A College Education Still Pays

These days, it’s hard not to hear about the student loan mess and how it’s the next financial crisis that’s currently brewing (some are already calling it a bubble).  Students and parents write stories of how they were lured into borrowing far more money for college than they could ever pay back, even after throwing three or four years worth of salary at it. That is, if they could even find a job after graduation. Despite a student debt level that continues to grow, a college education is still one of the most worthwhile investments a high school graduate can make.

According to the Student Loan Marketing Association (more commonly known as Sallie Mae Bank), the average tuition, room and board at a private college comes to $43,921.  Public tuition for in-state students at state colleges amounted to $19,548, with out-of-state students paying an average of $34,031.

How are parents and students finding the cash to afford this expense?

Sallie Mae breaks it down as follows: 34% from scholarships and grants that don’t have to be paid back, coming from the college itself or the state or federal government, often based on need and academic performance.

Parents typically pay 29% of the total bill (an average of $7,000) out of savings or income, and other family members (think: grandparents) are paying another 5%.

The students themselves are paying for 12% of the cost, on average.

The rest, roughly 20% of the total, is made up of loans.  The federal government’s low-interest loan program offers up to $5,500 a year for freshmen, $6,500 during the sophomore year, and $7,500 for the junior and senior years.  If that doesn’t cover the remaining cost, then students and parents will borrow from private lenders.  The average breakdown is students borrowing 13% of their total tuition costs and parents borrowing the other 7%.

Is the cost worth it?  The Federal Reserve Bank of New York recently published a report on the labor market for college graduates.  The conclusion, in graphical format, is that younger workers have experienced much higher unemployment rates than their college graduate peers—the figures currently are 9.5% unemployment for all young workers, vs. just 4.2% for recent college graduates.  Overall, the unemployment rate for people who have graduated with a 4-year degree is 2.6%, and even during the height of the Great Recession, it never went over 5%.

And income is higher as well.  The average worker with a bachelor’s degree earns $43,000, vs. $25,000 for people with a high school diploma only.  The highest average incomes are reported for people with pharmacy degrees ($110,000 mid-career average), computer engineering ($100,000), electrical engineering ($95,000), chemical engineering ($94,000), mechanical engineering ($91,000) and aerospace engineering ($90,000).

Lowest average mid-career incomes: social services ($40,000), early childhood education ($40,000), elementary education ($42,000), special education ($43,000) and general education ($44,000).

Among the lowest unemployment rates: miscellaneous education (1.0%), agriculture (1.8%), construction services (1.8%) and nursing (2.0%).

Yes, there are some themes here, and of course people in every career can fall above or below these averages.  Nor does everybody who graduates with a particular degree end up in a career that tracks that degree.  (Of particular note: the list does not include a financial planning or investment advisory degree.)  The point is that despite the cost, a college degree does seem to provide significantly better odds of getting a job, and getting paid more for the job you do get.

I plan to expand on some of the finer aspects and stories about student loan debt in an upcoming article-stay tuned.

If you would like to discuss college planning, review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch. We start with a specific assessment of your personal situation. There is no rush and no cookie-cutter approach. Each client is different, and so is your financial plan and investment objectives.

Sources:  http://money.cnn.com/2016/06/29/pf/college/how-to-pay-for-college/index.html?iid=SF_LN


The MoneyGeek thanks guest writer Bob Veres for his contribution to this post

New Benefits for 529 Plans

On December 18, 2015, Congress approved the “Protecting Americans from Tax Hikes (PATH) Act of 2015”, which includes provisions that impact 529 plans. President Barack Obama signed the bill into law the same day.


Previously, 529 rules treated computers as a Qualified Higher Education Expense only if the beneficiary’s college required them as a condition of enrollment or attendance. Under the new law, computer equipment and related hardware qualify even if they are not specifically required by the university, college, or technical school the beneficiary attends, although they must be used primarily by the beneficiary while enrolled in school. The new law defines desktop computers, laptops, and other related technology as a Qualified Higher Education Expense. The costs for Internet access and computer software related to a beneficiary’s studies also qualify.

The new law is retroactive to expenses incurred since January 1, 2015. So if your beneficiary purchased a computer or related technology any time in 2015 to use while in college, funds from a 529 account can be used to cover the cost if the withdrawal was made by Thursday, December 31.

