Graduating debt free: Helping LEO parents select options on financing a child's college education

What greater or better gift can we offer the republic than to teach and instruct our youth? — Cicero


Question: Will the sacrifice of saving and investing for a child’s college education be outweighed by developing a well-educated person, and ultimately eliminating long-term college debt? Answer: Definitely, yes. If a law enforcement parent and/or guardian develops a sound and consistent investment strategy early in a child’s life to finance his formal education, one can minimize or eliminate college debt through wise financial planning.

June is a special month in the lives of many American families. High school and college graduations are significant social events and defining rights of passage for many families.

For many law enforcement parents, the culmination of their life’s efforts is to be present at their child’s college graduation. However, the path to finance and educate a child in today’s economy is becoming increasingly challenging and often difficult. A parent who has a new born today must immediately begin to establish an investment and/or financial plan that will allow them to educate their child from grades kindergarten through high school, and ultimately college.

College Planning Begins at Birth
Given the increasing costs of a formal education, a child’s college education savings plan now begins at birth. Parents, grandparents, aunts, uncles and extended family members can all contribute toward a child’s college fund.

In 2010, the College Board noted that nearly half (47 percent) of all full-time undergraduate college students attended a four-year public college that has published charges of less than $9,000 per year for tuition and fees. At the other end of the spectrum are private four-year colleges that cost $35,000 or more yearly in tuition and fees. These higher-priced colleges sometimes have bigger endowments and more grant aid available — which may mean that you can get more financial help to attend the institution. Finally, public two-year junior colleges charge, on average $2,713 per year in tuition and fees.

A Competitive Society Requires Higher Education
Investing in a college education is usually a smart investment, and money well spent. Employment numbers indicate that a college degree is worth the investment. On August10, 2010, Mr. Lee Bierer of the Chicago Tribune’s McClatchy News wrote an article entitled, “Is a four-year college degree worth the cost?” In that article, Mr. Bierer noted, in February 2010, the unemployment rate among those with at least a bachelor’s degree was five percent, compared to 15.6 percent for those with a high school diploma.

The United States Census Bureau reports:

“Over an adult’s working life, high school graduates can expect, on average, to earn $1.2 million; those with a bachelor’s degree, $2.1 million; and people with a master’s degree, $2.5 million.”

How Much You Have to Invest
The College Board noted by 2020, a parent could pay as much as $287,000 at a private institution and $133,000 at a public one for a child’s four-year college education. Therefore, the sooner you develop a highly focused college investment strategy that is designed to accumulate the amount you will need for tuition, the less strain college costs will place on the family budget when a child enrolls. However, it is important to start saving right away.

The mutual fund company, T. Rowe Price Associates, Inc. put together the estimated numbers below that give you a sense of costs of a four-year college education, including tuition, room and board, books, and transportation, and the monthly investments required to pay for them. The calculations assume a five percent annual increase in college costs, an eight percent annual pretax investment return, and no additional investments or earnings once the student enrolls. The return does not reflect the performance of any specific investment.

Years

PublicPrivatePublicPrivate
3

$74,169

$159,862

$801

$1,726

5

$81,772

$176,248

$607

$1,308

7

$90,153

$194,313

$490

$885

9

$99,394

$214,230

$411

$885

11

$109,582

$236,189

$353

$762

13

$120,814

$260,398

$310

$668

15

$133,198

$287,089

$276

$594

Also, as a part of your long-term investment strategy, you will want to investigate the various tax breaks that the federal government provides for higher education expenses.

Financing a Vocational or Technical Education
Despite society’s push to provide a college education for children, still, college is not for everyone. About 80 percent of students ranking in the bottom quarter of their high school class will probably not get a bachelor’s degree, or even a two-year associate’s degree.

The Bureau of Labor Statistics notes, many students would be better off being directed to short-term vocational and career training. Of the 30 fastest-growing jobs in the United States in the next decade, only seven typically require a bachelor’s degree. The remaining 23 include registered nurses, home health aides, store clerks and customer service representatives. Nobody wants to reduce expectations for high school students, or tell them that they cannot make it in a four-year college.

However, encouraging a student to truthfully evaluate their readiness for college—academically and financially—does make sense. If a student does start out at a community college, he can develop the tools to succeed and to believe in his capabilities without incurring a large student loan debt.

On 2/01/11, Professor Louis E. Lataif, dean emeritus of Boston University’s School of Management wrote a commentary for Forbes.com on “Universities On the Brink” due to the escalating costs of a college education being unsustainable.

Dr. Lataif noted that the number of American students graduating from high school increased from 2.4 million in 1990 to 3.3 million in 2009. However, that number is not expected to grow further for the next 10 years. In fact, for the next several years, the number of high school graduates in the United States will drop. Therefore, Professor Lataif stated that this is not to deny the importance of a college education, but the new demographic exacerbates the student preparation problem for universities.

Professor Lataif noted that happily, free market capitalism abhors a vacuum, so the increasing cost of education has inevitably given rise to alternatives, including a new, for-profit college industry. There are today two million students enrolled in institutions like the University of Phoenix, Corinthian, Kaplan, and DeVry. There are reportedly 5.5 million students — or nearly 30 percent of all higher education students — enrolled in at least one online class.

Dr. Lataif concluded that in today’s knowledge economy, if America does not make a rigorous, high-quality, affordable education available to more of its population, our quality of life will erode as will our place in the world. And the important, leading-edge academic research undertaken in America’s top universities will not occur if the universities fail to develop a survivable business model.

It is the opinion of this writer that a sound and viable investment strategy for a child’s college, technical and/or vocational training must begin sooner rather than later. The importance of investing in a child’s personal growth and development through education cannot and should not be short-changed. It is a parent’s responsibility to prepare their child for society. The greatest gift that a parent can give to their child is the ability to compete in a world with a quality education, and to ideally have little or no personal debt upon graduation.

About the author

Edwin K. Stephens is the Managing General Partner of The Stephens Group, an investment and asset management firm he founded in January 1993. The Stephens Group helps individuals, pension funds, public agencies, and private corporations with their financial planning needs. The firm’s objective is to provide good sound advice that is in keeping with its philosophy of maximizing profits through conservative fiscal management. Stephens is a licensed Series 6 Registered Representative. He is an Insurance Agent who is licensed in both California and Arizona. Stephens, who has previously authored articles on financial management and investment strategies for the San Francisco Police Officers Association Journal, counts among his clients many law enforcers and other public safety professionals in the San Francisco Bay. Stephens conducts financial planning seminars throughout the San Francisco Bay Area and Arizona. Stephens received a degree in English Literature from San Francisco State University in 1983. Securities transactions though McClurg Capital. Please go to www.CommodoreEds.com.

Contact Edwin Stephens.

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