Month: November 2008

As the teens age, one of the tricky parts for the PracticalDad is how much to involve himself in deciding what happens after high school.  I want to raise the kids to be able to think and survive in the great wide world so while there may be times that they require some help, my intent isn’t to have them moving home for an indefinite period.  I’m not Amish and I won’t be adding onto the house.

So the period around the end of high school is problematic.  How do I measure my involvement in such a way as to ensure that they make the best decision that they can – whether I agree with it or not – versus just assuring that they make a decision at all?  Parents can become frustrated with the kid if they perceive no activity or movement in the post-high school process and assume laziness.  But it’s just as likely that their child is overwhelmed by the situation.  For some, frankly, it akin to being a deer caught in the spotlight of adulthood.

For this PracticalDad, I have to remember that part o the tuition for whatever comes next will be on the back of my offspring via scholarships and work study.  They absolutely must take responsibility for whatever decision is made.  But most haven’t the experience or knowledge base to adequately evaluate the choices and opportunities.  This means that the parents must take an active hand.  So part of my job is to provide a framework in which they can make the best decision possible.

And how in God’s name does that happen?  As usual, it isn’t a process into which you just jump one morning.

First, start early to help determine whether or not they even are the kind of person who would benefit from a college education.  There is a growing and increasingly critical need for people with the skills to actually do and make things.  In our future environment, those who can actually provide something of value will in all likelihoood prosper more than most.  If this is the case, then there are absolutely valid alternatives in technical education and the guidance department can provide the resources to determine what they might be.

Second, ascertain what the Guidance Department offers to help your kid with career exploration and possible educational matches.  When I was in high school, the Guidance Counselors were largely silent on career exploration and existed to help counsel the student if there were problems and to assist in the college selection process.  I’ve been pleasantly surprised to find that they now plug incoming freshmen into software packages and websites to help identify their strengths, weaknesses, likes and dislikes.  These packages then link the results to potential career paths across the employment spectrum.

Third, early in the high school years, determine what the general timeframe for specific milestones are.  When are the college tests, i.e. the SAT and ACT?  When should the student start considering what the school alternatives are out there?  When should they be expected to have a realistic idea of what their college major might be?  When should they start exploring schools and do those schools have programs that match the prospective major?

Then work with your kid to set up a schedule that satisfies all of these general timeframes.  Some will take to it readily and others will struggle, but at least you have a sense of what has to happen and can adapt accordingly to help move things along.

And you might be pleasantly surprised at how they handle it.

Colleges and universities are non-profit entities and paint themselves as caring for the best interest of your child.  But let’s be honest, they are a huge business and it’s good to remember that. 

My local school district found itself in a controversy last year when they sponsored a seminar by a for-profit specialist in college financial planning.  This person made the comment that colleges were a big business and you had to bear that in mind when speaking with them and reviewing their material.  The word leaked out and the next thing anybody knew, the local colleges – state and private – were sending angry letters to the editor decrying this viewpoint and steadfastly maintaining their care for the welfare and best interest of the student.  From what I understand, that session won’t be happening again.

But this financial planner was correct.  The cost of tuition has gone up significantly faster than the rate of general inflation and no one can provide an adequate rationale for justifying this.  Indeed, is this a big business?  It might be not-for-profit, but it acts like any major corporation.  Consider the state of Pennsylvania.  The state financing agency is the Pennsylvania Higher Education Assistance Authority, hereafter referred to lovingly as PHEAA.  This group has gained recent notoriety for a lack of accounting controls on spending with executives making paid trips to the California wine country and the corollary perks of cigars and wine excursions.  Even when the information was divulged by a local newspaper using the Freedom of Information Act, PHEAA turned around and spent almost $100,000 to take their employees and families for a day at the local amusement park.  Indeed, the head of PHEAA makes an annual salary of $285,000, which is more than the governor of Pennsylvania.

And the Chancellor of the state university system, comprising fourteen universities, is pulling down $325,000 annually.

There is an institutional bias toward keeping the gravy train rolling, at least for the powers that be.

Likewise, many colleges and universities are competing not only for faculty, but also in terms of the plushness of the facilities.  One local private college even offers a Mongolian Grill for the students.  And this is generally matched by the upgraded student commons facilities.  These institutions have a vested interest in assuring that the steady flow of students and funding come through their ivied portals.

So when you read the materials and meet with the Admissions and Financial Aid people, be prepared to negotiate as hard as you can and be prepared to walk if you must.  There are other institutions available and they need your child and money more than you need them.

Seven years of college, down the drain.

          – Bluto Blutarsky

I went away to college and when I came to, I was on the six year plan.

