Why You Won't Be Driving A Porsche in College (and you'll thank us later)Submitted by Helping Families Build A Financial Legacy on September 21st, 2016
My son turned 16 this month and by year end will have his driver’s license. This means we’ve been hit with his wish list of cars. He’s showed me a few of his dream cars but I think you need to be a professional athlete to afford one of those! Well, it’s safe to say he will not be driving one of these cars in the near future. (Sorry, Devin!) He will have a car that’s safe, not too fast and fits our family’s budget. And as I’ve been evaluating the available car options, I realized this process is similar to one that is around the corner for our family –choosing the right college.
For us, college planning started early. We implemented a college savings strategy and set a goal soon after my son was born. My husband and I benefited not only from the value of a college education but also the impact of graduating debt free from college. We were fortunate to have both and want to provide the same to our son. Since we’re now talking about college and researching costs, I’ve noticed there are similar criteria when evaluating how much to spend on an education as buying a car. Here’s my top three:
1) Can it get me where I need to go?
If you’re planning to drive off road, you’ll need a different car than cruising along the streets of Clearwater Beach. The same can be applied to which school to choose. A college may have limited but focused choices for majors while a University will have a broader selection. And depending on how certain your student is about their major, a university may provide someone with an uncertain career path the ability to change their mind without adding additional cost. Changing schools can result in additional classes and time which equals more out of pocket money or student loans.
2) What’s the resale value? How much will I lose in depreciation?
Everyone’s heard that when you drive a new car off the parking lot it immediately depreciates in value. But what about your college degree? Will it hold up to the cost?
Not all schools or majors are equal when it comes to the value of their degree. Do your research as to the average starting salary for graduates of the school and in your chosen major. And don’t just go by the information provided by the school. Research the starting salary for the area you want to live and check out the information collected by the Department of Education as to earnings for each specific college compared to a high school graduate. This information along with graduation rates is available on the department’s website at www.collegescorecard.ed.gov.
3) Does it fit into my budget?
If your child told you they wanted to finance a Porsche for 15 years upon graduating from high school, would you agree with their decision? Financing the cost of a college education with student loans can cost as much as a fancy sports car and have similar impact on their
financial future. The 2015 Federal Reserve’s Report on Education Debt and Student Loans reveals average student loan debt equaled $30,150 and 18% of borrowers were behind on their payments. Having an unmanageable debt load after graduation can have long-term impact on your child’s financial stability. The more debt they’re carrying, the less likely they’ll be able to buy a home, save for retirement, or handle a gap in employment. Understanding the available family budget and the consequences of financing an education should be an important factor when evaluating school options.
Ultimately, your child will have to make the decision which school to attend and if funding any costs in excess of their family’s budget with student loans make sense. Hopefully, they’ll have enough information to evaluate options and look beyond the shiny Porsche that looks great in the driveway.
Lori Nadglowski, CFP®, MBA has a passion for helping families and those in need. After over two decades of experience in the financial services industry, she took that love and founded Laurel Wealth Management, LLC, a firm dedicated to building a financial legacy. For more information go to www.laurelwm.com or contact Lori at firstname.lastname@example.org.