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Introduction

How essential is college planning? Just a glance at statistics regarding college tuition, college enrollment, population trends and the economy reveals a telling story. Spoiler alert: The story has two endings.

In one ending, families stand alone facing the frightening obstacle of saving for their children’s college tuition while saving for their retirement. This is a very difficult task for many families and often results in a sad ending. As you will see, the price tag for college is not going down. And sadly, it is already too far out of many families’ price range. They are left with a difficult choice: either their children do not go to college or they face decades-upon-decades of interest-accruing college debt if they go to college without adequate savings.

In the other ending, families face the same obstacles. The rising price tag of college is the same, too. The one thing that is different is you, the college planning specialist. You are the difference that enables families to save for their children’s much-needed higher education while keeping them from amounting decades of debt and sacrificing your retirement goals.

This report will explain how the story ventures off into two endings, with each chapter digging deep into the statistics that truly dictate the demand for college planning.

The Price Tag of College Tuition – Then, Now, and Down the Road

The academic year of 2006-07 is very important when calculating the true challenge families face paying for their children’s college. You’ll find out why very shortly, but first a look at the numbers from that year.

According to College Board, the average total tuition (including fees) at four-year public colleges and universities in 2006-07 was $5,836. That same year, the average total tuition at four-year private colleges and universities in 2006-07 was $22,218. Fast forward to the 2013-14 academic year. According to College Board, the average total in-state tuition at four-year public colleges and universities in 2013-14 is $38,300. For four-year private colleges and universities, average tuition is $129,700.

However, most of the families that college planning advisors serve are looking further ahead. Let’s look as far as 2031, when children born in 2013 will be 18 years old. For that year, College Board projects that the average total in-state tuition at four-year public colleges and universities will be $92,200. For four-year private colleges and universities, tuition will be $312,200. These figures are determined by taking the current cost of college and factoring in the 5% average annual rise in tuition over the course of 10 years, according to the College Board.

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Sadly, the above figures do not tell the full story. What’s not factored into those figures are other major costs of college, namely books and room and board.

Now, let’s talk again about the year 2006. Why is it so important? As the following chart shows, that’s the year where the average inflation-adjusted household income peaked. Since then, household incomes across the economic spectrum has fallen quite dramatically. For families on the lower end of the spectrum, the fall has been farther, longer and harder. It’s further proof that all Americans are still reeling from the Great Recession.

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In-state tuition and fees at public four-year colleges and universities are currently 656% higher than in 2006. For private four-year colleges and universities, that figure is 583%. And in that same time frame, the household incomes of middle to upper-middle class families have declined between 4.7% to 8.4%. The gravity of those three sentences alone is enough to scare the paint off every house in the United States.

While college tuition can be forecasted years in advance, the same is not true for long-term statistics on the economy, inflation and household incomes. There are just too many factors (The global economic climate, the United States political climate, wars/foreign military presence, job growth, stock market growth, population and demographic trends, etc.) that make any long-term economic forecast a complicated undertaking whose findings would surely be hotly debated.

So let’s stick with what is very clear to us now. Projected in-state tuition and fees at public four-year colleges and universities in 2031 are 1,579% higher than today. Projected tuition and fees at private four-year colleges and universities in 2031 are 1,405% higher than today. Again, this is not factoring in costs of room and board, books, and other miscellaneous costs.  Even if we cannot accurately forecast future household incomes, it is safe to assume they will not keep pace with the cost of college. It won’t even be close. It’s safe to say that household incomes won’t catch up with the rate of inflation any time soon. And it’s safe to say that inflation won’t catch up with the rising costs of college. It’s a battle that – every year – gets harder and harder to win for Mr. and Mrs. John Q. Tax-Paying American.

College Enrollment

So why is college tuition going up? The simple answer is supply and demand. Gone are the days when a high school diploma was enough to land a job that paid enough for a single-income family to cut out a slice of the American Dream. Adding to that, what we once considered to be a slice of the American Dream has become a decadent cheesecake – newer and bigger houses, more cars, bigger TVs with more channels, cell phones for everybody, everything on demand, etc. Our standards have changed. And that’s not a bad thing. It all costs more to buy and maintain.

Adding to that, Baby Boomers are bankrupting Social Security. Not just because there are so many of them, but also because they are living longer than the generation that preceded them. That means that more money is needed for more people to retire over a longer stretch of time. Where does all this money come from? Higher-paying, specialized, in-demand jobs. The kinds of jobs that are nearly impossible to get without a college degree.

Statistics on college enrollment back this up. Between 1980 and 2012, the number of 18 to 24 year olds enrolled in college increased from 26% to 41% (see chart below).

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Figures from the Department of Education also show how consumer demand created a slew of specialized academic programs. In 2010, the Department of Education updated its list of academic programs. From the previous list it created in 2000, more than 300 new programs were added – about a 22% increase in the number of majors. A large amount of those were in the health field, underscoring the immense need to care for the aging Baby Boomer generation.

Other Financial Factors Families and Advisors Fail to Consider

The aforementioned figures of tuition and fees were for four-year college programs. But new statistics show that the majority of college students are taking more than four years to get a four-year bachelor’s degree. According to the Department of Education, only 39% of students are graduating within four years after starting college. Nearly 45% of college students will need at least six years. So whatever magic number families are saving up to for their children’s college education, it’s probably not enough.

On top of that, countless studies show that the gap between the rich and the poor continues to grow. This isn’t new information, as this country’s economic makeup has been trending this way since the end of World War II. While this does not affect the price tag of college, it underscores the tension inside millions of households in the United States. Each year, more middle class families are desperately trying to stay afloat, let alone try to climb a rung in the ladder. And those on the higher income end of the spectrum will pay a pretty penny to make sure their children do not fall down a few rungs below them.

The Two Ways This Story Ends

This is fork in the road where of the storyline trails off in two opposite directions. The demand for college planning will not go away, putting your business in the perfect position to help families accomplish a difficult but very important goal – funding their children’s higher education. On one side of the fork, the trail is dark and littered with obstacle after obstacle. And with every obstacle a family faces alone, the harder it seems like they will reach their goal.
On the other side of the fork, the obstacles are still there. The destination is the same, too. But the biggest difference is that you are with the family step-for-step. You are shining a light on each obstacle well before they approach it and you show them how to overcome each one without falling into debt. It’s your job to make sure the story for every family you work with has a happy ending.