Like your next loaf of home-made sourdough, we do not know how the future will turn out. But, when it comes to planning for your child's higher education we do know the questions parents should be asking and some of the things to which we should be paying attention. Note: Due to the currentness of this subject matter, we are going to be leaning more heavily on speculation than to which we normally allow ourselves. This is intended to provide a helpful framework for which to place your existing financial plan. As the old adage goes: "predictions are hard, especially when they are about the future"
The What Ifs
What if student loan debt is forgiven? What if college becomes free? What is the smart thing to do with my money? What if the water fountains had soda coming out of them?
When it comes to financial planning, it is usually good practice not to overspeculate about future happenings, but rather keep focus on what is important. As great as it would be for us not to have to pay back our student loans and for our kids to have free college, any policies along those lines will likely be very nuanced... because these things always are.
Student Loan Forgiveness
There is a lot of speculation about forgiving a portion of outstanding student loans. The thought behind this is that it would reinvigorate the economy by releasing an entire generation from the crushing life-altering weight of student debt, and bring us back to the table as good consumers.
We get this, we see it first hand, the weight of student loans has an outsized impact on our lives. It pushes back decisions like, marriage, having kids, or taking a new job. But it is important to look at this as it exists in the larger landscape.
From a financial standpoint, the current administration's top priority is to keep the economy going. With payments and interest on student loans already frozen until at least September, relief in this area is unlikely to yield a boost to the economy.
We are more likely to see the focus remain on direct payments to consumers in the form of stimulus payments. And every dollar that goes in this direction will reduce the appetite to tackle student debt in the near term. However, the Biden administration has stated that this is a priority at around the $10k level of forgiveness for eligible borrowers. We are unlikely to see much movement in this space for a while, especially with payments and interest paused.
It is also important to note that forgiving the current student debt does nothing to fix the real underlying issue... College is too damn expensive. We all know it, and if we don't fix it, we will be right back here.
"Free Tuition"
So, what's the plan to fix it? One of the main focuses for this is to make college free, or at least partially free, for students. This would go a long way to getting the cost of a college education under control, but it is important to know that free isn't always free.
Making College tuition free means that students will most likely still be responsible for expenses like room/board, textbooks (one of the few items that has gone up in price faster than tuition), as well as campus and administrative fees. These non-tuition education expenses account for more than half of the cost of a degree from a public four-year college. Not trying to take the wind out of the sails here - reducing the cost of a college education like this would be transformative for our country and the prospects of the next generation.
It is early days for an initiative like this, so there are no details available. But, for a dramatic program like this to fight its way uphill into the world, there are going to have to be some eligibility requirements. Number one requirement here is going to be based on need. The number that keeps popping up is $125k in household yearly income. If this is the number they go with, it means that to be eligible for a program like this your household income would have to be $125k or less. When thinking about this, it is important to project out your expected yearly household income at the time that your child will begin college, which can be difficult to say the least (I have yet to project what my kids are going to eat for dinner). Note: Any program like this will not be applicable to private schools.
The College of the Future
This is by far the most speculative question we are looking at today, so rather than make declarative statements, I am going to share some of the questions we ask ourselves around the Scholar Raise office about the future of college education (we do this a lot, call us nerds, we're cool with it).
Will fees increase?
It's not hard to envision a future where universities will increase fees and other education related expenses to make up for the decrease in tuition based income. Think of the airlines: they fight to have the lowest fares, but when you get there they nickel-and-dime you over things like baggage, legroom, and being treated like a human being.
Will schools consolidate to gain market efficiency?
The pandemic has placed a lot of pressure on universities that have operated essentially unchanged since, well, since ever. How will they innovate here? Will there be a push to continue online classes as a way to increase reach and reduce the per student expense? Will second-tier schools swallow up no longer economically viable third-tier schools in an effort to gain capacity and economies of scale?
How will private schools react?
Will private schools shift their focus to be more competitive with the value offered by public schools, or will they lean in harder on their elite status as a differentiation and justification for the high price tag.
The Future is Bright
We say that a lot here at Scholar Raise, and we believe it. All we have to do is look at the next generation and it becomes impossible to ignore. It's our duty as parents to help provide for that future, and that starts with planning. I know this world has dumped a lot of uncertainty on us as parents, but planning is our superpower. Stay the course and some day these kids will thank us for it! Or at least they'd better.
