Is the Cost of Education Mortgaging Our Future?
Quite likely, the second-largest expense many of us encounter in our lifetime is the cost of college education for our children. Costs have grown to the point where the concept of a “traditional” four-year college degree is being questioned by influential people inside and outside of academia.
Dec 10, 2014, 11:31 AM
By Guest Blogger Christopher C. Humes, CPA
When I set out to write this blog, my original thought was to discuss the high costs of college education and what parents need to consider in funding this burden while trying to simultaneously fund retirement accounts and pay for annual double-digit increases in health care costs. I had planned to discuss the use of various 529 plans out there that can help with education savings, but instead I will tell you that information exists in many other places, such as www.savingforcollege.com. The PICPA website also has a comprehensive financial planning resource article written by Douglas Hepburn.
I got sidetracked along the way by potentially bigger systemic issues. Society at large is getting financially squeezed in such a manner that may have profound effects on how we as a society, and individually, will function and either prosper (or fail) financially in the future. The familiar model may be changing drastically in the coming decades due to changing demographics, spiraling costs, the Internet, and more middle-class people being priced out of the traditional college education model.
CNN recently aired Ivory Tower, a documentary film by Andrew Rossi. It’s a real eye-opener that explores how we got to where we are. Areas addressed include competition among colleges trying to go “up the ladder” through capital improvements such as luxury student housing, dining and recreation facilities with vacation resort type amenities, and expensive research labs. All of this ultimately result in a bigger price tag, without necessarily leading to better learning outcomes. The film provides excellent historical information of higher education in the United States, the role of government funding in recent history, and potential changes in the delivery model. The theme that struck me is that the business model for higher education at some colleges has moved from “Institutions of Higher Education” to “Institutions of Expensive Edutainment.”
Quite likely, the second-largest expense many of us encounter in our lifetime is the cost of college education for our children. If you have several children and one or more attends a private college or pursues an advanced degree, the price tag may exceed what you paid for your home! Costs have grown to the point where the concept of a “traditional” four-year college degree is being questioned by influential people inside and outside of academia. At a minimum, every parent and child need to have frank discussions about college choices, career choices, and who pays for what in funding post-secondary education.
According to Bloomberg, college tuition and fees have increased an eye-popping 1,120 percent since records began in 1978 (almost twice the 601 percent rate of medical expense inflation). At the same time, government’s contribution to state-supported higher education in the United States has decreased by 40 percent. I graduated from Penn State in December 1988 after attending part-time for five years and full-time for two years, paying my own way. In seven years, the cost per credit hour increased from $60 to $150. Full-time tuition increased from $3,610 in the 1988-1989 academic year to $17,076 for incoming freshmen attending the University Park campus. Add in books, a shared dorm room, and a campus meal plan, you’re now looking at about $28,000 … for one year!
For years, the cost model for colleges was easy for most: as the demand for higher education increased with a greater percentage of high school students attending college each year, they would follow the basic supply/demand equation from Economics 101 and simply pass along the increased costs for the in-demand service. Along the way, competition for students began, resulting in more and bigger “everything” to attract students. For the students, however, the basic Accounting 101 equation that debits and credits must equal hasn’t changed. The credit part of this equation is a frightening ticking time bomb: more than $1 trillion in student loan debt on students’ and parents’ personal balance sheets.
Current statistics indicate that college graduates earn more than twice as much in their career as their high school graduate counterparts. Will this always be true? Hopefully your child receives an education that provides him or her with the financial means to pay off their debt, fund retirement, pay for health care, buy a house, and find a way to set aside money to help fund their children’s education costs.
Space in this forum doesn’t permit taking a deeper look into all of the issues. A recent AICPA survey found that 75 percent of respondents said they or their children have made personal or financial sacrifices because of monthly student loan payments. Only 39 percent said they fully understood the burden student loan debt would place on the future, and 60 percent now have at least some regret over their choice of education funding. Against this bleak financial landscape, we as financial professionals need to be sure our clients, their children, and our society understand basic money management principles. The financial stakes are huge.
Christopher C. Humes, CPA, is a senior tax manager in the tax department at SF&Company. He has over 20 years of experience serving closely held businesses and individuals as a trusted business and personal tax adviser. His specialties include pass-through entity tax compliance and planning, individual tax compliance and planning, and compiled and reviewed financial statement services. He is a PICPA member and serves on the CPA Image Enhancement Committee.
