College tuition continues to rise in the US, placing a growing financial burden on families – even those with solid savings plans. In addition to tuition, after considering room, board, activity fees and books, it has been estimated that the total four-year cost at a private college can now exceed $300,000 without aid or scholarships! The difference in total cost between an in-state school and a private or out-of-state institution can be massive over four years. So, even if you have saved diligently over the years through vehicles like 529 plans and have the resources, the question isn’t only can you afford for your child to go to his or her dream school, but is it a smart investment or should you encourage your child to consider other, lower-cost alternatives?
Selecting a college or university is a highly emotional decision for both parents and students. It intersects with your child’s goals, your family’s financial health and your values. Pride, guilt, nostalgia and social comparison are all elements that play a role in the college selection process.
Factors to Consider When Evaluating College (Beyond the Price Tag)
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Student Fit and Long-Term Goals
If the dream school offers programs, internships and faculty connections that align with your child’s career ambitions, the cost may be justified not just by the academics, but also by the trajectory that the whole college experience can provide.
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Return on Investment
Certain degrees and industries, by their nature, will command higher salaries and career paths than others. For example, the ROI for a computer science or finance degree at a top-tier school may outweigh the cost. On the flip side, a student entering education, social work or the arts may not benefit financially from a more expensive degree.
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Professional and Alumni Networks
Prestigious private or out-of-state schools often come with lifelong access to high-powered alumni networks. These can provide opportunities for job placements, internships, and future business relationships.
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Maturity and Independence
Some students thrive far from home. Others struggle. Consider emotional readiness, self-discipline, and whether the added independence of an out-of-state school will help them grow—or distract them from success.
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Flexibility and Options
Understand the opportunity costs associated with your child choosing a higher-priced college or university for his or her undergraduate degree. Will this choice compromise their ability to attend graduate school debt free? If funds in 529 plans are not used for undergraduate studies, they can be redirected for graduate studies or even transferred to family members.
Specific Financial Considerations as Parents
As parents, it is easy to get caught up in the college admissions game. In today’s incredibly competitive environment, if your child is accepted at an elite institution, it can be hard to turn that opportunity down. But, as parents, it is critical to understand how paying for college will affect your ability to achieve your other goals, like your retirement or your ability to help your younger children with their college expenses. Tools like 529 plans can help you earmark funds for education, but they don’t eliminate the need for trade-offs. This decision will no doubt impact other aspects of your financial life.
Children’s Involvement
It is prudent to involve your child in the decision-making process. He or she should understand the choices being made and the potential long-term implications of those choices. The process of making a decision can be an impactful teaching moment – not just about money, but about trade-offs, opportunity cost, values and long-term thinking.
Even if you have the financial means to fund your child’s education at an out-of-state or private school, you may want to consider having your child share in the cost in some capacity. By having skin in the game, the child may be more motivated, and it may facilitate the assumption of financial responsibility which is a great lesson for all college students! Alternatives may include offering to cover the costs except books or travel, requiring the child to get a part-time job or offering to match whatever they earn in scholarships or summer earnings.
You could also consider offering to cover the cost of an in-state school and gifting them the difference that you had saved for their college expenses. They could then use those gifted funds for a future downpayment on a home or to start a business – just be mindful of the applicable gifting rules.
If the child is unwilling to assume some financial responsibility or is inclined to go to the lower cost school so that they can pocket some additional funds, perhaps attending the elite or out-of-state school is not as important to them as you may think and this should be a red flag.
Concluding Thoughts
Choosing a college and deciding how much to pay is about more than just the cost or spending the most you can afford. It should be a strategic decision that supports your child’s goals, protects your family’s financial future and reflects your long-term values and strategy. At the end of the day, as you tackle this important decision, keep in mind and be sure to convey to your child that their work ethic, passion, connections and grit will drive their success far more than a diploma from any specific school.
At Core Wealth Management, we understand that all decisions have implications – financial and otherwise -and we are here to act as a sounding board and voice of reason as you contemplate the choices available to your child.