529 Calculators Would Better Educate Parents
May 14, 2007
NEW YORK-Future generations are going to be saddled with tremendous college debt if the financial industry doesn't do a better job of talking to families about the importance of saving for their children's higher education, according to panelists at an AllianceBernstein Investments event here last week, "Perspectives on College Savings."
The industry must devise more tools to help parents grasp exactly how much money their children might need for college, said Barbara Tornow, senior adviser to the vice president for enrollment and student affairs at Boston University. Products similar to what are available for people to calculate how much money they will need in retirement would be useful, she said.
"We are swaddling children with debt, and the more we help them reduce debt, the better off they will be," said Paul Donas, a financial adviser with John Hancock Advisors of Boston.
There needs to be a change in philosophy on the importance of saving for college on a national level, Tornow said.
With college tuition rising at an exponential rate, it is becoming more challenging to put children through college. The current cost of a 17-year-old's college education is around $54,882 for a public university and $131,361 for a private school. The projected cost of a five-year-old's undergraduate college education is $98,561 for a public school and $235,905 for a private college, according to Alliance.
Certainly, the financial industry can do more to help. Financial advisers are not talking enough to clients about college savings investments such as 529s. Some advisers view them as small-ticket items that they are not going to make a lot of money off of, said Joseph Hurley, founder and CEO of SavingforCollege.com.
Advisers are creatures of habit and have been selling retirement products and other investments for a long time, but not talking about college savings, he noted.
High-net-worth clients are just as under-educated as middle-income people, Donas noted.
Saving money for college is constantly competing with parents' other priorities, be it going out to dinner or buying plasma TVs, Hurley said. Real-world expenses get in the way, but even if it's only a small amount, money has to be put aside for college, he said.
Each generation is passing on debt to the next, and it is taking longer for post-graduates to pay off college costs. In return, people are delaying saving for retirement and their children's college education, panelists agreed.
"We're forcing kids into a situation where they don't have choices," said Anya Kamenetz, columnist and author of the book "Generation Debt: Why Now is a Terrible Time to be Young." If someone just graduated from college and has a lot of debt, they are not going to start thinking about saving for retirement, she said. "They can't think the way we would like them to think."
Some families are trying to do their best and save for college, and for others, ignorance is bliss-until their child reaches age 18 and faces the reality that their parents don't have the money to send them to college, Hurley said.
The college market is also changing. The federal government and states are not offering as much financial aid and grant money as they did in the past, she said. "We are a credit card generation, and people have the mentality that anything can be paid for over time."
Also, almost every child in America aspires to go to college and colleges haven't anticipated this demand and are not prepared to meet it, Kamenetz said.
This competitive race to get into college, along with increasing wages and technology costs, are all driving up the cost of higher education, Tornow said. With an increase in the nation's college population, colleges and universities are in an arms race to build the best sports facilities, and technology labs to attract students, she explained.
Students' expectations have to change, as well. Why do students need Olympic-size pools and new dorm rooms with their own bathroom, Tornow questioned.
As the number of families not saving for children's college tuition increases, more students are taking out student loans and graduating with debt. Boston University has tripled the amount of student loans in the past five years, Tornow observed.
Students graduating with a large amount of debt not only have monetary challenges, but emotional issues as well. A recent graduate, Debbie Ardemendo, said she took out $73,000 in loans to pay for undergraduate and graduate school and is paying them off at a rate of $150 a month. Ardemendo realizes that she should have only borrowed as much as she needed to cover the price of tuition and not taken out such large loans.
Janeen Sutherland, who graduated with $30,000 in loans, roughly the national average, said she faces a constant battle choosing between paying off loans, knowing you should save for retirement and living paycheck to paycheck.
(c) 2007 Money Management Executive and SourceMedia, Inc. All Rights Reserved.