The Old College Try

For college students, after four years of cramming, part-time jobs, and some nights that are probably best lost to the sands of time, there’s nothing sweeter than turning in that last assignment. Knowing by next week, it didn’t really matter, you’ll be a real adult.

It’s graduation day. You only get four tickets for friends and family to see the torch-passing ceremony live, so you know everyone at home is probably laughing, but mostly yelling, amongst each other — waiting for the most important part: For you to get home. All you have to do now is grab that empty leather folder and make it to the other side of the stage. And on the other end is a big flashing sign that signifies greener pastures are ahead. 

A college degree is still a sort of this status symbol that says I made it. Everything is going to be okay. Bills are going to get easier to pay. I won’t have to worry about getting a second job. I have a degree, which means I’m almost guaranteed my dream job. 

But as many of us know, that’s far from reality.

Sometimes, life moves quicker than we think it will. We start a job. We get accustomed to our work routine. We fall in love, or at least something close to it. Our child is born, and when the high of fully realizing “I’m a parent” comes down, some parents find themselves asking questions like, where do we go from here? 

And, perhaps most importantly, from a financial perspective: How will we afford to pay for our child’s college? Is this going to change the rest of our goals? 

Hundreds of thousands of college graduates are dedicating as much as 20% of their income to their student loan bills. That’s a serious drag on your lifestyle. Really it’s an anchor to the cruise ship your dreams once boarded charted for those same greener pastures. Some tell me it’s time for their children to take some responsibility for their own future, while others vow that their children will never have to bear the same burden as they did.

Now, this is not to say they don’t have their own respective struggles, but personally, I don’t think the extremes on each end share the same weight on this issue. The top single-digit-percenters will send their kids to whatever school they want (most likely their alma mater, or some other prestigious name). And on the other side (and fortunately), the very low-income families will have the benefit of merit-based and financial need scholarships and grants to shoulder the barrier that could very well keep their children from reaching their equally deserving dreams. 

But it has always been the middle class who gets the brunt end of the stick. What about the hundreds of thousands of hardworking parents who make just enough to not qualify for financial aid, but still have real-life expenses staring them in the face; Mortgages, bills, vacations, saving for retirement, this, that. It never seems to end. 

These are tough questions to tackle because not all cases are the same. How do grandparent contributions factor in? What about split families? These questions cannot always be answered easily nor will blanket advice be sufficient for parents, but here’s a start. I believe these are important considerations that parents should understand when faced with these questions. 

Your options

We’ll start by knowing your options. Of course, you’re not limited to the vehicles described below but these may be some familiar terms.

You can read more about the two different types of 529 College Plans here. But, if you’re going to use a 529 College Savings Plan, you don’t want to overfund it. Despite their state tax benefits and cost savings, there is no benefit to having a remaining balance on these accounts after your child has graduated. Unless you have another child/family member in/about to be in college that you can redesignate as a beneficiary, the best you can do is buy them the new Macbook Air for… education purposes, of course, before they graduate. 

When it comes to the rest of your life goals, like on an airplane during an emergency, put your own oxygen mask on before helping others. It doesn’t mean your kids are less of a priority, but it’s best to not jeopardize your own retirement savings. Withdrawing from your 401(k) to pay for tuition should be a last resort. I’ve always leaned on the saying that you can borrow for kids’ college, you can’t borrow for your retirement. 

But what if my kids choose not to go to college after I’ve already funded this 529 Savings Plan?

If you’ve already funded the 529, all you can do is take the 10% penalty and pay the taxes on the gains, or change the beneficiary, which can only be done once in a 12 month period. 

Before you even get that far, ask whether your child is even sold on the collegiate route. If you don’t want to foothold your kids down one single path, there are also custodial accounts, known as UTMAs/UGMAs, that are basically like IRAs for children. The parents manage the account and the money isn’t in the child’s possession until they reach a certain age, 18 or 21 depending on the state. 

One of the key understandings when it comes to these accounts is that, if your child does end up going to college, the 529 is technically part of the parent’s estate, and the custodial account is in the child’s name. Meaning that for FASFA calculations, the balance of the custodial account will have more of an impact on the EFC (Expected Family Contribution) calculation. In effect, they may receive less money from the government. 

