The College Cost Crisis

When advisor Joe Messinger, CFP, speaks about the importance of college funding to financial planning, he mentions his friend Catherine.

Catherine is an educator in a suburban school district outside Columbus, Ohio, not far from Messinger’s firm, Capstone Wealth Partners. “She had an awesome college career, played lacrosse, went to a great private school,” Messinger told advisors at NAPFA’s recent annual conference in Philadelphia. “She got a great job, at a great school district and makes about $48,000 a year.”

The problem is that her student loan balance is $129,000. If she were making loan payments on a typical 10-year payment schedule, he says, she’d be paying about $1,300 a month, but her take-home pay is $2,700. “The math doesn’t work. The student loan crisis for people like this is real,” he comments.

Messinger admits Catherine’s situation is dramatic. She blames her parents for not helping her see how so much student loan debt would impact her financially, and she hasn’t spoken to them in four years. But Messinger describes her case because he wants to impress upon financial planners the importance of talking about college funding early, even if that means having some uncomfortable conversations with clients. Not enough advisors talk about college planning with clients, he adds.

That also means that advisors need to get educated on college funding. “The CFP curriculum has about two pages on how financial aid works. When the curriculum was developed, college costs weren’t such a burden,” says Messinger, whose firm has an arm, Capstone College Partners, that offers resources, training and college funding software for financial advisors.

Yet right now, for Gen Xers, their No. 1 concern is how to pay for college for their kids, Messinger says, and it’s often the trigger for why they come to see a planner. Most advisor clients envision their children going to a four-year traditional university; they look at it as a lifetime investment so their children will have a great career, he adds.

The total costs for a college education at four-year schools now range from about $100,000 to $300,000, Messinger notes. “So if we are talking about three to four kids, we’re taking about a half a million to a million-dollar investment. So as advisors, what other three-, four- or five-hundred thousand dollar investment are we not advising on for our clients?”

Student loans are a huge and growing problem, he says, and reached $1.52 trillion in September, increasing more than 500% in the last 10 years. Seven out of 10 graduates will have student loans, and on average they are graduating with debt of $37,000 each, Messinger says. On a 10-year payment schedule, students pay roughly $100 a month for every $10,000 in loans, he says.

The reality is that more than 44 million people now have student loans and many are having trouble paying them off. The loans are not forgiven in bankruptcies, so lenders make lots of money available for them because they are lower risk compared with other loans, Messinger says.