April 17, 2020
It is hard to believe that I have been in private practice now for about twenty years. In that time, I have had the fortune to have worked with folks from just about every walk of life. Despite the differences in their backgrounds, they all share some common goals. They all thrist for a financial system to help maintain their economic well-being to and through retirement. Another one is to provide for their loved ones and to create a better future for their families, their children and their children’s children.
Folks, I am no different. You know, I have worked hard, and I am proud to have become a leader in my industry. This has given me the opportunity to take care of my own family and to provide a useful service to my community. Many times, I see parallels in my own life to things my clients are preparing for or currently experiencing. Right now, Jill and I are sharing the journey with some of my clients regarding planning and paying for our kid’s college education.
My oldest Maeve is already attending college and her younger twin sisters, Phoebe and Sophie are right behind. So, when I sit down with folks it’s often very relatable when we are discussing how to address paying for college for their own children. Jill and I have been living that experience ourselves for the last several years. We ourselves have gone over the multitude of options, including 529s, Roth IRAs, and student loans to best address college financing for our own family situation.
Even if you don’t find yourself with college financing at the top of your list of financial planning priorities, it is still an issue with potentially broad implications. More and more frequently we hear about the student loan debt crisis. The amount of student loan debt has exploded in the last twenty years. In February of this year, The Institute for College Access and Success published a paper in conjunction with the University of New Hampshire regarding student loan debt . . . and the numbers are staggering. In the United States student loan debt now tops $1.5 trillion up from $577 billion in 2008. There are almost 45 million Americans with some sort of outstanding student loan debt. Over $100 billion of the loans are in default (more than 360 days past due), which represents over five million borrowers.
Hmmm . . . let’s think about this.
There were three key findings of the study: 1) College affordability and outstanding student debt has become a “top tier issue” in the 2020 presidential campaign; 2) Almost every major candidate has offered a wide ranging plan to address the issue; 3) And, most importantly each of the candidates’ plans have vast differences.
Many today feel that the student loan crisis will be the next financial “bubble” that will hit our economy, akin to the 2008 housing and mortgage crisis. Many of the plans that some candidates are putting forth include some sort of forgiveness of student loans. For many people, this broadens the issue beyond simple economics into moral and ethical issues. Any forgiveness of the loans by the Federal government doesn’t mean the debt simply evaporates, it still has to be accounted for pay the US taxpayer.
Obviously, this is a complex issue that has many facets. One key broad piece is our already growing national debt. Adding student loan forgiveness to the total might not seem the prudent thing to do. In addition, there are many additional underlying issues that need to be addressed. When those of us who experienced college in the last half of the 20th Century are called on to think of student loan debt, many of us think of our own experiences at undergraduates living in the dorm, cramming for exams, and planning our weekend social life. Things have changed. We need to address the root causes that created the problems.
More and more people are pursuing college degrees these days. We forget that many jobs, particularly in the trades, don’t necessarily require four-year degrees. These, too, are admirable pursuits and those jobs serve as part of the vital fabric of our society.
More people are also pursuing advanced or graduate degrees. Unlike undergraduates, graduate students can receive loan money for personal living expenses. This has been part of the marked increase in the amount of loan debt we know have.
The last ten years has seen rapidly rising pay for top end college administrators including university presidents, athletic directors, and top sports coaches. According to a Chronicle for Higher Education study in 2019, increased pay for public university presidents does show a corresponding ability for those presidents to increase funds for their universities.
For-profit colleges have proliferated, and in some cases have become insolvent or even defrauded students. Just recently, Congress, in a rare case of bipartisanship, overturned a Department of Education rule that limited relief for students of for-profit colleges that had been harmed. For-profit colleges account for only 9% of enrollment but make up 34% of student loan defaults.
Most importantly, those of us who went to college in the second half of the 20th Century experienced significantly lower tuition and costs and consequently graduated with much less debt. The overwhelming increases in the price of college means many parents can no longer significantly assist in college financing. The result is that students themselves must foot the brunt of the cost through loans. This cascades out into those students in their 20s and 30s, leaving them ineligible for mortgages and other lending opportunities. We need to look for ways to lower and contain the cost of college, while maintaining the effectiveness of our college and university systems. One of the single biggest factors for public universities and colleges is the dramatic decreases in state funding.
Forgiving all or any part of the current student loan debt won’t serve us well if we don’t address the issues with college financing that have arisen in the last two decades.
Within our own personal financial plans, we need to address how the burden of college funding is going to be shouldered. What percentage of this expense do parents and grandparents feel comfortable contributing? Do we have the right financing vehicles in place, whether they are Roth IRAs, life insurance, 529 plans or some combination of funding options? When we’re choosing the funding vehicles and options, are we accounting for how they might impact the amount of financial aid is available for our specific circumstances? These are all valid questions that we need to address as we prepare our children for life after 12th grade, whatever they may choose.
Look, I get it . . . this virus has us all in a state of flux. A state of fear. This will pass and eventually life will get back to normal. If you have not done so already, take this downtime to build that system. Just like you, Jill and I are trying to help build a foundation for life long success for our children and their potential children. Building a system to help them graduate from college with minimal debt is an integral part of many of our financial and investing plans, with or without a virus.
So as always – be vigilant and stay alert, because you deserve more!
Have a great week. Please be safe out there. We will get through this together.
Jeff Cutter, CPA/PFS is President of Cutter Financial Group, LLC, an SEC Registered Investment Advisor with offices in Falmouth, Duxbury, Mansfield & Southlake, TX. Jeff can be reached at email@example.com.
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