Guest post by Josh Wolberg: How can you afford college?

November 1st, 2011

I grew up in a small town in rural Western South Dakota (that is to say – the dry part of the state marked by rolling hills, cattle ranches and antelope; not the wetter Eastern part with flat corn fields and pheasants galore that most Minnesotans envision when the state is mentioned).  Although the youngest of five boys, I am really more like an only child as my “youngest” brother is 8 years older than me and was the only child left in the house by age 9.

My parents divorced when I was 13 and I was raised by my mother to dream about getting out of that small town someday to make the most of my talents.  We both knew that higher education was the key to my exodus which led me to attend South Dakota State University in Brookings upon graduating high school.

SDSU was known as a great value in education and was selected by U.S. News and World Report as the best value in college education 2 of the 4 years I attended the institution.  Between working part-time during the school year, full-time in the summers, financial aid and student loans I was able to get a great education at a reasonable price.

When I started college in 1995 the estimated in-state annual cost of attendance was around $4,900 for tuition, fees, room, board, books, and supplies.  By 2011 the number has increased to $18,493, a staggering 8.7% annual growth rate.  In 2001, I continued my education at the Carlson School of Management at the University of Minnesota –Twin Cities.  Tuition per credit at Carlson was $475 my first semester in 2001 and has risen to $1,090 by Fall 2010, an even higher growth rate of 9.7% (Carlson hasn’t posted their 2011-2012 tuition rates yet due to the state shutdown).

Unfortunately, this trend is happening throughout higher education and it is having disastrous effects on family finances.  The median number of years college students attend undergraduate studies has grown to over 5 years.  Consider if parents want to fully fund a 5 year college education for a 5 year old attending a public college costing $20K per year today would take a monthly investment of $836 assuming the costs are only growing at 6% (lower than the most recent 10 years) and the investments returned 7% (higher than the most recent 10 years).  Factor in 2 or more children attending college and for many families it is like having a second mortgage.  If the kids plan on attending private universities, it is a good rule of thumb to at least double, if not triple, these numbers.

I have been a financial advisor for over 4 years and can speak with experience that this issue weighs heavily on the minds of parents.  After calculating the monthly savings needed to fund their children’s educations they say something to the effect: “I can’t afford that, aren’t we going to get some financial aid?”  That question gnawed at me, my own professional success was due, in part, to accessibility to higher education.  With costs exploding the way they are, the math that enabled me to pay for my own education with no prior savings no longer works.

For the better part of a year I studied the college financial aid system to understand the complexity and how aid eligibility is determined and how aid is allocated at various institutions.  What I found shocked me.  The financial aid process is similar to tax planning with finite formulas for determining things like “Expected Family Contribution” and “Remaining Need”.  The most surprising thing was that almost nobody outside of aid officers knows how the system works.  Unlike tax planning, there isn’t a large group of knowledgeable and objective tax professionals to help.  Many of the ways families are saving for college actually decreases the amount of aid they will receive.

This lack of knowledge can literally costs families thousands of dollars per year in college costs.  The aid officers themselves have no incentive to show families how to get more aid as much of the aid comes directly out of the endowment of the institution that employs them (talk about a conflict of interest).

When I shared the details of the college financial aid system as well as some strategies to decrease the cost of college, the Walkers suggested I share the information.  Unfortunately, the need is great and few know that a potential solution even exists.

I spend much of my time nowadays educating parents of college-bound students on the financial aid system and helping them build strategies to save ON the cost of college instead of just for college.  Parents do not have to leave their current advisor to receive an in-depth college plan as my business model allows me to charge hourly for specific planning services.  To learn more about the college financial aid system, your best resources are my website www.CollegeBuyersGuide.com or meet me for coffee.

Josh Wolberg, MBA, CFP®, CRPC®
Direct: 763-231-7581