When I set out to write this blog, my original thought was to discuss the high costs of college education and what parents need to consider in funding this burden while trying to simultaneously fund retirement accounts and pay for annual double-digit increases in health care costs. I had planned to discuss the use of various 529 plans out there that can help with education savings, but instead I will tell you that information exists in many other places, such as www.savingforcollege.com. The PICPA website also has a comprehensive financial planning resource article written by Douglas Hepburn.I got sidetracked along the way by potentially bigger systemic issues. Society at large is getting financially squeezed in such a manner that may have profound effects on how we as a society, and individually, will function and either prosper (or fail) financially in the future. The familiar model may be changing drastically in the coming decades due to changing demographics, spiraling costs, the Internet, and more middle-class people being priced out of the traditional college education model.
CNN recently aired Ivory Tower, a documentary film by Andrew Rossi. It’s a real eye-opener that explores how we got to where we are. Areas addressed include competition among colleges trying to go “up the ladder” through capital improvements such as luxury student housing, dining and recreation facilities with vacation resort type amenities, and expensive research labs. All of this ultimately result in a bigger price tag, without necessarily leading to better learning outcomes. The film provides excellent historical information of higher education in the United States, the role of government funding in recent history, and potential changes in the delivery model. The theme that struck me is that the business model for higher education at some colleges has moved from “Institutions of Higher Education” to “Institutions of Expensive Edutainment.”
Quite likely, the second-largest expense many of us encounter in our lifetime is the cost of college education for our children. If you have several children and one or more attends a private college or pursues an advanced degree, the price tag may exceed what you paid for your home! Costs have grown to the point where the concept of a “traditional” four-year college degree is being questioned by influential people inside and outside of academia. At a minimum, every parent and child need to have frank discussions about college choices, career choices, and who pays for what in funding post-secondary education.
According to Bloomberg, college tuition and fees have increased an eye-popping 1,120 percent since records began in 1978 (almost twice the 601 percent rate of medical expense inflation). At the same time, government’s contribution to state-supported higher education in the United States has decreased by 40 percent. I graduated from Penn State in December 1988 after attending part-time for five years and full-time for two years, paying my own way. In seven years, the cost per credit hour increased from $60 to $150. Full-time tuition increased from $3,610 in the 1988-1989 academic year to $17,076 for incoming freshmen attending the University Park campus. Add in books, a shared dorm room, and a campus meal plan, you’re now looking at about $28,000 … for one year!
For years, the cost model for colleges was easy for most: as the demand for higher education increased with a greater percentage of high school students attending college each year, they would follow the basic supply/demand equation from Economics 101 and simply pass along the increased costs for the in-demand service. Along the way, competition for students began, resulting in more and bigger “everything” to attract students. For the students, however, the basic Accounting 101 equation that debits and credits must equal hasn’t changed. The credit part of this equation is a frightening ticking time bomb: more than $1 trillion in student loan debt on students’ and parents’ personal balance sheets.
Current statistics indicate that college graduates earn more than twice as much in their career as their high school graduate counterparts. Will this always be true? Hopefully your child receives an education that provides him or her with the financial means to pay off their debt, fund retirement, pay for health care, buy a house, and find a way to set aside money to help fund their children’s education costs.
Space in this forum doesn’t permit taking a deeper look into all of the issues. A recent AICPA survey found that 75 percent of respondents said they or their children have made personal or financial sacrifices because of monthly student loan payments. Only 39 percent said they fully understood the burden student loan debt would place on the future, and 60 percent now have at least some regret over their choice of education funding. Against this bleak financial landscape, we as financial professionals need to be sure our clients, their children, and our society understand basic money management principles. The financial stakes are huge.
Christopher C. Humes, CPA, is a senior tax manager in the tax department at SF&Company. He has over 20 years of experience serving closely held businesses and individuals as a trusted business and personal tax adviser. His specialties include pass-through entity tax compliance and planning, individual tax compliance and planning, and compiled and reviewed financial statement services. He is a PICPA member and serves on the CPA Image Enhancement Committee.
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Statements of fact and opinion are the authors’ responsibility alone and do not imply an opinion on the part of PICPA officers or members. The information contained in herein does not constitute accounting, legal, or professional advice. For professional advice, please engage or consult a qualified professional.
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