Most parents are willing to make big sacrifices for their kids. With college being so expensive, it is not surprising to see parents looking for help when their kids want to go to college. Ultimately, parents must wrestle with questions such as, should my kid go to college? Is college worth it? And what does the college expense mean to my plans for financial freedom? – College vs Financial Freedom
Each person’s situation will present different challenges. Below, I share how I have processed these questions and my conclusions. In doing so, I hope this will help some parents and kids struggling with this topic.
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Should my Kid go to College?
My Kid Wants to Go to College
17 years ago I was holding my little princess in my arms for the first time. Yet, I was overwhelmed by the immense love I felt for her. In my heart, I knew I would do anything for this beautiful gift God had entrusted me with. Today my love for her has only grown. As any other parent, I only want what is best for her.
And what’s best for her is for her to go to college. At least that’s what everyone says. Although that’s what I grew up believing, I must pause for a moment to truly ponder this. And when I consider all of the factors, I can’t ignore the cost of a college education and what its impact will be to my financial freedom.
Why College?
The first question that comes to mind is, why college? There are plenty of studies showing that those with college degrees earn more than those with only a high school degree. And when you consider the lifetime impact of higher earnings, choosing a college education seems to be a smarter choice.
But a higher salary is only one of many benefits of getting a college education. This is because we live in a society where having a college degree can easily dictate a person’s social class (i.e. education, culture, social status, etc).
According to sociologist William Thompson, our position in the social hierarchy affects our health, our happiness, and even how long we will live. I think most will agree this resonates as true.
The fact is most people in the working and lower classes are blue collar workers, without a college degree. And most people in the lower middle class and above are white collar workers, with a college degree. See also What Determines How Americans Perceive Their Social Class?
Should we care about a person’s social class? I prefer to say we should not. After all, finding personal fulfillment through our work is probably more important. And there are plenty of people that would be much happier doing manual labor than dealing with the politics of office work.
The truth is, most of us do care about social classes. If nothing else, most of us would like the opportunity to choose what social class to be in, rather than have no choice in the matter.
The Cultural Element of Having a College Degree
I am an immigrant. I come from a third world country where having an education is the difference between living in poverty or not. In such countries, everyone dreams of having a college degree.
This may explain why I never thought of having a college education as a choice. I knew from a very young age that I needed to go to college. Simply, this is what my culture taught me.
When I immigrated to the US, I was surprised to learn that the American culture has different expectations when it comes to college. Not everyone in the US sees college as an absolute necessity. But I can understand their reasoning. After all, having a college education in the US is not as critical to overcoming poverty as it is in other countries.
The point I am trying to make, is that a person’s culture can have significant influence in their decision on whether or not to pursue a college education. Many immigrants will move heaven and earth to give their kids the opportunity to go to college, because that’s what they learned was important in their countries. On the other hand, the average American may not share the same views on college education.
Is A College Education Necessary?
Is a college education necessary today? I would say not. There are plenty examples of people that have become extremely successful without having obtained a college degree. In fact, I would argue that high achieving individuals can be hugely successful simply by learning about business, real estate, and other practical disciplines that don’t require a college education. See 45 Ways You Can Find Success Without a Degree
I used the words ‘high-achieving’ above, but you could easily substitute this for ‘driven’, ‘savvy’, ‘hard working’, ‘disciplined’, etc. I bring this up because it could be argued that obtaining a college degree requires a certain degree of commitment, discipline, etc.
And this is precisely what a college degree ‘signals’ to potential employers. Employers don’t necessarily hire college graduates because of their knowledge. Rather, they hire them because having a degree signals that these graduates have the intelligence, discipline, and general fitness to join the team.
The Skills I Use at Work Are the Skills I Learned at Work – Not in College
Take me as an example. I have a Bachelor of Science degree in Engineering, with a minor in Business Administration. In college I studied high level math (calculus, differential equations), statistics, statics and dynamics, structural design, fluid dynamics, etc.
Do you know how often I use the things I learned at college in my profession? Almost never! Instead, at work I use the skills I learned at work.
In fact, to prepare me for work, it would have been better to allow me to start working. The problem is no one would have hired me as an engineer if it wasn’t for that piece of paper that says I am an engineer.
And that my friends, is the problem. Apparently, I have the intelligence, discipline, and general fitness to be part of the team. But how would my employer have known that if it wasn’t for that piece of paper that signals I have those qualities?
Who Should Go to College And Who Shouldn’t?
