Getting smart about college, Part 1

Steve Merrell |

Paying for college has never been easy for most people, but the challenge has only grown greater over the last several years. According to the U.S. Bureau of Labor Statistics, college tuition now costs more than 13.5 times what it cost when I started college 40 years ago. That’s an annual inflation rate of 6.7 percent compared to the 3.2 percent annual gain in the CPI over the same time period.


But the cost of attending college is much more than tuition. It includes other things like miscellaneous fees and books plus room and board. According to recent estimates by the National Center for Education Statistics, the average cost of a year at a public university is now $25,290 or roughly 40 percent of median household income. A private non-profit university will cost about twice that amount.


Given that college is such a huge investment, it makes sense to invest carefully. If you are going to get the most out of your investment you need to figure out the best tradeoff between the cost of college and the career opportunities it will provide.


The major you select will have a huge impact on your earnings potential. A group of researchers at Georgetown University’s Center on Education and the Workforce looked at the earnings of recent college graduates in 15 different majors. Not surprisingly, graduates with degrees in architecture, engineering, computers, statistics and math had the highest salaries—over $46,000 per year—while those who majored in industrial arts, consumer services, or recreation earned only $27,000. By comparison, those without college degrees earn $22,000. 


The researchers also looked at how majors influenced earnings over the course of a lifetime. They found that the average lifetime earnings of a college graduate is $1 million greater than someone with only a high school diploma. Further to the point, they found that the difference in lifetime earnings between the highest- and lowest-paying college majors is $3.4 million. The moral of the story is clear: be careful when you select your major. It is going to have a huge impact on your life and your future family.


When it comes to paying for college, avoid debt as much as possible. The student loan crisis is a serious national problem. Don’t make it your problem. Over 65% of college seniors who graduated in 2017 had student loan debt. According to the Wall Street Journal, graduating seniors with debt carried an average balance of $37,172. Assuming a 10-year payback at 6 percent interest, those new graduates will have to pay about $400 each month to stay current with their loans.


Some simple math will drive my point home. Let’s assume you graduate with $37,000 in student loans. As a new graduate making $43,000 a year, your after-tax take home pay will be about $36,000. Paying $400 each month for your student loans, will leave $2,600 to pay for rent, groceries, healthcare, transportation, and all the other day-to-day necessities of modern life. What about building an emergency reserve? What about saving for a home or for retirement? Can you see why so many millennials continue to live at home? It’s a matter of basic economics.


Finally, be careful when you shop colleges. The sticker price on the college catalog may not be the price you pay. Some very expensive private schools also have very extensive financial aid available to help defray the cost of attending—if you can get in. On the other hand, some public universities may have lower tuition, but less aid available. In any case, look for every possible source of financial aid, including federal and state grants, scholarships, and institutional aid directly from your college.


So, how do you pay for college without running up a huge student loan balance? Come back next week for Part 2 of Getting Smart About College.




Steven C. Merrell  MBA, CFP®, AIF® is a Partner at Monterey Private Wealth, Inc., an independent wealth management firm in Monterey.   He welcomes questions you may have concerning investments, taxes, retirement, or estate planning.  Send your questions to: Steve Merrell, 2340 Garden Road Suite 202, Monterey, CA  93940 or email them to