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  • Michael Green

You've Worked Hard For Your Money: Back to School Edition

We continue with our Life Stages Series to discuss how investing should differ depending on your situation. We all know that making your money work hard for you means something different to everyone depending on where they are in life. We’ve already explored some issues concerning students in our Graduate article, but wanted to follow up on some further thoughts regarding college students for this Back to School edition!

In this day and age, it’s not unusual for a college student to change his or her major multiple times and take five or more years to actually attain that BS or BA. However, spending more than four years in college is spending a lot more than just what tuition will set you back. According to data from the National Association of Colleges and Employers, extending graduation time by two years can cost up to $300,000. That figure factors in additional interest from student loans, lost wages while not working and lost opportunity to contribute to a retirement plan.

Arguably, the most meaningful long-term impact is lost retirement savings in the future. For someone in their 20s, this is money that could be earning investment returns for as much as 40 years. Students tend to think of the short term-perspective and believe they’ll just be missing out on a couple years of wages. But those two years of salary (which can be upwards of $95,000 if you land a good job), could add up to a whole lot more if you were also doing some savvy investing.

Taking longer to pay student loans (and having higher student loans due to being in school longer) is another issue. Taking longer to pay adds interest expense, which equals lost purchasing power/savings. Too much student debt can also delay other wealth building decisions, like buying a house or investing.

The other meaningful impact of staying in college longer is on parents funding tuition. Parents footing the bill is the primary source of college tuition funding. Because they are nearer to retirement, those extra tuition dollars may be coming at the expense of topping off retirement savings near the end of a working career. It may come down to a choice of funding their children’s extra years in college or retiring when they want (or planned) to.

Careful planning can prevent some or all of the financial downside of funding college. Be proactive about your major and what career you want it to lead to and talk to student advisors and others before you get to the point where you need to declare a major and choose your classes. This will help you graduate on time.

Second, objectively look at college affordability. Evaluate not using student loans or taking on debt at all or determine the least amount you can get away with. Compare your earnings potential to the amount of borrowing you’re considering. Although this is the recent trend, college shouldn’t be a financial burden for years after graduation for students or parents.

If you are returning to college, congratulations! You’ve made a great decision that will hopefully equal a satisfying and lucrative career path. Remember, it’s never to early to start thinking about the future. Put plans in place now to ensure you (or your parents) aren’t struggling to pay for your education for years down the road.

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