In my mind, not everyone should go to college. This led me to the question of who should go to college and who should not. This is a very touchy subject. Please understand I am not attempting to tell anyone what to do. Rather, this is merely one of the ways I am trying to rationalize things, for my own purposes. I do believe there are some families that will struggle less with the question of whether or not their kids should go to college. Below is one way I’ve rationalized things.
Students in Upper Class Families
Families that have no problem affording college have little to lose by sending their kids to college. This is probably true even if these students aren’t strong in academics. These families are likely concerned with the social status part of the equation. As such, these families will strive to send their kids to reputable colleges, even if that means a higher sticker price.
Families with Very Smart Students
The educational system in the US provides many opportunities for very smart students, regardless of their economic status. In my opinion, those families with very smart kids should be looking at every opportunity to provide their kids with a college education. This assumes of course these kids want to pursue a college education.
Driven Students in Lower Income Families
The educational system in the US also provides many opportunities for students in lower income families. Therefore, driven and ambitious students in these families should also look for every opportunity to obtain a college education. However, this may be a very difficult proposition for some families. Often responsible kids in these families, are important contributors to their family units.
Average Students in Middle Class Families
This is where things get very difficult for me. This is because depending on their economic status, these families may struggle financially to send their kids to college. And this is where I believe parents and students need to evaluate things in a logical manner and try to get away from the romantic idea of college. So, I would just punt on answering this question for now.
Is College Worth It?
There are many ways to look at this question. The video below is a great video on the subject and is worth viewing, but still doesn’t answer the question of is college worth it.
In my opinion the answer to this question depends to a great extent on the economic status of each family. I would say college is worth it to wealthy families, because the cost of college isn’t a big deal for these families. And college could very well be worth it to smart students and students in poorer families, because in an ideal situation, these students don’t pay much for college.
The question of whether college is worth it is most important for average students in middle class families. And to answer this question I would like to look at this question from the perspective of college as an investment.
College as an Investment
Others have attempted to answer this question by determining the return on investment (ROI) of investing in a college education and comparing it to other forms of investing (i.e. investing in the stock market). This is a reasonable approach, although it assumes a family has thousands of dollars available to invest.
Misleading Information
When I was researching the subject of evaluating college as an investment, I came across some very troubling information. Indeed, several online sites claim that the return on investment (ROI) of a college education is between 14% and 15%. These sources are quick to compare this ROI to investing in the stock market, presumed to provide a ROI between 5% and 7%. Obviously, these sources conclude that investing in college results in a better ROI.
The Hamilton Project’s Deceitful Information
Most of these misleading resources utilize the same logic presented in a document published by The Hamilton Project in 2011. See Where is the Best Place to Invest $102,000 – In Stocks, Bonds, or a College Degree.
In this study, the Hamilton Project sets up a scenario as follows:
“Imagine that you sit down your 18-year old daughter and offer her $102,000 to either pay for college or to invest elsewhere. If she chooses to invest in college, she will have the job opportunities and earnings of a college graduate for the remainder of her working years (until she is 65). If she chooses the latter, she’ll face the job prospects and earning power of a high school graduate.”
What the Hamilton Project fails to account for is the fact that investing money in the stock market is a passive investment. Simply, when you invest in the stock market you buy a stock or stocks and do nothing for months or years until you decide to sell it. And when you sell it, presumably you sell the stock for a gain. This is a passive investment.
A college investment is the opposite of passive. Neither parent nor student simply put a $102,000 investment into college and then sit back to see their money grow at a 15.2% return. Instead, the student must work a full-time job, until retirement.
In order to make a fair comparison, the student that doesn’t go to college must invest the $102,000 and needs to also work a full-time job.
I use the word deceitful here because the individuals publishing these types of document are professionals. They didn’t just make a mistake. They know exactly what they are doing. I speculate this is the type of organization whose members benefit financially or politically from higher educational budgets.
College as an Investment vs Cash in the Stock Market and a Job
According to educationdata.org, the average cost of a 4-year degree is approximately $122,000. This website also notes that 60% of undergraduate students take 6 years to complete a 4-year degree! 6 years would make the approximate cost of college $183,000!
For this exercise, let’s use 5 years of college at a cost of $150,000.
Now, let’s setup two different scenarios.
Emma takes the $150,000 and invests it in the stock market and earns 5% annually. In addition, because investing in the stock market is a passive investment, she is able to work a full-time job. Let’s assume her income is $34,900 per year.
