The Case for College . . . If You Choose the Correct Approach
You are about to read an ad. It doesn't look like an ad at first, but it is.
It's a good ad. Use it as a model.
It was sent out as a press release. This is cheap to do.
It looks like a pure information article. It offers its targeted audience lots of useful information.
It presents the benefits of college: economic and personal..
Then it raises the central question: Is college worth the money? It's a valid question.
College is worth it for fewer than half the students who enter as freshmen. Over half fail to earn a degree. But collega may be worth it if the student (1) actually graduates, (2) chooses the correct major, and (3) pays wholesale.
The article doesn't discuss these three issues. Instead, it tries to sell the reader (a parent) on a particular investment.
No matter how well the investment strategy pays off -- and it may not -- it's still better to pay wholesale.
It's best for a parent to invest the money and then get the student to pay for his own bachelor's degree program. Use the investment for graduate school.
I discuss all this here: //www.garynorth.com/products/item7.cfm
Now read the ad.
PRINCETON, N.J.--(BUSINESS WIRE)--According to the College Board, a not-for-profit membership association that represents colleges and universities, the total cost of one year of college for the 2006-2007 academic year is $33,270. This includes the average tuition, fees, room and board at the 500 independent colleges included in the Independent College 500 (IC 500®) Index.
The IC 500 looks beyond tuition, so it is a broader representation of what college expenses are each year. Year-to-year, the one year direct charges are up 5.74% and it has averaged annual increases of 5.16% since 1997. Today a student entering college may expect to pay $136,000 for a bachelor's degree at the average independent college. In 15 years, parents of a 3-year-old child may expect to pay over $300,000 for the same degree.
While the numbers seem daunting, the value of a college education far exceeds the cost.
The financial advantages:
On average, according to the 2005 US Census, college graduates earned $16,638 more a year than high school graduates.According to the US Bureau of Labor and Statistics, college graduates in 2005 were unemployed at a rate of 2.3% while high school graduates were unemployed at a rate of 4.7%.
On average, according to the 2005 US Census, college graduates receive an average 3.33% pay increase each year while high school graduates receive an average 3.11% yearly pay increase.
Over a 40-year career, when considering pay increases and unemployment rates, a college graduate is expected to earn $1.47 million more than a high school graduate.
Using 2005 college costs along with the average college inflation rate, as well as the unemployment rate and average salary increase, the entire cost of college will be paid back to the graduate through the difference in salary from the average high school graduate within 7 years. Over a 40-year career, this leaves 33 years of 'profit' totaling $1.34 million.
When considered strictly as an investment, the money invested to pay for an undergraduate degree at the average private university will return 12.23% a year in increased salary for the graduate. If your child attends a less expensive, public college, the average rate of return is greater than 26% a year. In addition to financial advantages, education also has marked benefits on one's quality of life.
Socio-economic advantages:
According to a Rutgers study, marriages are 13% less likely to end in divorce when at least one member has attended college, when compared to high school dropouts. College graduates are more likely to have health insurance for themselves and their families. According to the 2005 US Census 8.5% of college graduates were without health insurance as compared to 21% of high school graduates.Numerous studies, including a 2002 study by the University of California, suggest a relationship between years of education and increased life expectancy.
Furthermore, college is becoming more important based upon increasing competition in the workforce. In 2005, 27.6% of adults had at least a bachelor's degree. In 1986, only 19.4% had achieved that education plateau. In 2005, 35.1% of people age 18 to 24 were enrolled in a college or university.
With all of these benefits, it is easy to understand why most parents want their children to receive a college education. In 1996, the US Congress enacted legislation that helps families save for college through tax incentives. 529 Plans, as they are called, offer tax-free earnings when the money is used to pay for qualified higher education expenses. On June 30, 2006, according to the College Savings Plan Network, more than 8.8 million 529-plan accounts were open holding nearly $93 billion in assets.
"College costs appear staggering," said Gilbert Johnson, chief financial officer of College Savings Bank. "Parents come to us ready to throw their hands in the air until we show them they are not alone in saving for their child's education." College Savings Bank, a Pacific LifeCorp Company and program manager for two 529-plans, has been helping families save for college since 1987.
The federal government offers 529-plan investors tax-free earnings when distributions are used to pay qualified higher education expenses. This makes the taxable equivalent rate of return more attractive than the nominal annual percentage yield (APY) of the investment. For example, if your 529-plan college investment earned 4.24% last year, the taxable equivalent was 5.89% for families in the 28% federal tax bracket. Furthermore, 529-plans are open to all US taxpayers, regardless of income, and investors can open an account for anyone -- even themselves.
All states offer the same federal benefit when investors contribute to 529 plans. Additionally, some states offer a state tax deduction for contributions. Montana offers residents up to a $3,000 state tax deduction ($6,000 joint) for contributions to the Montana Family Education Savings Program, managed by College Savings Bank. Pennsylvania offers residents up to a $12,000 state tax deduction, per working parent, per beneficiary for contributions to any 529 plan.
Some of the advice that Johnson gives to parents interested in saving for college:
Invest in a 529-plan product that offers little or no fees that will erode your earnings.Keep in mind that your child's future is the end goal of the investment. It's easy to get caught up in chasing the stock market with a college fund, but if your investment starts losing money, it may leave your child's education underfunded.
Look for a 529-plan product that offers a good rate of return on your money without risking principal.
Start by evaluating your state's 529 plan. Some states, such as Montana, offer taxpayers additional state tax incentives for investing in the state-sponsored program.
And while rising college costs have parents concerned, this trend does offer an advantage to investors who contribute to plans indexed to college costs. The CollegeSure CD from College Savings Bank is such an investment. Information is available at www.collegesavings.com.
About College Savings Bank
Founded in 1987, College Savings Bank is a member of the Federal Deposit Insurance Corporation (FDIC), and the first savings bank chartered by New Jersey since 1893. The Bank helps families across the country meet the rising costs of postsecondary education by offering safe and effective financial products. College Savings Bank is the exclusive provider of the CollegeSure CD, an innovative, unique, saving-for-college investment backed by the full faith and credit of the U.S. Government up to $100,000 per depositor. College Savings Bank is a program manager to the Montana and Arizona qualified tuition programs. In 2002, Pacific LifeCorp acquired College Savings Bank. College Savings Bank can be reached online at www.collegesavings.com or by calling 800-888-2723.