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Posted On December 31, 2018

Advice on funding your education without taking on debt

By FRAN HALLORAN

One of the privileges of my career choice is that I get to meet and on occasion, work with people from all walks of life. It is not unusual for me to meet one morning with a single mother working two jobs to make ends meet, only to meet with a couple later in the day with a net worth north of a million dollars. This extreme if you will is what I really love about what I do. There is never a dull moment in my work; I am constantly being challenged to switch gears in order to serve our very diverse clientele.

Of late though, I have found myself having way too many meetings with a particular subset of folks in the Midlands: people who have borrowed money for a college education, and feel as if there is no way they can ever pay it back. To wit, I recently met with a young schoolteacher in this category. She went to a state school here in South Carolina (as many of our kids do) and borrowed money every year for tuition, room, and board. She had some scholarship funds to this school, but very little to speak frankly. Over her four years of school she amassed both public and private student loan debt so she is relatively normal in this regard; most everyone who borrows money for school finds them self in this boat. Unfortunately, this young lady borrowed $98,000 to become a teacher. You read that correctly, $98,000…for a $35,000 per year job! 

When I met with her (and her father) to create a plan for beginning her payments on the loans, the meeting started normally enough; small talk, getting to know one another, etc., and then something happened that happens a lot in this type of meeting. She began to cry. Through her tears she tried to explain how she was feeling…hopeless…overworked…stressed…ready to quit the very teaching job that she went into debt to get. It’s not that she doesn’t love teaching; on the contrary, she loves her kids and what she is doing. But the stress that comes with being a teacher, and the ominous debt cloud over her head was more than she could handle.   

I have talked about the topic of student loan debt extensively on my radio show on The Point. Truth is, a college education is not expensive. As a matter of fact, if a young person gets only minimal scholarship via the SC lottery, but picks the correct educational path and works while in school, the cost of a 4-year degree can be under $20,000. That’s right, under $20,000. Unfortunately, what has happened in our society, is the line has been blurred between an education and an educational Experience. An educational experience is very expensive.

If you listen to the education experts in all the media genres, you have heard over and over again how expensive a college education is today. Even state schools are now “over the top” expensive. According to the Clemson University website, one year’s worth of tuition, room, board and other miscellaneous fees and expenses will run an in-state student in excess of $29,000. According to the University of South Carolina’s website, one year of tuition, room, board and other miscellaneous fees and expenses will run an in-state student in excess of $27,000. That is a lot of money for a state supported institution. Yes, one could argue that state funding is lagging for our institutions of higher education, but that is a topic for another day. The fact remains that those costs are staggering. Even so, people seem willing to pay them, or at least borrow money to pay them at an alarming rate. So how can we change this? Very simply, we have to change our thinking about college. Let me explain.

Students have to pick schools that are affordable. If tuition, room, and board cannot be cash flowed, without student loans, then the school is not affordable. Does that mean you can’t get an education? Absolutely not!  What it means is that you must choose a school that is affordable for you, without going into debt. 

The best educational value in our state happens to be our technical school system. At any of these excellent two-year schools, students can take classes that will transfer directly into the state school of choice. Now, students must be very deliberate about picking these classes to make sure all credits transfer, but rest assured, these programs are at every technical college in our state. And, if a student finishes high school, has a 3.0 grade point average and scores well on the SAT or ACT, the two-years spent at the technical school are for the most part free.

The Life scholarship pays $5,000 to every student in the state who meets the qualifications of the program. Pretty good deal I’d say! Well what about room and board? Great question! Students can choose to stay at home or they can work while going to school.

If asking your child to work is beyond you, then it is up to parents to bridge the gap between the child’s scholarships and the cost of school. So pony up mom and dad and start cash flowing Junior’s tuition! If cash flowing school is not possible, then you need to begin saving the day the child is born. In what should you save? I tend to suggest only three places to save for college.

529 plans are one way to save for college. I am not a huge fan of these plans as they are for education only. However, if you have multiple children, and family who want to contribute, then a 529 is a good place to begin. If you want to use money in a 529 plan to pay for a wedding one day, you are, for the most part, out of luck. I have lots of clients who want to use the state 529 plan primarily because you get a tax break on your deposits. Even so, I tend to suggest that these plans not be overfunded. I suggest a modest amount should be placed in the 529 plan each year, and then other monies be allocated into a basic portfolio of mutual funds. A mutual fund portfolio can be used for lots of things, including education. 

Educations Savings Accounts are another way to save for school. The funding limits are not terribly high for ESAs, so it is virtually impossible to overfund them. Finally, if you want complete control over your money, and you do not care about the 529 tax break, then simply invest in a good mutual fund portfolio. I would suggest you sit down with a mutual fund broker and get good advice and counsel on exactly how you should invest. Everyone is different when it comes to risk, so a local professional can help determine exactly how you feel about investing. 

I often get asked about using permanent life insurance plans to fund college. If you have received this advice from someone, please don’t take it. Life insurance should be used for one thingâžșto save a family from financial ruin in the event of the death of a breadwinner. Life insurance should never be used as a vehicle for college funding.

The young teacher I spoke of earlier is on the right track now. She has an uphill battle ahead of her, but she is going to be alright. Had I met her 5-7 years ago, perhaps I could have persuaded her to do things a little differently. All we can do now, is try to keep others from making the same mistake. Encourage the young people you know to apply for scholarships (ask your school guidance counselors for more info on this), maintain a 3.0 GPA, make a good score on the SAT/ACT, choose an affordable school, and work while earning that degree. I promise you that the end result will be amazing.

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