The Growing Cost Of A College Education – Episode 024

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[00:01] Welcome to the Prosperity Podcast, fresh, alternative personal finance talk for independent thinkers who prosper outside of Wall Street. Here’s your hosts, bestselling author, Kim D.H. Butler and No BS Money Guy, Todd Strobel. Hey everybody, welcome to another edition of the Prosperity Podcast. This is No BS Money Guy, Todd Strobel. Once again, we are fortunate enough to have our resident financial expert and bestselling financial author, Kim Butler, in the house with us. Welcome Kim. Thank you, Todd. Happy to be here today and I’m looking forward to our discussion about an article that my husband, Todd Langford, found that is amazing around the cost of education. We all know that college costs in particular are going higher and higher and higher,

[00:49] but now we have a little bit of reason why and we’re going to talk today about what families can do around the college cost arena and take that whole education funding environment through the seven principles of prosperity. Super. Well, the article that we are referencing, and of course, we’ll have a link on hit here, was caused why does a college degree cost so much and it looks like it was originally on CBS’s website. That’s the one with the multicolored turkey in the background, I guess. And it goes into kind of talk about the different things that are making college cost so much. And then the big question we’re going to talk about today, which is maybe a spin that most people don’t think about, at least in the circles I travel in that

[01:49] they don’t. And that’s that shouldn’t we take a college education and consider that as an investment into a business that is going to be producing a lifetime income stream for us and then trying to decide whether the cost of that particular investment justifies the cash flows that are going to be returned to us based upon the career that we choose? Is that a reasonable way to look at it? I think it’s very reasonable and yet I agree most of the people in our society don’t look at college that way. And college is a toughie, you know, there are some kids that are totally suited for it, they’re studious, they’re ready, they’re physically and mentally and emotionally mature enough to handle it. And there are just others that are not and they would be so much better

[02:42] off in a trade school or going to work for a couple of years first or what have you. It’s trying to set aside the emotional and the family issues surrounding this whole thing. Let’s just look at it economically. Let’s just look at the cost of college. And one of the ways that we can do that is with Truth Concept Software, Todd Strobel being you, Todd Langford being my husband, has the actual education cost calculator so well fleshed out inside the Truth Concepts calculator system at truthconcepts.com that we can really look at the cost of college as you were identifying it with cash flowing orientation. And because the principles of prosperity economics dictate that we talk about things like education from a cash flowing standpoint, it

[03:36] helps us see what we are doing on a four year or five year or heaven six or seven year funding mechanism, what that period of time then does for the family in the typical retirement time frame. So though we don’t like the word retirement, everybody knows what I mean when I say that. And then furthermore, what kind of income, again, cash flow, could that create for the individual student? And it is amazing when you see some of those numbers. I just want to feed you some of the numbers that we can use to kind of set up our conversation. And again, these are coming from the article that we’re reading here. And this article was published here just in the last couple of weeks. And we are in June 2015.

[04:28] So it says the average tuition at a private four year university is now $31,231. The average public tuition is $9,139. And of course, we mentioned that the average student now goes to college for five years in order to be able to get a four year degree because most people change their mind. And here’s some interesting things that are from the census. Currently, there are 5.3 million people in two year colleges, 10.5 million people in four year colleges, and 3.7 million people in graduate school. Now, those numbers all mixed together come up with some really interesting things, don’t they? They sure do. And it really is amazing when you look at the seven principles of prosperity, what the college cost does and it so let’s just work through it.

[05:33] It can help in the thinking department, not for all kids, but let’s talk about it both from the parents and the students. So I’ll just run through the parents first. So from the parents standpoint, it can help in getting them to think from a prosperous standpoint because they are maybe educating their child, feeling like that child’s going to have more opportunities in life because of it. But then the second principle of prosperity being C, this is where the problem starts because what most financial planners recommend is that you put college money in some type of a 529 plan, and that is not enabling you to see your entire economic picture in one big lump. It is compartmentalizing and that is not an effective way to handle money.