Now I’m not advertising it, but I once heard of a VUL policy used as a vehicle to pay for their children’s college bills. I thought about it. Investment rate returns for a future goal – check – there’s a clear need for life insurance – check – and you can borrow from the cash value. But! We won’t always have a solid 10 years of amazing returns, outstanding loans reduce the death benefit for those you are covering, and once the goal has been met, coverage may no longer be imminent or at least, at those same levels. You have to be careful when getting sold any kind of life insurance policy.

What We Do Know

By now, it’s not news that the price of college tuition has been increasing for a long time now. Zoom out a bit and according to, the cost of tuition for a 4-year public college in 1963 was $2,207 (after adjusting for inflation). Where today, some families are paying well over $100,000 over 4 years. 

What’s not so common knowledge is that college participation has been declining since 2010, tells us. Douglas Belkin, a higher education contributor for the Wall Street Journal, talks about the effects the pandemic has had on collegiate enrollment. Proclaiming that the pandemic only accelerated the decline even further. 

And lastly, inflation is a huge headliner right now. It’s no surprise that in addition to raging inflation, many people are demanding to be paid more. Will that spill onto college educators as well, who knows?

The average salary for a full-time faculty member has only increased by 9.5% when adjusted for inflation, Student Loan Hero says. This has to be upsetting considering the trajectory tuition has been on. This must be how MLB players feel right now. Their paychecks getting slimmer and slimmer despite the league revenues doing better than just fine. Resulting in the players essentially going on strike. A tactic teachers are definitely familiar with. 

What We Don’t Know

Two lingering questions I have are, will the price of college continue to rise at the same rate? And what innovations will come along that will disrupt the college/post-secondary realm?

Again, despite the clear path higher education costs have been on in the past, its future is in jeopardy now more than ever. The pandemic has left scars that may never completely go away. But just as droves of employees are finding they are much more efficient working at home, on their own hours, students are no different., a web page for all things education, quoted a survey saying 52% of students prefer online education over their college classroom. 

Take Coursera, for example, which partners with corporations, like IBM and Google, to provide actually relevant job skills and certificates. They even partner with accredited universities to offer full college-level courses and degree programs for a fraction of the cost of actually attending an in-person university. 

Yet, it’s tough because educators are countlessly looking for ways to revive an antiquated system and keep students engaged. They do, however, have the benefit of familiarity on the side. Loyalty and learning are both built through a connection and attention. 

On the other hand, let’s not forget that not all white-collar jobs are asking for college degrees anymore. From what I’ve seen, some employers ask applicants to take an exam and if you pass, or fall into certain criteria, you get the interview. From there, all you need to do is work hard and earn your certifications. Although, will certifications and the willingness to work hard ever be more important than a piece of paper?

A Barometer of Success

But that’s the thing. College isn’t just a piece of paper. It’s a time for a future teacher to be wrong herself. A place for a future rooftop botanist to find out he even likes botany. 

My colleague Tony Isola wrote this amazing piece on why College Isn’t for Everyone. His premise was that society clearly does not treat vocational education with the same respect as it does a traditional college education. I think that with as far as we have come with understanding all the different learning styles, this alone tells us college is not for everyone.

The four-year degree has long been told that it can take families out of poverty, it provides better job opportunities with higher salaries, and it hosts a networking environment that is unmatched. 

But we’ve already spoke about how the cost of education today no longer makes post-secondary education a no-brainer. Student loan debt is a substantial barrier to entry to retirement savings and saving in general, says Kristen Carlisle, GM of Betterment at Work.

I think the motto “education for all” is a good idea – psychologically. We want to encourage our youth who, financially, have no shot of paying for school out of pocket to want it bad enough that they will be willing to rise to the top of their classes, teams, competition, despite their environment. And eventually, that beautiful angst will be met on the other side by donors, taxpayers, and government subsidies to give these lucky kids a shot.

However, today, Discord channels are teaching our kids how to pull off three-team parlays and options trading strategies I certainly knew nothing about at that age. The internet is honestly teaching our children a new methodology of communication that many parents write off because it’s not the same face-to-face interactions as they were once forced to do for 8 hours a day, 5 days a week.

Tony is probably right. College may not be for everyone, and it is certainly no longer the barometer for a future of success. 

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Please see disclosures here.

No Responses