Chloe on the other hand, takes the $150,000 to pay for college. She obtains a degree and gets a full time job. Because she has a degree she earns more than Emma. Lets say her income is $54,700 per year. (See National Center for Education Statistics).
As you can see in the image below, Emma’s combined earnings (stocks and job income) are higher than those of Chloe. In fact, at age 65 Emma has $1,415,139 worth of stock. This allows her to make just over $70,000 a year in passive income alone, assuming a 5% return on stocks.
I personally would not invest $150,000 in the stock market. Instead, I would invest in real estate. There are many reasons for that, but one reason is leverage. With $150,000 I can purchase a $500,000 investment property and earn more than 5% on this investment. I’ll have to run the numbers in a different article, but investing income real estate would make things significantly better for Emma.
College as an Investment vs Cash in the Stock Market – Reality Check
Now, let’s assume that Chloe is able to obtain some college financial assistance. The chart below shows the same two scenarios but utilizes $61,000 as college cost for Chloe, and $61,000 as investment for Emma, instead of $150,000.
This revised numbers show Chloe is better off in terms of total earnings. But keep in mind that at age 65 Chloe has $575,490 in stocks. This allows her to make roughly $29,000 a year in passive income alone, assuming a 5% return on stocks.
The reality is not many middle-class families have $61,000 available to invest either in college or in the stock market. Instead, these families will likely be going into debt, if they chose college.
The bottom line is that when evaluated as an investment, college is not the great investment many claim it to be.
Is College Worth Going into Debt?
There are so many factors to consider in order to answer this question. One factor we have not discussed is the type of college major. After doing some research for this article I’ve come to recognize that certain degrees are likely not worth going into debt for. For example, degrees in arts, anthropology, archeology, social studies, history, etc. don’t necessarily translate well into higher incomes.
And another thing to consider is the idea of pursuing a vocational major instead of a 4-year college degree. This includes majors such as auto mechanic, cosmetology, HVAC technician, etc. These vocational majors normally take less than two years to complete and they can still translate into higher income opportunities. Going into debt for a vocational major makes more sense than going into debt for a 4-year college degree.
So, what’s the answer? Is college worth going into debt? After considering things from various angles I am compelled to go back to the issue of culture. I was raised to believe college was indispensable and that parents must do everything possible to help their kids go to college. Thus, from this perspective I feel inclined to send my kids to college even if it means going into debt.
Creative Ways to Reduce the Financial Burden of a College Education
On the other hand, my culture also taught me to be entrepreneurial. So even if I have to go into debt to send my kid to college, I would also be looking for creative ways to reduce the financial burden. This can mean many things. Below are some ideas.
- Strive for high SAT and ACT scores. Most scholarships take into consideration SAT or ACT scores. I would be happy to spend a few hundred dollars to have my kid take preparatory classes in order to increase our chances of having higher scores.
- Utilizing 529 college savings plans. My wife and I started putting money into 529 college savings accounts when our kids were very young. A little money each month has gone a long way, thanks to the power of compound interest.
- Private scholarships. There are thousands of private scholarships around. The tough part is finding the right fit. I believe that with a little knowledge and effort, parents and students can find additional financial assistance.
- Earning income while in college. Colleges provide many opportunities for students to earn money. When I went to college, I was a resident assistant at one of the residence halls. My compensation was free room and board. In addition, I was able to work at the office a few hours a week. Better yet, keen students can find work related to their field of study. In addition to earning income, these students will improve their skills and are likely to have more networking opportunities in their fields.
- Summer internships. There are thousands of companies that offer well paying Summer internships to college students. This is a great win-win approach for employers and students.
- Maximizing Aid Eligibility. One of the steps we had to take to obtain financial aid is filling out a FAFSA (Free Application for Federal Student Aid) form. Interestingly, there are different strategies parents and students can use to maximize their eligibility.
Other Benefits of Going to College
Besides the potential for higher earnings, there are other benefits most students gain from going to college. One of these is simply the college experience. For me, living in a small college town along thousands of other students with similar interests made this a fun experience. I didn’t care much for excellent grades. I cared more about having a good experience. My wife on the other hand, didn’t have the best college experience. She became homesick and ended up switching schools to be close to family.
Another benefit of college is the networking and making connections. It never ceases to amaze me how often I learn of individuals that ended up becoming successful as a result of the relationships and connections they formed in college. Times are changing though, and with multiple other means of connecting, perhaps college networking is not as much of a benefit as it used to be.
