Paying for College is Expensive. Make Sure to Factor it Into Your Financial Planning. | Associated Bank | WGN Radio
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Paying for College is Expensive. Make Sure to Factor it Into Your Financial Planning.

When thinking about paying for college, there’s two sides of the coin: the parents working to pay for their children’s education, and, on the side, the college-goers and grads paying for it themselves through student loans.

“It presents huge challenges,” said Doug Myers, Chicago Private Client Market Leader with Associated Bank. “I have two kids in college myself right now, and I think the wealth management and financial planning discussions revolve more around the parents than the students right now, because we have to figure out how to pay for these ridiculous college tuition bills that come around this time of year.”

“And it’s significant,” Myers said of the bills. “And it’s amazing how much college tuition costs have risen over the past … 20 years, (but) the inflation rate has been very nominal over the past 20 years, and you look at college costs going up 5, 10, 15 percent a year for the past 20 years. It’s astounding how much it takes to educate our children.”

More Adults Paying the Bill After the Fact

Unfortunately, more and more people who attend college are having to foot that very expensive bill themselves. That means getting a job that can help them pay that bill.

“It’s interesting because as millennials are in college and come out of college, there’s a lot of challenges they face,” Myers said. “Number one, they face how to get a job and how to pay off student loans, which are significant now.”

“If you read (about it), the average student coming out of college, the average student loan is something like $20,000-plus, but … (if) you go to law school or you go to medical school on top of that, these kids are coming out of college with $80,000, $100,000, $150,000 of debt, which is a mortgage, and so they’re paying these school debts.”

Another contributing factor is that states are continuing to receive less funding, and therefore tuitions continue to rise.

“It becomes even more important for students to borrow to go to these schools because there’s less state funds that these schools are getting. It exacerbates the problem for these students,” Myers said.

Renting First, Buying a House Later

This is a significant factor for many in not being able to purchase a home – at least not right away.

“They can’t afford to buy homes, because they already have a mortgage in the student loan debt,” Myers said. “So, that presents a challenge. And the other challenge with these students is getting a job. They might have a degree in sociology, for example, or the arts, and their salaries are very low coming out of these programs. And so it’s a double whammy, so to speak, on how they establish themselves as an adult and start budgeting and start preparing for a life and getting married and having kids and buying cars and buying houses and things. And it’s a big challenge for these kids.”

As adults plan their futures – particularly, if they’re planning families – saving for children’s future college tuition should start early.

“On the other side of the equation, the adults, how do you prepare for saving for college tuition? As we counsel our clients and sit down and have financial planning meetings, I think it’s so important to start early and save a significant amount of your paycheck every month,” Myers said. “When I was coming out college, my dad always said (to) save 10%.”

Saving as Little as 10% Can Have a Big Impact

According to Myers, the 10% rule he learned from his father still holds up.

“And as long as you start saving when you’re 21, versus 35, if you save 10% every year of what you make or every month, you’re going to be fine. But the statistics are, if you start at 21 versus if you’re 31 or 35 or even 40 like a lot of people do, there’s no catch up. You cannot catch up and prepare when you’re starting that late.”

The financial pressures on young adults mean they’re not moving as quickly as maybe their parents did in making large-scale purchases.

“The statistics were (that) they aren’t buying homes, they’re renting these small apartments,” Myers said. “That’s kind of the trend right now that they wanted to be mobile and they wanted to be free of things. I think the tide is turning, (however) and I think as they become a little bit older, they’re getting in their late 20s (and) early 30s, that, in fact, they are buying houses now, and they’re buying the things that we as adults have always done, as well. So, I think that trend is turning. It’s going to look a little different; I think with the younger set right now, because of the student debt issue, and the things we’re talking about.”

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