Refund Re-contribution

The PATH Act also gives 529 account owners a 60-day window to re-contribute refunds from Eligible Educational Institutions into their accounts. The law is retroactive for withdrawals made during 2015.

Under the new law, account owners have 60 days from the date of the refund to redeposit a refund of Qualified Higher Education Expenses into the same 529 account from which the money was withdrawn. For example, if a beneficiary receives a refund from an Eligible Educational Institution because he or she withdrew from school due to an illness or other unforeseen circumstance, the refund may be returned to the beneficiary’s 529 account and would not be deemed a non-qualified withdrawal or be subject to any taxes or tax penalties.

The re-contribution cannot exceed the amount of the refund.

The law is retroactive to January 1, 2015.

  • Account owners who received a refund of Qualified Higher Education Expenses between January 1, 2015, and December 18, 2015, the date the law was enacted, have until February 16, 2016 — 60 days from the enactment date for the PATH Act of 2015 — to redeposit the money.
  • Account owners who receive a refund of Qualified Higher Education Expenses on any date after December 18, 2015, have 60 days from the date of the refund to redeposit the money.

It is recommended that account owners keep a receipt of refunds in order to have documentation of the amount of the refund and the date it was issued.

If you would like to review your current investment portfolio or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch.



Return on College

Let’s say you’re giving your niece or grandson some advice on which major to select in college. Do you tell them to get an art degree, or take courses in social sciences? Or should they focus on business and finance?

The decision should not ignore their natural abilities and interests, of course. But if they’re looking for the best return on their tuition dollars, then they might consider spending their time in the computer sciences and math buildings.

This information comes from a report published by PayScale.com, which helps people manage their careers and figure out what they’re worth on the job market. PayScale’s research team tracked the median salary for people who completed its salary survey online. They then compared the 20-year earnings of people following different careers with what was earned, on average, by competing workers with a high school diploma but no college degree. Then they subtracted the cost of 4 years of college tuition, to arrive at a return on investment figure—the additional money the degree provided. Advanced degrees like law and medicine were excluded; the survey focused on bachelors degrees.

The results were striking. Business and finance majors came away with a respectable $331,345 average return on investment (ROI) over 20 years, but they actually finished a distant third on the list, just ahead of sales, marketing and public relations ($318,212). The highest ranking majors, by this metric, were computer and math, whose degree-holders saw a net return on their tuition investment of $584,339 over the 20 years after graduation. These nerdy individuals nosed out the architecture and engineering graduates, whose average ROI came to $561,475.

Life, physical and social sciences majors fared somewhat less well, earning almost exactly $250,000 more than their high school diploma competition. Graduates with an arts, design, entertainment and related degree came in last in the survey; they are expected to make a little over $125,000 as a result of their college training.

Interestingly, the PayScale website also tracks the average return on tuition investment for different colleges. Graduates of Harvey Mudd College in Claremont, CA can expect to earn nearly $1 million over the 20 years after graduation, with a typical starting salary north of $75,000—with a 4-year college investment of $237,700. Numbers 2-10 on the rankings include the California Institute of Technology ($901,400 earnings, $221,600 cost); The Stevens Institute of Technology in Hoboken, NJ ($841,000; $232,000), the Colorado School of Mines in Golden, CO ($831,000; $112,000); Babson College in Wellesley, MA ($812,800; $230,200); Stanford University ($809,000; $233,300); the Massachusetts Institute of Technology ($798,500; $224,500); Georgia Institute of Technology ($796,300; $86,700); Princeton University ($795,700; $217,300); and the Virginia Military Institute ($767,300; $95,700).

You can look up your own alma mater here: http://www.payscale.com/college-roi/

If you would like to talk about college planning or discuss any other financial planning matters, please don’t hesitate to contact us or visit our website at http://www.ydfs.com. We are a fee-only fiduciary financial planning firm that always puts your interests first.  If you are not a client yet, an initial consultation is complimentary and there is never any pressure or hidden sales pitch.




TheMoneyGeek thanks guest writer Bob Veres for writing this post

Taking Distributions from 529 College Savings Plans

Parents looking to take advantage of the many benefits of saving for college with a 529 plan will want to know the full details of which educational expenses qualify for tax-free distribution status — and which do not.1 In Publication 970, the IRS gives detailed guidance on qualified expenses. Here are a few important points:

What’s Covered

 Tuition and fees are covered in full.