[06:22] And yet we talk to clients all day long that have 529 plans set up or maybe some other type of special account. Maybe it was an old uniform gift to minors to count or something like that, whereby the money is not in their entire economy, but it’s specifically designated and can only be used for education. So that’s the first problem. And then of course, right behind it is the second, which is the third principle of prosperity, and that’s measure because of opportunity costs. And this is what people do not realize. And that is that a 30,000 you said was the average? Private school is 30,000 and public school is 10,000 per year. OK, so we have a $30,000 cost per year, but that equates to a massive

[07:15] amount of money when looked at over time based on the parents situation. So it’s not just 30,000 per year times four or five or six or how many years it’s going to be. It’s that amount of money for the rest of that parents life, because that amount of money is now gone from their equation and the opportunity cost on that is astronomical. And so on our written blog, maybe we’ll pop in a picture of the calculator that shows what that number is, because that’s where parents are really getting hurt. Yeah, maybe you can handle the 30,000 per year from a cash flow standpoint. But what you’re not realizing, because you’re not measuring opportunity costs, is that that is removing a certain amount of money from your

[08:08] asset base in the future, which then equates to a certain amount of income from your life in the future. So that’s talking through it from the parents standpoint. I won’t even go into any of the other principles because I think we’ve made our point well enough, which is you really have to measure opportunity costs and you have to be seeing your entire picture together, not separating out college money from other money. But let’s talk a minute about it from the students standpoint. So I’ve got a question for you. Do you think going to college helps a student think from a prosperous standpoint? I would think that there’s a lot of things that are gained from being in a college environment, one of which is, you know, you’re exposed to people

[09:00] probably for the first time who think differently than you do. So I certainly think that, you know, getting out of a family that probably all thinks very similarly and being able to mix with other people definitely could have some positive aspects to it. My biggest concern is, is what happens when you’re 21, 22 years old and you’re starting your life for the first time, $100,000 in debt. That makes me think it’s very difficult to look at things from a prosperous standpoint when you’re already $100,000 behind before you start. Absolutely. And so many kids are graduating from college these days with no clear direction as it relates to jobs that would earn what they had hoped they could have, okay, yeah, they could go get a job at Starbucks for X dollars

[09:54] an hour, but these are kids that are hoping to have jobs with nice earning potential. And if they don’t have those, then how do they deal with the debt? And then we have the fact of, is college teaching prosperity thinking? And many colleges don’t and some do, and that’s wonderful. And of course, it’s going to depend on the parents and the teachers and the classes the kids are taking, et cetera. But there is so much of what I would say, poverty thinking. That’s a strong word, but poverty thinking that’s going on at the college level and these students are not taught how important your mindset is. Dan Sullivan has a great line. He said mindset matters and mindset is not something that colleges do a good

[10:41] job of, again, I’m making a very generic statement, but they don’t necessarily do a good job of helping students deal with the thinking and the mindset that must occur for them to be good, successful adults and deal with the problems that they have. The first one being the student loan debt. So if you’re listening to this and you have already a fairly large amount of student loan debt that you can’t deal with, please reach out to us because we do have some solutions inside our fiscal fitness journey process that we can help with massive existing student loan debt. But obviously our conversation today is more about helping people not get there to begin with and helping them understand that the cost of college

[11:29] can really do detriment, not only to the student, but to the parents as well. Here’s a number that, uh, again, just simply blows me away between the year 2000 and the year 2013, the cost of tuition and fees has gone up by 87%. The income of college graduates during that same time period has gone up 24%. Oh, wow. Yeah, that’s a little bit of a disparity. You know, it is amazing what time does to money. And so I just popped our average numbers into this truth concepts education calculator and that 30,000 average that we were talking about for five years, that obviously 30,000 times five is 150,000 of tuition. But that cost parents $316,000. That’s just assuming a 4% net net net rate of return.

[12:34] So 4% after taxes, after fees, after costs, et cetera. And so that would be a 45 year old person going up to age 65, educating their kid, 30 grand a year for five years, 150,000 are the actual checks that they wrote. 316,000 are the actual assets that they lost because they couldn’t have that $150,000 of checks work for them for the 20 year period of 45 to 65. So throwing a lot of numbers around here and different pieces of statistics, but we’re just really grateful to have realized that this education environment is a bit of a racket literally, and that it is something that we need to be aware of. And I don’t think the cost of college is going to slow down any. Do you’ve got some other information there from the article that we found

[13:29] interesting, tell us about it. Well, it mentioned that one of the things is that most of the people who work in the colleges are on traditional pensions, meaning that they’re guaranteed X amount of dollars once they retire for the rest of their lives. And as we know, more of the population is retiring rates on return on investments are lower. So most of their pension plans are underfunded. So in order to be able to catch up, we can continue to expect a higher, a rise in the cost of education. Not to mention the fact that the government subsidies that are being given to students is continuing to decline. Now to me, I don’t want to oversimplify this, but I think most of us are thinking let’s go to college to figure out what it is.

