Rethinking College

The norm, or conventional wisdom, is that after high school one attends college. Time to ask ourselves why. What is going to college going to accomplish for me? If the answer is I want to be a doctor, a lawyer, an engineer, a rocket scientist, or any other highly specialized field, then a direct route from high school likely makes sense. But if you are in the category of unsure of what you want to be later in life, which is probably most high school graduates and are just looking for additional education, to refine your interests, and hoping to get a “good job” upon graduation, let us look at some other options.

Scenario 1
Willie, who I will refer to as he, since I am eighty years old and have not had gender sensitivity training, is raised in a family that believes in advanced education. In a discussion with his parents during his junior year in high school, they inform him that they have set aside $100,000 for college. They add that they think it is enough to fully fund college if he goes to a state school. Willie says to them that he is not sure he wants to go to college, he has no idea what he wants to do later in life, and that he would like to think about it.

A week goes by, and Willie asks his parents for a follow-up discussion. He relates to them that he has given this a lot of thought and would like to propose an alternative plan. His parents give him that skeptical look that only parents can give but allow him to continue. Willie takes a deep breath and begins, “I will get a job when I finish high school and use some of my earnings to continue my education either through night classes or online programs. You still give me the $100,000 which I will invest and not touch until I have enough money to not have to work.” Now his parents look as if their heads are about to explode. Willie jumps in before they can say anything and says, “Please let me show you what this does for me.”

Here is what he prepared and showed them:

$100,000 invested at Willie’s age 18, earning a net annual return after taxes* of 8.5%, left untouched until age 60 would grow to $3,076,444. If he waited until 70 to start using the money, it would be $6,955,788.

If you were Willie’s parents, would you approve his request?

*In my book I recommend an all-equity portfolio which historically has produced an annualized return of 10% or slightly more. I have reduced the return to allow for taxes.
 
Scenario 2
Suzie has a very similar discussion with her parents except, in Suzie’s case, her parents have not been able to save anything to help pay for college. Suzie has applied to several colleges, filled out all the college aid forms, and has learned that based on her family’s financial situation the cost for college will be $15,000 per year. The college recommends that she can take loans for $10,000 and her parents can also take loans for the remaining $5,000. Suzie lets her parents know that she has no idea what career to pursue and would like to think about it.

A week later, Suzie asks her parents to continue the discussion. She opens their talk with the following, “If I take loans for college, I will have to start paying them back once I start working. It is my understanding that I will have to pay back the loan in 10 years. If I ignore interest and some of the other complications on the pay back rules, and for simplicity’s sake, I am looking at this costing me $4,000 per year from the time I am 22 until I reach 32. If I could invest the money, the $4,000 per year, in a Roth IRA instead, have it grow at 10% average annual return, at 67 I will have $1,970,683. There has got to be a better way than you and I taking on this debt.”

If you were Suzie’s parent, how would you respond to this?
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These situations are not presented to denigrate college or any advanced education but to rethink your approach to how that learning is achieved and when it should occur in your life. From a personal experience, I did college immediately out of high school and then military service. I know that I would have gotten a lot more out of college if I had done those in reverse order.
 
 
 

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