The majority of U.S. parents still believe a college education is worth the price. Perhaps, in part, because they don’t know the price, or think someone else will pay it for them.
One in four parents of high schoolers believe a year of college education will cost $5,000 or less all in, according to Fidelity Investments’ most recent annual college savings and student debt study. Thirty-eight percent of students also thought one year of tuition, room and board, and other expenses would be less than $5,000.
Many students and their parents have greatly underestimated the cost.
On average, parents surveyed believed that a single year of college would cost $22,200, well below the average $26,800 it costs to attend one year at a public, in-state, four-year college, and the average $54,800 it costs to attend one year at a private four-year institution, according to College Board, a nonprofit organization founded in 1900 to expand access to higher education.
Many students might not understand the costs of higher education because it’s not a significant part of choosing a college. Only 40% of students said it was the most important factor when deciding where to attend. Meanwhile, 44% of students said the degree or program they were interested in was a top factor, 30% said the location of a school, and 19% said financial aid.
Mark Dorfman, CEO of ODI Financial, a New York wealth manager, has many C-suite executives as clients. Some make enough in a year that the cost to send a child to college is little more than a four-year annoyance. Other parents among his clients, even with relatively high household incomes, still need to plan and save if they want to help cover the costs of higher education for their kids. But Dorfman says they shouldn’t do it at the expense of their own financial security.
For example, if a student wants to attend a big university with a high-profile football team, can they find that at a public one in their home state? Some colleges and programs are viewed as more prestigious than others, but how different are most?
“It’s a status symbol, for both the parents and the child,” Dorfman told RIA Intel. “Your college determines your first job,” but after that, employers don’t care so much, Dorfman argues.
Parents and students might also be too optimistic (or delusional) about how much of the cost they will be bearing.
Ken Van Leeuwen, the founder and managing director of Van Leeuwen & Company, a Princeton, N.J. wealth manager, recalls a client who brushed off saving to help their son pay for college because they anticipated he would get a golf scholarship. He was a fine golfer at the club level, but almost all scholarship athletes at N.C.A.A. Division I schools are poised to compete at the highest levels – they are among the very best.
That client wasn’t an outlier. Half of parents with high schoolers expect grants and scholarships to cover at least part of the cost of college but only one third benefit from them, according to Fidelity’s study. Financial aid, student loans, general savings, and family income were the next most-cited means to pay for college. Dedicated college savings accounts, or 529 plans, were the least common.
Van Leeuwen tells families not to anticipate any scholarship or help. In the event a client saves too much in a 529 plan, they can change the beneficiary.
“Let’s be realistic,” he said. “There are a lot of tremendous football players out there, or musicians, or scholars, and the competition to get into good schools is very tough.”
Like Dorfman, Van Leeuwen says advisors need to be able to discuss the cost of college with clients in its entirety.
“You’ve got to do it delicately, but you can help these people develop realistic plans.”