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How do you develop a plan when you don’t know what to plan for? That is the question faced by every family with a child ready to apply for college. But that plan need not be made in a vacuum.

Families are budgeting more carefully than they were even during the 2008 financial crisis. Job losses in 2008 and 2009 totaled 8.5 million. But from March to June of 2020, more than 40 million people were laid off or furloughed. Families are justifiably very concerned about the future. As a consequence, they are holding off on making large purchases and financial commitments.

But you can’t “pause” a child at age 17. They’ve got to maintain an education and growth trajectory towards their future success.

Families that have children in high school are facing an economic double whammy. They’ve got to do the best job they possibly can to prepare their children for the future. However, what is that future going to look like with incredibly unstable labor markets? Corporate bankruptcies are at historic highs while 35% of the labor market is working from home. Almost 65% of recent graduates were employed by the retail, hospitality and food services industries. Those industries have been the hardest hit by the COVID shutdown.

Here is information and tools that will bring clarity and certainty to your clients. This entails getting involved with their college plans to create a detailed budget – a budget that shows exactly how much they’ll need, when they’ll need it, and what the likely return from the education expenditures should be.

The cost components of college must be identified and summed. Tuition is an obvious starting point, but colleges negotiate price. So that is a moving target. The good news (actually, great news) is that they are discounting tuitions more than ever. We have the tuition data that you can plug into your budget. Books, fees, living costs and incidentals can be immense in college, and we have those data points.

The return from those costs (the ROI on college, which far too few people attempt to calculate) is also a part of a comprehensive college financial plan. This involves determining the salary outcome from the specific job that the student is working towards and then deducting taxes and other expenses. We have all of this data baked into our college financial planning program. Your clients will be enormously thankful to see the actual costs that they will face.

Next month, in mid-September, a new college planning season will begin in earnest. Students in their senior year of high school will have a dual focus: getting through 12th grade, while preparing to find a college that meets their expectations and will accept them. A big part of the process in selecting a college should be assessing the cost differentials between the various colleges that are being considered. Typically the family has a very rough idea of what they can spend each year on college. That’s about as far as the “budgeting process” goes. When the acceptance letters start coming in with actual tuition figures (this is referred to as the expected family contribution, or EFC) the budget limits are generally forgotten. Tack on the living expenses and incidental costs, which weren’t budgeted accurately in the first place, and it’s easy to see how families end up spending over $100,000 per child on college. It’s real money and the worst part is that it hasn’t been budgeted properly. The consequence of not budgeting for college is the money reduces the parents’ retirement plan. You can imagine who will hear about that when retirement nears.

Thankfully for families their investment advisor is financially literate. The math in college financial planning is not hard, and the concepts are straightforward. The challenge for the advisor is locating all of the various input costs as well as the expected outcomes that are required, and organizing all of that information into an actionable plan. We have all of those data points and they’re accessible via a single planning program.

The biggest issue in college financial planning is that in far too many situations, the math simply does not work.

Quite literally, the family spends too much on the education, relative to the enhancement of the earnings stream that is generated by the education. In the actuarial work we’ve done for student lenders, we’ve seen hundreds of thousands of kids borrow shocking amounts of money to study a subject that has no obvious employment outcome. Colleges produce 55,000 history graduates each year, yet there are openings for 300 history professors annually. The other 54,700 are working retail and hospitality sector jobs. Approximately 40,000 philosophy degrees are conferred annually. One of our colleagues jokes that there hasn’t been a paid philosophy job in 2,000 years. The Small Business Administration would never fund loan proposals like these, but the Department of Education does, to the detriment of the kid who has never taken an accounting class.

College financial planning is a very high value service for clients.

There is a myth that has been spread regarding college for over 30 years: Any expenditure towards college is worthwhile. That was true until the cost of college began rising at a compounded annual rate of 7% in the late 1980s, while annual wage growth has been approximately 2.5%.