One other benefit my wife and I have discovered and are grateful for, is the fact that attending college can be a good way for many kids to transition into adulthood. As of today, it is difficult for me to imagine my daughter being an independent adult. However, it isn’t as hard for me to imagine her attending college away from us.
College vs Financial Freedom
What About My Financial Freedom?
There are two main schools of thoughts I can relate to. The first one is, it isn’t the parent’s responsibility to pay for their kids to go to college. This is a great way to simplify a complex issue and to force kids to take ownership of their future. In addition, this school of thought allows the parents to continue to pursue their own financial freedom. And if the parents become extremely successful in their financial pursuits, they can always choose to help in some way (i.e. paying school loans).
The second school of thought is, parents will do whatever they can to help their kids have better opportunities. This is perhaps one of those cultural things. Families in this school of thought are often the types of families where the kids take care of the parents when the parents are old. In this situation, parents will likely forfeit their dreams of financial freedom.
My parents are of the second school of thought. They sacrificed their financial freedom to give their kids an opportunity to go to college. In return, I’ve paid for some of my brother’s college expenses and will always make sure my parents have no financial needs.
What About My Kid’s Financial Freedom?
When preparing for this article I read the book ‘The case against education – Why the education system is a waste of time and money’ by Bryan Caplan. The book’s title says it all.
One of the things I got from this book is the concept of signaling, which I touched on earlier in this article. The proponents of signaling argue that colleges don’t really teach the skills students will need when they join the work force. Instead, colleges signal to potential employers which students have the intelligence, commitment, and general fitness to be part of the team.
This potentially means our school system is not about teaching skills, but about differentiating between students. In the end those students that have the right characteristics are the ones that will go on to have better paying jobs.
If this is true, could it also be true that those individuals with the right characteristics could bypass college and earn a good living on their own? I would like to think that’s true.
In fact, I believe the US educational system would be well served by teaching our kids more practical things such as how to balance a check book, budgeting, investing in real estate, etc.
Personally, I’d want every high school in the US to make it mandatory to for kids to read the book ‘Rich Dad Poor Dad’ by Robert Kiyosaki. I’ve made my kids listen to some of this in audiobook when we are in the car. I feel strongly that the things kids can learn in this and other similar books can make a huge difference in their lives.
What does this have to do with financial freedom? Everything! Kids can go to college and end up with a good employer and earning a good income. And yet they may live pay check to pay check like the vast majority of Americans. Alternatively, kids can skip college and perhaps pursue a career in real estate just to learn the business. Then at some point they can invest in income real estate and end up becoming more successful than if they had gone to college.
If you want your kid to experience financial freedom, then sending her to college could actually be counterproductive. College is likely to condition her to a 9 to 5 way of living.
This is What I Decided
I pretty much knew I would send my kid to college. But I will also take every opportunity to teach her to pursue financial freedom through saving, growing her money, and investing. Perhaps for this reason, I still chose to ask myself should my kid go to college? Is college worth it? And what does the college expense mean to my plans for financial freedom?
Now it is my turn to decide what school of thought to follow. However, I am in a much better position than the average American for various reasons. I don’t mean to boast, but I feel that sharing some of these things may help others make an informed decision.
- I am in a financial position where I can pay for most of my kid’s college education and still pursue financial freedom. If nothing else, I am up for the challenge.
- My wife and I began putting money into 529 accounts when our kids were young.
- I have small business investments (real estate) that provide tremendous advantages. One huge advantage is that these small businesses are not counted as assets in FAFSA calculations. Another significant advantage is that the depreciation nature of these investments reduces my taxable income.
- My daughter has a GPA of 4.0 and her SAT score is 1430. She would be getting plenty of financial assistance if it weren’t for the fact that I have good income. More importantly, I believe she has the dedication to complete college and be a good employee.
- My daughter intends to pursue a degree in engineering, which makes it more likely to be worth the college expense than if she were to pursue a degree in philosophy or something similar.
Moving Forward
I hope you found something of value in this article. If you did, perhaps you’d consider sharing in the comments below or sharing this article in your favorite social media platform.
If you’d like to learn more about financial freedom, I’d like to recommend the article titled ‘The Bridge to Financial Freedom.’
Finally, please keep in mind I am not a financial advisor. What I am sharing above is simply from my own experience. You should consider discussing important financial decisions with a professional.
May God shine his face upon you.
JC Keen
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