          – High School Friend of the PracticalDad

There was a time when college was more affordable and financing was easier to come by.  The new – and lasting – realities from the recent financial turmoil are that further education is a necessity for economic advantage and that the student must find the most cost-effective means of obtaining it.  Viewing college as an opportunity to "grow" are long, long gone.  This awareness of cost and benefit is foreign to the large majority of most teenagers, so one of the jobs of a PracticalDad is to help frame the decision’s parameters for the teen.  They still might not make the best decision, but at least they’ve had the opportunity to do so.

So just what are the segments of the new realities?

First, no one can disagree that a typical high school graduate will outearn a high school graduate.   CNNMoney estimates are that a college graduate will make $20,000 more annually than a high school graduate of similar age.  With the shifts in the economy to a greater knowledge-based need, that will probably widen further.

But this information is incomplete without further examination.  The present circumstances now require even greater educational requirements in order to stay ahead of the economic curve.  According to statistics in CNNMoney, the average bachelor degree holder lost 4.2% in earnings from 2001 to 2006.  A graduate degree holder earned 4.6% more over the same period while the holder of a doctorate gained greater than 9% in average earnings.  So if your child is going to get ahead of the economic curve as an adult, they will have to prepare, if they are of that bent, to obtain even more than a Bachelor’s degree.  Not everyone is cut out for graduate education and not all graduate degrees are created equal, but an advanced degree is increasingly a necessity to get and stay ahead.  So why load up on the debt for the bachelor degree?

Second, the cost of obtaining a college degree has and will continue to expand greater than the rate of standard inflation.  www.finaid.org provides statistics that show the historic tuition inflation rate at almost twice the CPI general rate.  And the simple truth is colleges have little incentive to control their costs; the supply of colleges is largely set and they don’t just spring up or go out of business.  Demand for a college degree is rising however, as everyone jumps on the bandwagon.  And any basic economics professor will sketch out how price rises with demand when the supply curve is fixed.  A shining contrast to this trend is Harvard, which actually dropped it’s tuition cost in 2008 in response to the pressing financial demands on families and students.  Of course, Harvard has a $35 Billion endowment so whether this leads the way with other institutions remains to be seen.

Providers of higher education state that financing is certainly available for any college whether through scholarships, student and private loans, grants and work study opportunities.  This is true.  But the mix available has changed dramatically in the past decades.  Government grants have been overtaken by government loan programs and even these loan programs are now in trouble.  In March of 2008, the Pennsylvania Higher Education Assistance Agency (PHEAA) ran into the credit mess and found that it was unable to float a sufficient number of bonds necessary to support student lending.  Six months later, this PracticalDad knew of two local students forced to make changes in their plans to account for this financing failure.  Scholarship programs will also be affected since their investment returns will suffer along with everybody else’s returns.

So the cost of further education is rising and the financing options are narrowing.  What can a PracticalDad do?

1. Early in the child’s life, decide what financing mechanism is best for your needs.  There are a variety of savings mechanisms available, ranging from UGMA (Uniform Gifts to Minors Act) accounts to various state 529 plans.  Then, as much as possible, utilize some of the college cost sites mentioned above to help plan what should be deposited regularly.  If that’s possible.
2. After deciding on the mechanism, monitor it regularly and make the appropriate changes as the need arises or the environment changes.  Like your retirement savings, the plan has to be regularly checked and updated.
3. Spend time figuring out what the generic college costs might be for your child at both a public and private college.  My recommendation would be www.bankrate.com, which is an excellent site for all manner of hands-on financial tools.  You can specify the length of time until college and also the estimated inflation rate.
4. Start talking with the children early – and I measure early in terms of years – about what college is and isn’t.  What they see in the media doesn’t necessarily jibe with reality and for most anymore, it’s not an opportunity for self-exploration.
5. When they reach high school, meet the guidance counselors and learn what materials the guidance group offers.  What’s available in terms of scholarship resources and what other programs are offered that would be of benefit.
6. Utilize the other publicly available reading materials.  This PracticalDad recommends What Colleges Don’t Tell You by Elizabeth Wissner-Gross and How to Go to College for Almost Free by Ben Kaplan.  The former is a large collection of tips and "secrets" for successful admission provided by the author, who’s advised students and families on admission for more than a decade.  The latter is a "how-to" guide to maximizing scholarships written by a Harvard graduate who’s become one of the leading experts on working the scholarship system.
7. And constantly reiterate to the kids about the need to keep up with the studies.  And then reiterate it again.

If you have a newborn, it might appear that you have an almost infinite time until she is ready for taking that step and from a financial standpoint, there is a lot of time.  But like anything else, it will pass faster than you know so use your time wisely.