Other schools aren't far behind. In 2009-2010, the average cost of sending a child to live on campus at a four-year private college topped $35,000, up from $20,000 a year just 14 years ago.
Simple extrapolation produces some scary numbers. A client with an incoming first-year student at a typical private university can look forward to spending around $150,000 before a four-year degree is hanging on the wall. If that child is accepted at a prestigious university, total bills could top $225,000.
If your client has younger children, the situation is even grimmer. Children entering kindergarten this fall can expect to pay 75% more by the time they enroll in college, if pricing trends continue. So the totals might be over $260,000 at the average four-year private university and nearly $400,000 at an elite school. Double or triple those costs for clients with two or three young children.
As college prices spiral, parents find them themselves less prepared than ever to pay for higher education costs. "Many baby boomer parents often have not saved as much as their own parents did," says Laura Levine, executive director of Jump$tart Coalition for Personal Financial Literacy in Washington. Sending kids to college is often a huge financial undertaking, more than clients can handle from current income or dedicated college funds. Many families, including financial planning clients, choose to close the gap the American way: They borrow money needed to pay for higher education.
A report recently issued by the College Board found that 72% of all graduates earning a bachelor's degree at a private not-for-profit university had some student loan debt, as did 62% of public university graduates. Among all the graduates of the Class of 2008 with student loans, 25% had over $30,500 in total debt, while 10% owed more than $44,500.
Those numbers, the College Board points out, are for student loans-money those graduates are obligated to repay. They exclude credit card balances, home equity loans and parents' education debt. In fact, the parents of high-debt bachelor's degree recipients were on average $30,900 in debt from federal Parent Loans for Undergraduate Students (PLUS) loans, according to the report.
The bottom line, then, is that many students graduate college with $30,000, $40,000 or more in outstanding student loans. Parents might borrow $30,000 or more, too.
But borrowing for college can often have unexpected repercussions, both for students and for parents. Unrealistic expectations may force both groups to borrow more than they intended.
Graduates who are unable to land jobs right may have to turn to their parents for help paying off their loan. Parents may forego retirement plan contributions in order to use current income for college bills.
The situation seems dire, but astute financial planners can help clients think twice about borrowing for college. If their children are already nearing college age, challenge them to consider new education models and look at less expensive schools. If their children are younger, hammer home the importance of saving as early as possible. If you initiate detailed discussions about college affordability, your clients will be in a better position to make critical decisions about college funding.
Many people say they recognize the dangers of education debt, but feel they'll have to borrow anyway. "In a poll we conducted last year, 52% of the respondents strongly agreed that those who graduate without any college debt have a big advantage in life," says Raquel Granahan, senior vice president of college savings plans, for OppenheimerFunds. "Even though there is a general acknowledgment that debt is burdensome, 51% of surveyed parents say it's very likely that they or their kids will have to borrow money for college."
Not only may parents or students have to borrow, they may have to borrow more than they expect. "Many parents might have an unrealistic view of how much debt they'll eventually have to take on," Granahan says. "More than half of the surveyed parents think scholarship money will pay for a substantial portion of their kids' college education." Often such grants may not be available, however.
"I think we're seeing a tremendous disconnect between college aspirations and smart financial planning," Granahan says. "Parents recognize how debilitating debt can be, yet they admit that borrowing money is a part of their college saving strategy."
There are other disconnects in college planning as well. Many parents believe an undergraduate degree automatically leads to a high-paying job. "The child might get a good education, but that's no guarantee of a job that will enable the graduate to pay off the debt," Levine says.