By Drew Schlotter, CFP®, CCFC
How to Get More Value
College has gotten more expensive, but the average college degree holder makes significantly more than someone without it, and are more likely to be employed in a recession, so how do people make sure they get the maximum value out of a college degree?
Change how you shop for college!
This is the process I go through with all my college planning clients, and I encourage all college-bound families to take a similar approach.
1. Start with a Budget
The very first thing a family needs to do is create a college budget. Look at your household budget, determine how much you can save up between now and the beginning of their freshman year, how much you can pay out-of-pocket each month while they are in school, and use that to determine your overall spending budget for college. In truth, most families will still need to borrow some money, but you should limit that to the Federal Student Borrowing Limit ($31,000 in 2023). By sticking to this amount, a college graduate should be able to repay their debt over the standard 10-year repayment period without much hardship.
2. Shop Within Your Budget
Focus on looking at schools where your net out-of-pocket costs will be within your budget. Every school is required to have a Net Price Calculator that estimates the total cost after grant aid your student qualifies for. You want to be careful about depending on financial aid estimates or award letters, as often these include “student aid” in the form of loans.
3. Choose a Major that Pays
The above statistics were averages across all college graduates, but there are very significant differences between fields of study. For example, the median college graduate with a degree in Education has the same lifetime earning as the median Associate’s degree holder at $2 million, but the median engineering major has a lifetime earnings of $3.8 million with an undergraduate degree. All of the disgruntled college graduated interviewed in Wall Street Journal’s article earned expensive degrees in fields that do not lead to a professional career (I’m looking at you art, music and equine studies). Every school has the salary numbers for graduates from each of their majors. Use those numbers and compare them to what you are spending on the degree, and what you could earn in other fields. Here is an article on 32 majors with the best salary and job growth potential.
4. Choose a Good School, Not an Expensive One
What school you go to does matter, but how much is highly dependent on who you are. According to Dale & Krueger (2011), attending a highly selective college resulted in a 5% increase in earning for first generation college students compared to first generation students who attend a less selective school. For students whose parents are college graduates, there was no measurable benefit to attending a highly selective school. The impact of school selectivity also depends on your major. According to Eide, Hilmer, and Showalter (2016), school selectivity and prestige can mean higher earnings for those majoring in business, but even the oldest universities in the world, like Oxford and Cambridge, have absolutely no measurable effect on earnings for students majoring in science, technology, engineering and mathematics (STEM). Overall, my recommendation is to find a good quality school that fits the student and budget, and don’t worry about the status.
5. Graduate in 4 years
The most expensive year of college is year 5+. First, it is really important that you get the fit right the first time; both school and major. Transferring schools or changing majors can result in classes you previously took no longer counting, and you will need to take additional classes to fill the gap. Second, if you can take some duel credit courses or Advance Placement courses while still in high school, not only will these help you get into schools, they also help keep you on track to graduate in four years. Lastly, if part of your plan is for the student to work while in college to avoid taking out student loans, you need to make sure they can still be a full-time student and manage the load without falling behind academically. If they have to retake courses, this adds extra semesters, and failing grades often result in the loss of scholarships and grants. It is better to take out Federal Student Loans than to take on extra semesters.
We’ve seen how the rising cost of college and recent challenges for students and recent grads have contributed to a diminished public perception of the value of a college degree. However, even with the increase in costs, a college degree still provides significantly higher earnings, and better protection from unemployment than a high school diploma. We also know that the benefit from a college degree are not the same for every field of study.
Now its time for us to change how we shop for college! Like any major purchase, start by building a budget. Then, shop within your budget. If your are car shopping and have the budget for a Honda Civic, you don’t let your teenager test-drive the Ferrarri. Next, make sure your degree is going to lead to better career opportunities by being smart about the major you choose. When you choose a school, pick one that fits your student, and don’t worry about name recognition to brag about on the golf course. Lastly, make sure everyone understands the importance of graduating in four years, and not taking a victory lap. As fun as the student section it at the football game, the alumni club is a lot more comfortable.
Along your college planning journey, you are likely to talk to a lot of different people, all with different perspectives and bias. Your high school counselors can be a great resource and help your students prepare for and navigate the college admissions process, but they are limited in their resources and don’t usually have the background to provide personalized financial advice. Independent college admissions counselors have more tools, and specialize in getting students into selective schools, but often they bias towards prestigious (and expensive) schools because it helps build their own brand. As a Certified College Financial Consultant, I am passionate about helping families achieve affordable higher education that provides a great return on investment.