Still Believe College Is the Best Option For Your Child?

Since 1980 the cost of college has increased 169% while the salaries of college graduates have only increased by 19%.  Inflation has more than tripled since 1980, as it would take $35.26 to purchase today (November of 2021) what $10.00 would have purchased in 1980.  Thus, a college education has become less valuable today than ever.

The average student loan debt is currently $37,172 with a monthly payment of $393/month, which comes to $4,716 annually.  Over 30 years, this makes the cost for an average 4-year college degree come to $141,480.

Furthermore,  53% of recent college graduates are unemployed or underemployed while 41% of all college degree holders are underemployed.

As the average income for a 4 year college graduate is only $43,367 and the average income for a high school graduate is $43,654, it begins to stretch basic logic when attempting to place any value in a 4 year college degree.  And yet, many Americans still believe the American dream can only be achieved if you go to college.

The potential earnings of a high school graduate at $43,654 per year from age 18 through age 67 is $2,139,046.  Yet the 4-year college graduate’s potential earnings after college (age 22-67) is only $1,951,515 at $43,367 per year.  But when subtracting the expense of paying for student loans, the college graduate loses another $141,480 making their adjusted average income only $1,810,035.

$141,480 divided by 49 years, which the high school graduate has in the work force, comes to $2,887.35 per year. This is $1,828.65 less than what the college graduate will have to pay annually on their student loan for thirty years.

Therefore, if the high school graduate will set aside this $2,887.35 annually for thirty years and purchase participating whole life insurance, by age 67, they will have a guaranteed cash value of $220,810 and a potential cash value of nearly $334,000. Either one of these values is greater than the $182,100 which the average 67 year old has in their 401(k) today.

Yet, the 401(k) owner will end up paying taxes on distribution from their $182,100 while the participating whole life insurance policyholder will have access to the policy cash values tax free.

All-in-all there is little confirming evidence that a 4-year college degree provides any advantage to fulfilling the American dream than a high school education.  But 4 years of college certainly adds extra expenses which become more and more difficult to overcome due to inflation and increasing college costs.

A parent who desires to really give their child a financial head start in this world, instead of saving for their child’s college, could start a participating whole life insurance policy early on their child’s life.

For example, if the parent(s) would purchase a policy on their child when their child is one year old with $3887.35 a year and continue that discipline until their child graduates from high school, the child can take over that policy once they graduate.  Then, if the high school graduate will pay the $2,887.35 as outlined above, until age 49 (30 years), by age 67 they will have $504,231 of guaranteed cash value and a potential of $939,816.  This is obviously a much better financial position than what the average 4-year college graduate accumulates by age 67.

The Contrarian Theory goes against the statis quo.  In other words, the Contrarian Investor looks at what everybody else is doing and then, along with some fundamental facts and knowledge, does exactly opposite of what everybody else is doing. Emotionally, this takes courage as well as fortitude.  But because of their understanding of human nature, market fundamentals and universal rules, Contrarians, are often laughed at, but most often have the last laugh.

Today many parents would be wise to practice Contrarian Theory when it comes to “investing” in their child’s college education, not only for financial reasons but because much of a 4-year degree today does NOT prepare the graduate for a better job or lifestyle after graduation. Today 41% of college graduates are not working in a job which requires a degree, and 66% of college graduates regret their education. These are not good statistics on which a logical person would justify investing in a college education.

Dr. Tomas P. McFie

Most Americans depend on Social Security for retirement income. Even when people think they’re saving money, taxes, fees, investment losses and market volatility take most of their money away. Tom McFie is the founder of McFie Insurance which helps people keep more of the money they make, so they can have financial peace of mind. His latest book, A Biblical Guide to Personal Finance, can be purchased here.