Can a family justify spending $150,000 on a private college education for their child to become an engineer, financial analyst, registered nurse or programmer? Probably. Have the kid study the exact same curriculum at half the price at a public state college and the math works easily. Explain to the family that the child’s future employer does not care what you spent on their education. That future boss is hiring a skill set, not a brand on the diploma. The labor market doesn’t care that your kid went to an expensive college. The manufacturer that recruits 120 new mechanical engineers each year is paying one salary – take it or leave it. Tesla and cutting edge companies recruit from elite colleges, and they pay higher salaries, but this leads to a new line of questioning: Can your child get into Stanford or MIT? And at what cost?

An engineering, nursing or finance degree will lead to a job with a starting salary of approximately $55,000. The mid-career salaries for those majors will be in the $100,000 range. Investing $70,000 in a degree that will lead to $3 million in lifetime earnings is a good business decision. Spending $150,000 on that same degree is a lot harder to justify. And it begs the question – why?

We’re not advising people to avoid college. One of the aspects of college planning we’ll address in this article is the ‘overspend’, due to bad or no budgeting. The family doesn’t find any of this out until after the kid graduates, has a job and is nowhere near being able to pay his bills. What causes this is the lack of knowledge and a financial plan that incorporates future earnings against expenses. A financial advisor can “do the math” and see that many budgets will not work.

The problem of students picking soft majors is pervasive. In 2019, over 900,000 students enrolled in soft majors at four-year colleges.

Everything we’re sharing with you here is information that you should share with your clients. They are not getting the straight story regarding college planning. In fact, there is no “financial aspect” in their college planning. When they meet with a high school counselor, they’re being told that sending their child to college is a great idea. And it probably is. But that counselor is giving that same advice to the parents of a C student. Yet that C student has a 30% probability of graduating – in six years! Every college planning website promotes “borrow and go.” There are the college admissions officers… they’ll tell you that they have history grads from last year who are earning $45,000. Terrific, but what about the other 98% of that graduating class?

Families’ reasons for sending a child to college have changed dramatically over the past decade. Life enrichment and the desire to see their child become a well-rounded person have taken a back seat to college costs and occupational outcomes. Families still very much believe that a college education is necessary to improving the future earnings capacity of their child. However, they are approaching college planning with a much more skeptical attitude than in years prior.

Now, too, because of education inflation, the cost of college for many people is greater than the price of their home. The good news about a home is that you can generally bank on the price going up over time, and you get to live in it. What is the ROI on a college education? You’re funding a future income stream, but do you know how much income will actually come in? And what are the input costs to access that income stream? What is the certainty of that income stream?

As a non-profit that serves over one million families annually with college financial planning data, we know the drill. We created a program that does what families can’t do on their own – it builds a financial plan for college. The College Business Plan takes personalized inputs such the intended career, the college of choice, and other values and it fills in all of the costs to get through the selected college, in four, five, or six years. It generates a pro-forma income statement which shows the income, expenses, and in almost all cases – a loss. And the family then asks you, “What does all of that mean?” You tactfully say, “Let’s sharpen our pencils and consider a few alternatives.” Basically, they had a train wreck ready to leave the station, yet they wouldn’t have known it for another five years unitil the kid graduates.

You spend 20 more minutes running revised scenarios around different colleges and bringing down the living expenses and other ancillary costs. In that time, you’ve brought down the total costs by $50,000. Casually mention, “I think you see that it’s a good idea we’re doing this.” This is the best meeting you’ve ever had with this client.

Dad will ask you, “I would like to bring my son back and have you show him these same numbers.” You’ll have to be the bad guy in that meeting. Clearly, you now have a client for life.

This article has been submitted by Educate To Career (ETC) co-founders, Paul Hill and Michael Havis. ETC is a nonprofit, specializing in providing college planning programs and data to over 1,000,000 families, financial advisors, and campus career centers each year. We are the leading vendor of actuarial analysis of college outcomes data to student lenders. Our charter is to help young people get an affordable education, leading to a real job, with no student debt.