Sorry Junior, You're On Your Own Now

By Bryan O'Keefe

The Pittsburgh Post-Gazette (which is turning into CCAP’s new favorite newspaper) has an interesting and disturbing story this morning about college costs. The gist of the piece is that a new study has found that most parents are not going to be able to help their children pay for college. 27 percent of the respondents have saved zero for college and another 27 percent have saved less than $5,000. The story points out that this paltry sum wouldn’t even be enough to foot the bill at small schools in the Keystone state like Slippery Rock or Indiana University of PA.

The survey’s findings are brutal but yet true. I think the real problem is that many baby boomers went to college when higher education was more reasonably priced. They took out modest loans, paid them back in 5 years or so, and have not given higher education much thought. The reality is that even at a state school like Indiana Univ. of PA college tuition – and when you add in the room, board, books, etc. – is going to run close to $30,000 for four years. If you go to the elite fancy pants school, it could cost triple that.

529 savings plans are a definite step in the right direction and more parents should be opening these and contributing to them. It’s probably cliché to say this, but if parents opened the 529 when Junior was born and then contributed $100 a paycheck or something close to that, the money would really pile up by the time Junior was ready to leave the nest.

While this sounds terrific in theory, there are two practical problems. First, Americans, on the whole, are saving less and less these days and that $100 commitment might just be too much in their own minds. People have a tendency now more than ever before to “live for today” and while I suppose that carpe diem attitude is great if we are talking about skydiving, it often times is not the best fiscal advice.

The second disadvantage though is that the schools themselves give parents very little incentive to save. If you have saved a modest amount of money – perhaps not enough to afford full tuition but yet enough to make a dent in it – then there is a very good chance that your Junior will not qualify for much of anything in the financial aid department. Irresponsible parents can indirectly be rewarded (this does not mean that the truly and profoundly poor should be punished; what we are talking about are people who make decent enough salaries but have just refused to save anything for their children’s education).

So because of these incentives – good and bad – and behavior – mostly bad – we have a situation where fewer parents can now help their children with their college bills. As a result, more students take out unreasonably high debt loads. But, then, again, what is new in the world of higher ed?