[14:22] We were put here to do, and that’s a very expensive question. If we could ask the question, what is it we’re put here to do? What is it we’re passionate about? What is it the problem that we feel most called to solve and whether that means taking a couple of years off or maybe working in a mentorship type type situation or whatever, then figuring out, Hey, this is where I’m called to serve and this is the education that I need to get there. I think we could probably cut this education problem in half. What do you think? Absolutely. And there’s so many tools available on the web, some for free, some just cost a little bit of money that help a person figure out what their purpose is here on this earth.

[15:16] And we’ve got a great resource. My sister, Tammy Brannon, that I know Todd, you have worked with, and we’ve referred other clients to, she runs a process called instinctive life that helps people figure that out. She’s great at working with teenagers. She works with adults. She helps people figure out what’s next for them. Maybe you’ve been downsized. Maybe you just are going through a midlife crisis. Maybe you just don’t know what’s next, but Tammy Brannon at instinctive life.com is a valuable tool. And then something else that we’d like to share is Colby.com. K O L B as in boy E Colby.com has a little $50 profile that you take that identifies conation and conation is if you’ll let me use this language, basically your God given talent that was installed

[16:03] the day you were born and will be there the day that you die. And it’s not your personality because that can change over time, but conation is really your talent. And having tools like Tammy and the Colby profile. And of course there’s discover your strengths and some others out there that are valuable are a much, much better way to figure out your purpose, what you want to do when you grow up, whatever age you are then trying to get into a college environment or even worse going on from college to a master’s degree, because I know a lot of people, they didn’t figure it out in college and now they’re going on to a master’s degree because so many jobs say that a master’s degree is helpful. And yet we also know many, many jobs where it’s not required.

[16:50] And the master’s degree is kind of becoming the new bachelor’s degree that you can’t even apply for some jobs without it, which I think is just really crazy. Absolutely. And, and to be completely honest with you, my daughter just graduated from college and she’s starting her master’s degree next year. But again, in her particular case, very passionate about what she’s doing and the college is actually paying her tuition and paying her to go there because she really wants to teach there when she gets done. So I don’t want in any way to think that we are anti education at all because we’re very much pro education, but we’re even more pro purpose and pro prosperity on top of that. Yes. Well said.

[17:40] Absolutely. And I too have two kids in college, one heavily scholarships, the other not. And so when you do have that situation where a student is ready to go to college and it is the right next best step for them and the family, you just have to deal with the costs often from a cash flow standpoint, often from a student debt standpoint and often from a parental debt standpoint, but go into it with your eyes open. Go into it, knowing the impact that it’s going to have. And if you have cash value of life insurance or rental property that you can leverage via the loan capability that both of those products have, then you can keep your assets growing while at the same time you’re funding the school.

[18:31] And then the issue of opportunity cost is drastically reduced. You’re still going to have it because of course you have interest costs by leveraging real estate or leveraging cash value of life insurance, but when you have those two things, you have an environment where there is more efficiency inside your economic environment because your assets are continuing to grow while at the same time you’re putting your kid through school. Super. Well, we invite you to visit partners, the number four prosperity.com as another resource that you can find more information on this and Kim, I believe you brought some gifts for our listeners along today, didn’t you? I did. And I’m so excited to offer this because if you’re a podcast

[19:14] listener, my guess is you’re going to like audio books and we now have the financial planning has failed ebook. That’s a 60 page ebook available in audio format. So partners, number four, prosperity.com slash ebook, and you can either get the download there or the audio download. And that’s partners. Number four, prosperity.com slash ebook. Super. Well, this is no BS money guy, Todd Strobel along with bestselling financial author, Kim Butler for the prosperity podcast saying, take care of everybody. Thank you for listening to the prosperity podcast to take control of your money and have it work for you. Visit us at partners for prosperity.com. If you liked this episode, make sure you subscribe and

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