in four years, her final year of tuition will cost about $102,778.
Cumulatively, that’s $367,658 in tuition costs. The parents have $100,000 in assets already set aside and want to put away $10,000 a year for their daughter. Unfortunately, this isn’t enough to cover all four years—and they already had a third of the cumulative cost saved.
This is why many people, regardless of their finances, often rely on student loans.
Current Student Debt
This year, there’s $1.7 trillion in total US loan debt, split among 44.7 million people. On top of that, the average loan payment is $300. Coupled with the ever-increasing costs of college, it becomes a challenge for many parents to save an adequate amount of money to send their children to school. Taking on some form of debt has become a “normal” function of higher education. Gone are the days of being able to earn your tuition over the summer (unless you’re an entrepreneur or social media influencer).
While the mounting cost of college is one problem, there’s a deeper issue at play. The issue is that college is still widely regarded as the “best next step,” and children aren’t being taught that there are other options available. In many cases, children and young students aren’t being included in these life-changing financial discussions either.
So, children get funneled into the college path without a complete understanding of their parent’s finances and sign their life away for future debt without knowing the full scope of that choice. Furthermore, these children aren’t being prepared from a younger age to have good financial sense, or make their own contribution via scholarships, savings, and more.
Bringing the Students to the Table
It’s unlikely you’ll be able to talk your client out of saving for their child’s future in some way—nor should you. Parents want to set their children up for success, and there’s no reason to deter that.
However, what you can do is impress upon them the importance of
- being flexible if their children develop other plans, like starting a business or attending a trade school,
- raising financially literate children,
- and teaching their children to take ownership of their future.
These simple steps can bridge the miscommunication gap that might occur between advisor, client, and their families. Does this mean that your client’s children should be at every meeting? No. However, the earlier parents can get their children involved in good money habits, the better-prepared everyone can be for the reality of a college education.
The Power of Savings
In fact, including children in the college planning may reveal that the money your clients are saving for their children will be better spent helping them establish their own business. Or your client’s children may conclude with confidence that they’d rather do an apprenticeship or trade school.
Choosing a vehicle like whole life insurance over a 529 plan gives your clients the flexibility to fund whatever they wish. Beyond that, it’s not correlated to the stock market, which means the asset’s growth is protected from the whims of Wall Street. This is crucial, because saving for college is generally short-term, about 18 years or fewer. In the event of a major market downturn, there’s not a lot of time on your side to build that portfolio back up.
Helping clients to save in the right place can increase their opportunities significantly.
With life insurance, families get the benefit of the insurance protection, as well as guaranteed growth and non-guaranteed dividends.They also have the opportunity to use the insurance to teach their children good financial principles, and how to use a family banking system, should your clients choose this strategy.
Start Financial Education Early
The bottom line is that education is costly, and it’s going to continue to get more costly. Despite talk of loan forgiveness and free education, it’s only talk, and not something your clients should rely upon. The more they can take control of their savings and spearhead the financial education of their family members, the more options they will have down the line.
If you’re working with clients who are thinking about their children’s future college costs, you’re uniquely positioned to help them provide their family with a rounded financial education. To learn more about the calculators and how to use them, sign up for a 3-day Truth Training event.