The future's so bright, I gotta wear shades.......
“If you look good, you feel good,
If you feel good, you play good,
If you play good, they pay good”- Deion Sanders
With college essays and applications already on the minds of the class of 2024, and the deadline for early decision only about a month away, I find myself amused by the business of higher education in America. Here locally it has been all about the University of Colorado whose quick start and charismatic coach have been all the buzz. Much like Doug Flutie’s “Hail Mary” put Boston College into the national conversation nearly 40 years ago, I wonder how many applications will pour into Boulder in the weeks ahead given the enthusiasm that has reinvigorated the Buffalo community. It’s been a long time since Kordell Stewart or Rashan Salaam wore the black and gold. A recent 60 minutes commentator described Boulder as a “hippy college campus with a store dedicated strictly to selling kites'', to one where “Prime” college apparel flies off bookstore shelves about as quickly as it can be stocked. It’s truly amazing to see how a little success and commensurate college spirit can create such camaraderie and excitement for students and alumni alike. Although I am a University of Denver alumni (Go Pioneers), and a football novice, I find myself planning Autumn Saturdays around the college football schedule this year because #IBelieve. This is all too ironic, considering my husband, a die-hard Jets fan (I know, it’s as depressing as it sounds), allows me to bring my iPad to Metlife stadium for game day when visiting family back East.
All that aside, the process of selecting a college and in turn a college selecting a student, are some of the most formative moments in their lives. The experience is the start of a profound journey propelling them into their future careers and lifelong relationships, not to mention one of the most substantial financial commitments that they (and often their families) may make. Whether you are a college athlete dealing with possible NIL endorsement deals, seeking any available academic scholarship opportunities or evaluating your financial aid package, Deion’s words should resonate with all students; if you “play good” then the proverbial “they” do actually “pay good”. Putting on my financial advisor pants suit for a moment, let’s talk about how to make the right college choice from a financial perspective so you can have the career fulfillment (and compensation) that you want.
College is often said to be a time to learn more about yourself and cultivate interest . While that is true, and classes ranging from “Shamanism, Healings and Rituals'' to “Global Economies and Markets” offer the opportunity to do just that, it should also be a time to be realistic with yourself. If you go into undergrad having declared a major or will need to take a little time to decide, it’s totally appropriate if not imperative to consider your income potential or upward mobility that a career track may afford you. Ideally, you find a calling that you are passionate about and could see yourself mastering your craft over the span of a 30-40 year career. You may end up having 10 employers or just 1, but aspiring for the chance to “tap dance to work” to quote Carol Loomis’s biography on Warren Buffett does seems like a nice objective. Unfortunately, as Paul Tough, writer for the New York Times Magazine explains in a recent podcast on The Daily, many high-school students are soured on the idea of attending higher education as they see the cost outweighing the benefits. This is in stark comparison to opinion polls done a decade ago where 98% of parents said they expected their kids to attend college, to now only 50% of American parents expect their kids to go to college. This is a sobering statistic an
The real college wage premium is irrefutable proof of the value of post-secondary education, I emphasize real, which we’ll get to in a moment. After graduation, those with a bachelor’s degree on average earn 60% more than their peers who have completed only high school. But this statistic only tells half of the story as it only takes income into consideration, not how much more debt a college student may have assumed to earn that wage. Over the last 20 years that debt load has mushroomed making what was a few year pay off proposition akin to a 30 year mortgage obligation. I often have a parallel conversation with clients about budgeting and savings and the adage still applies here… “It’s not about what you make, it’s about what you keep”. If we apply this same thinking to the cost of college and wage-earning potential, economists are now measuring what they call the “college wage premium” in how much wealth you are able to accumulate (assets – debts) over the course of your lifetime. Examining college graduates from this perspective reveals a significantly altered narrative. The true impact of the steep rise in tuition costs over the last decade becomes evident, greatly influencing the ability of students to accumulate wealth or, in many cases, rendering the college wage premium virtually nonexistent. As many younger people are buying their first homes or at least trying to, they are provided simple formulas to measure affordability. We often hear about 28% of your gross income can go to housing related expenses and 36% to total debt service which would include things like car payments or student loans. Ideally the amount of money one borrows for education would require less than 5% of their gross income to be paid off in a span of less than 10 years.
Of course, everyone’s situation is unique. If your family has saved enough money to cover your cost of attendance, you won’t have the burden of paying off loans and pursuing a degree in English literature at an Ivy League school may be just fine. This choice may offer valuable networking opportunities that could potentially elevate your income potential versus that of someone who opts for a more cost-effective state school for the same degree or pursues another field altogether. Given the average price of tuition, fees, and room and board for an undergraduate degree has increased 169% between 1980 and 2020, even if parents are footing the bill, those are funds that earlier generations have been able to plow into second homes or investment portfolios. As a result, the amount you spend for college really should be congruent with your earning potential when you graduate, not simply based on parental affordability or availability of credit. There is no easier underwriting process than for student loans where basically a pulse is sufficient enough. The most recent data shows about 50% of students are graduating with approximately $29,000 of debt, which when taken into account changes the wealth premium arithmetic materially, from 96% to 50%. Further analysis shows that science, technology, engineering and math (STEM) majors see an increase in students' earning potential significantly with graduates making an average of $90,000 upon completion of their degree whereas arts and humanities majors earning less than half that amount with an average graduating wage of $35,500. Students need to take advantage of networking and outside the box thinking in making sure their earnings are outpacing how much they may owe. Fortunately, there are important state and Federal programs that encourage careers in these fields and can help offset some of the earnings shortfall, but many fail to utilize these offers hiding in plain sight.
As we look at the job market landscape today Georgetown University predicts that 70% of all applicants will require some level of college education by 2027 so what may have been optional before is becoming more of a necessity. As the economy becomes more technologically native with artificial intelligence playing a greater role, that level is likely to increase over time. In the aftermath of the pandemic, the job marketplace is extremely competitive and will continue to be that way for the years ahead. Seeking out the best jobs and opportunities is a global pursuit where the top students from around the world come to the US to experience their version of the American Dream. A recent WSJ article suggests we should expect labor tightness for the next 20+ years as the baby boomers age out/retire from the work force. While this may create opportunity, it’s important that students who are financing education do so with “Clear eyes, Full Hearts.” Certainly not everyone’s situation is created equally, so this is very often a group effort, involving family, friends, counselors and advisors. Let’s be sure to pick a place where success isn’t measured by the bowl game appearances but by the financial outcomes that fulfill both their wallets and their career aspirations. For those just getting started on the savings plan to those narrowing down which schools to apply to or whose financial package to accept, an advisor can help you navigate that process. And for the many who have already gone down that path with student loans on their balance sheet we can surely help with how to best tackle them head on.
Breakwater Capital Group is extremely passionate about putting our clients in a position of power and planning for these important and expensive life events is critical. We engage these topics head on, and you should too so that every time you show up to life’s Folsom Field, you feel good, you play good, and you get paid good. We won’t win them all but if we are well prepared we will surely win a lot more than we lose.