by Kristina J. Vorndran, MS, CFP®, CRPC®
Allegiant's Paraplanner Takes a Deep Dive into Education Planning & Costs
As a young professional who has earned several financial industry designations as well as a master's degree in Financial Planning, it is likely evident that I love learning and academia. I've been committed to pursuing knowledge and educational achievements since my early childhood and today I also recognize the significant value of real-world experience. Hence it shouldn't come as a surprise that I'm extremely passionate about helping Allegiant clients and their families pursue education planning.
While I focused on obtaining a formal education personally, I appreciate the highly individualized nature of career aspirations and family decisions surrounding education opportunities and priorities.
As we seek to understand and support each family's goals, the financial numbers behind current and future educational considerations are striking. In this article, I attempt to shed some light on how the current employment climate, the rising cost of education, and student debt are impacting us as individuals and a society.
First Things First: Is College the Right Path?
The pandemic has us reevaluating everything today. With college coursework being presented virtually, we're revisiting why and how we are gaining knowledge and specialized skills. The college experience or "lifestyle" looks and feels different at the moment, so many are asking if the benefit of online classes is worth the expense, considering most tuition expenses have not decreased since classes moved online.
Prior to the pandemic, we already started discussing whether college is worth the cost in many client scenarios. For example, trade schools and entrepreneurship are increasingly valued. The emphasis on a flexible work environment, which was largely accelerated with the pandemic's work-from-home structure, also contributed to changing workforce dynamics, adding to the many factors at play.
Depending on a child's interests, available resources through scholarships, the cost of education options, and the earnings potential of jobs requiring advanced degrees, sometimes it can be more beneficial to pursue a career in skilled labor at a more affordable vocational school. Trade schools do not get the attention of the media like they used to, yet a skilled trade worker can earn north of $75,000 and even above $200,000 per year, depending on the scope of the trade and whether one owns a business. Common successful trades include carpenters, electricians, plumbers, welders, and waste collection operators
Especially with the dawn of COVID-19, the rise of what many dub "the sidepreneur" has become more evident. Members of the working class are looking to diversify income sources or explore new opportunities. Many millennials have turned to serial entrepreneurship, even before the pandemic, and they continue to adapt well to the remote environment. Although academic qualifications certainly will continue to play a role, many major companies – including Google, Hilton, Apple, IBM, Bank of America, Tesla, and Netflix – no longer require college degrees.
Bottom Line: A college education is not a necessity or predictor of financial success as it once was several decades ago. There are other ways to secure your future and make money. Thus, a new era may have formed, pointing toward the idea that college degrees may not be as important as they once were. We highly encourage you to have the college education conversation with Allegiant's Wealth Advisor team for guidance when you are ready to talk through your family's situation.
A Closer Look at Student Debt
If attending a college or university is in your child or grandchild's future, it's important to consider savings and investment opportunities now. The earlier you invest in your child's future college education, the better since the investment's future growth largely depends on compound interest, which typically takes years to grow. This is my advice as part of the Wealth Management team, and also as a young professional who has these conversations regularly with clients, colleagues, and friends. Student debt is an obvious stressor in many young professionals' lives. Many worry about making ends meet while still managing to pay off their student loans. Young professionals who have highly skilled jobs such as doctors, lawyers, engineers, architects, etc. do not typically regret the costs of undergraduate or graduate school since these professions are associated with higher incomes.
At Allegiant we closely follow the student loan landscape. With the current economic environment, student loan interest rates have decreased slightly. For many undergraduate and graduate student loans, we feel that refinancing or even loan consolidation could be an option. (But perhaps not for all, since refinancing/consolidating to a private lender will remove any temporary federal benefits related to COVID relief that could be associated with the student loans.)
As evident from the graph above, student debt has increased substantially over the past several years. Current collective student loan debt levels hover at $1.71 trillion – which is about $739 billion more than the total credit card debt of the United States.
From 2003 to 2020, the total student loan balance has increased by 602.5%. Adjusting for inflation, the typical student loan debt at graduation increased by 326% since the graduating class of 1970.
This substantial student debt can discourage young professionals, especially when considering long-term milestones. In fact, 61% of millennials have said that they've delayed purchasing their first home because of their student loan debt. Millennials will likely rent for longer periods of time or move back with their parents after graduation rather than focusing on buying their first home, and this may change the future homeowner landscape.
Data already points toward a decrease in consumer spending by millennials, as young professionals have curbed spending on holiday gifts, new cars, and other consumer gadgets. This trend suggests that the "saved" money is used toward other, more pressing expenses such as covering student, credit card, and other debt. The true impact on the greater economy of millennials pulling back their consumer spending is yet to be felt.
A decline in marriages and family formation is also leading to questions about the future economic impact of this trend. Possessing substantial debt can impact mental health, increase stress and provoke illness. In fact, 70% of student debt borrowers report to show physical symptoms due to their worry and stress over debt. Student debt can postpone establishing an emergency savings fund, and delays retirement savings, potentially impacting the chances of passing assets down to future generations and increasing the likelihood of needing more government assistance during retirement years. Since 2004, people holding student debt aged 60+ has increased more than any other age group.
If you're asking why the debt situation is so overwhelming, it's important to take a look at another data point: the rising cost of tuition.
The average cost of attending a 4-year undergraduate college program increased by 497% between 1985 and 2018 – which is over two times the rate of inflation. It's no wonder that college students carrying student loan debt have such a difficult time keeping up with payments. College tuition inflation has increased roughly 8% per year, while the average annual salary has increased between 3% to 5% per year. These numbers beg the question of whether an undergraduate college degree may be worth the cost, as well as the time lost from additional years working and gathering real-world experience.
As evident in the charts and data above, it can be difficult to keep up with the rising cost of college expenses.
Education Planning: How Do You Plan for Unknowns?
As ideas about loan forgiveness or even canceling student debt continue to be explored, it's important to remember that one thing is always certain: uncertainty.
Uncertainty is not new; nor is it unique to the world impacting the cost of education. As a Paraplanner on Allegiant's Wealth Management Team, I'm privileged to help guide client families through college planning conversations and review the steps they need to take to properly prepare their children, grandchildren, and/or loved ones for their future careers. We can help you focus on what you can control: spending, saving, and how you are invested. With our key role as your thinking partner and advocate in mind, the Allegiant team is pleased to share several articles providing background information for your family to consider:
Please contact our office to schedule a meeting if you'd like to talk with the Allegiant team about education planning. We're here to help make sense of these complicated factors and guide you in pursuing the best path for your family's goals.
240 South Pineapple Avenue, Suite 200
Sarasota, Florida 34236
Telephone (941) 365-3745
Toll Free (800) 926-5237
Advisory Services offered through Allegiant Private Advisors, LLC, a Registered Investment Adviser