One of my hobbies is personal finance and investing. I think it began with my first real job at Dun & Bradstreet where I was trained as a financial analyst. D&B recruited science majors and put them through a rigorous course designed around the very specific way they wanted to train on financial analysis. Our analysis would be integral to the D&B rating used to assess a company’s credit-worthiness. Anyway, I loved it and it laid the groundwork for a financially savvy life.

So I’ll pepper my blog with financial topics now and again. The first is about the cost of higher education, because this is the first real financial challenge most young people face, and many high school seniors are making decisions right now.

(And I need to get a few things off my chest…)

First, I do want to reinforce the obvious point that college is not for everyone and shoehorning your son or daughter into an experience that will likely end in frustration and failure is a tough way to start an independent life. There are plenty of other paths that can be both financially and personally rewarding. Example: I was having car repairs done at a local Firestone store and had to leave my car. The Firestone District Manager offered to drop me off at home as he was headed in my direction to visit another store. On the way, I asked him what his biggest challenge was. He replied quickly, “That’s easy; finding qualified employees to work on cars.” He said that HS graduates can take a one-year mechanics course, then work for a year to be certified and start earning about $50,000 a year. Now, I haven’t verified this but if even close to true, that is not bad at all!  And we currently have shortages in all sorts of trades from electricians to plumbers to welders to carpenters. All enjoy a solid income.

But for many, College is the right choice, and so many of us are dropping the ball. I’m always amazed at parents who leave the college decision to their teenagers. Starkly put: As with all investments, the choice of a college is a financial decision. I understand that little Caitlin has always had her heart set on Ohio State because her uncle had great stories of his time there, or Bobby has always been a fervent Michigan football fan, but one must always weigh the cost of education vs its value. Is a degree from out-of-state Ohio State or Michigan worth $100,000 more than one from in-state Purdue or Indiana University? Probably not. But that’s the simple comparison that needs to be made between any two schools. Maybe the cost difference is worth it, maybe it’s not. Schools like Northwestern or Notre Dame or Cornell, for example, have a certain cache and a robust alumni network dedicated to helping graduates find great jobs. They are MUCH more expensive than most choices, but they might be worth it. I don’t know, but that’s the conversation that must take place.

I just can’t help but shake my head when someone tells me that his son picked an expensive school. “Really?” I would like to ask, “Did he also pick out your house? And by the way, are you sacrificing or delaying your retirement because of these bills? Oh no, he is paying! Nice. So he is being saddled with tens of thousands, maybe hundreds of thousands of dollars of debt that will cripple his lifestyle and budget for the next two decades.”       And, by the way, loans, even ‘low’ interest rate loans, are NOT financial aid. They are debt. Some very smart people have told me that their kid had significant aid, only to find out later that they were talking about LOANS!

Do everything you can to help your student graduate with little or no debt. Research scholarships. There are thousands of them for all sorts of things. There are also accelerated degrees and shaving off a year of school saves thousands and gets them into the workforce quicker. Or think local. A year or two at a local community college may provide a smoother start for many students at significant cost savings. And some places offer great deals at Community Colleges. For example, Chicago public school students who graduate with a B average and a decent SAT or ACT score get free tuition and books at any local Community College. Tennessee has a similar program. And research other pathways. Many of my nieces and nephews have done Co-Op programs where they work full-time in the industry of their major every other semester. Yes, their college years are extended, but they gain great experience and earn almost enough each semester to pay for the next. Brilliant!

Most everyone understands that the single best investment you can make is the percent match of a 401K plan. Free money, right? Well, in my opinion, the very next best investment is a state-sponsored 529 plan. You already know that a 529 plan is a savings plan designed to help people set aside money for college. Money in a 529 plan grows tax-free and earnings are not taxed upon withdrawal for education-based expenses like tuition, books, even room and board. The really great thing though is that most states have specific plans that offer state tax credits or deductions. In Indiana, the College Choice plan offers a state tax credit of 20% of each investment, up to $1,000 a year. That’s a $1,000 tax credit (not tax deduction… tax credit) on a $5,000 investment. An immediate 20% return! There’s also a program called UPROMISE that adds money to your 529 plans when you register your credit cards and use them in qualified stores or restaurants. It’s not a lot, but they’ve contributed about $400 to my kids’ plans over the last 20 years. I wasn’t even trying, so I’ll take it. Illinois has a few options including a Prepaid Tuition Plan (your kid must go to an Illinois school though), and Bright Start 529. Both plans allow a state tax deduction of up to $10,000 per parent per year. Not as generous as Indiana, but considering the tax rate in Illinois, it’s still a good deal. And for heaven’s sake, DO NOT use a financial advisor (grrrrrr) for 529 plans. They offer no value here (although they will tell you that they have access to some funds that others do not…big deal, there are plenty of great choices.) And they take a fee, whether you can see it or not. And since you can invest in virtually any State’s plan, I have seen smart people who use 529 plans that don’t offer the tax credit or deduction. They just didn’t know about this benefit, but now you do. Research your state and open your own plan online. Just be sure you select your state-sponsored plan that offers this great perk.

Ok, I feel better now.

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