  • Room and board, if the student is enrolled at least half time. But such expense must be not more than the greater of (1) the allowance for room and board, as determined by the school, that was included in the cost of attendance; or (2) the actual amount charged if the student is residing in housing owned or operated by the school.
  • Food. If you spend a certain amount for a meal plan, that entire amount can be deducted, even if used for coffee or ice cream and not a full meal. Weekend meals can also be included if the dining halls are not open.
  • Books and supplies. Any fees associated with purchasing school textbooks are considered qualified, as are required equipment or supplies such as notebooks and writing tools.
  • Computers/laptops, but only if required by the school. If required, Internet fees and PDAs or “smartphones” may also qualify. The Savings Enhancement for Education in College Act (H.R. 529) that is currently being considered by Congress would expand this definition to apply to all computer technology used by the student.
  • Special needs services required by special-needs students that are incurred in connection with enrollment or attendance at school.

 What’s Not Covered

 Student loans. Interest on or repayment of student loans is not considered a qualified expense by the IRS.

  • Insurance, sports or club activity fees, and many other types of fees that may be charged to students but are not required as a condition of enrollment.
  • Transportation to and from school.
  • Concert tickets or other entertainment costs, unless attendance is requisite to a course or curriculum.
  • Note that expenses must apply to a qualified college, university, or vocational school for post-secondary educational expenses. Also keep in mind that taxes and a possible 10% additional federal tax will apply to all distributions that are not considered qualified educational expenses by the IRS, so be sure to check first.

If you have any questions about saving and investing for college, please don’t hesitate to contact us or visit http://www.ydfs.com

1By investing in a 529 plan outside of the state in which you pay taxes, you may lose the tax benefits offered by that state’s plan. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary.

The Value of Education

Now that college graduation exercises are upon us, you are no doubt hearing reports that young people matriculating from this or that prestigious alma mater are having trouble finding jobs.  The easy conclusion seems to be that a college degree doesn’t matter very much anymore in the new economy.  But that, of course, is a short-term view; younger people have fewer job-related skills than people who have been employed for a few years, so they generally have trouble getting that first job no matter what their education level.

You can see this in the first chart below; older workers, who have presumably more experience in the workplace, tend to have lower unemployment rates than their younger competition.  A recession like 2008-2009 simply reinforced a long-term pattern; it made the jobs situation worse for everybody.  Today’s difficult job market continues to allow employers to put a premium on experience.

Longer-term, however, a college degree does seem to confer huge advantages for getting employment.  Consider the most recent jobless statistics, broken down by education level:

Jobless rate for persons who have not earned a high school degree:  11.6%

Jobless rate for high school graduates with no college training: 7.4%

Jobless rate for persons with some college training or an associate degree: 6.4%

Jobless rate for persons who have earned a bachelor’s degree or higher: 3.9%

Longer-term, as you can see from the second chart below, people who are educated at every level tend to be less likely to be unemployed than those with lower educational attainment.  The better-educated also tend to earn higher incomes over their lifetimes–the most recent statistics compiled by the Pew Research Center suggests that the average high school graduate with no further education will earn about $770,000 over a 40-year worklife, compared with $1.4 million for a worker with a bachelor’s degree.


Parents reading this article, and graduates who are paying off enormous student loans, are no doubt wondering whether Pew was able to factor in the upfront costs of getting the college degree, plus the opportunity cost of four years (or more) spent on campus rather than in the workforce.  Even when these considerable costs are factored in, the net gain for a student who graduated from an in-state four-year public university is about $550,000 over a person’s worklife.  The third chart shows the various disparities in yearly earnings at different ages; you can see that at age 25, the differences are not huge, but over time, college education begins to create significant income separation.


Bottom line?  Ignore the gloomy reports of college graduates having trouble finding work. This has always been a problem, admittedly made worse by today’s weak job market, but not an indictment of the value of a college education.  Education, as George Washington Carver once remarked, is still the golden key that unlocks the doors of opportunity.




TheMoneyGeek thanks Bob Veres, publisher of Inside Information for this guest post.

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