Advisors: Time to revamp the advice you give parents
Ric Edelman: It's Wednesday, January 11th. I talked with you yesterday about Social Security. This is the real crisis that America's retirees are facing. Let me shift the conversation back a few generations to not today's seniors, but to today's high school students, those who are aspiring to go to college. According to a new survey, 77% of households say college is difficult to afford. Three out of four families say they can't afford college. Half of them say it's not affordable at all. And we're talking in this survey, of public in-state universities. These are the cheapest colleges in the country. I'm not talking about private college or out of state colleges. Public in-state. These are the cheapest and half say they can't even afford them. The average cost this year at those public in-state schools is $10,000. Students are borrowing more than $5,000 to be able to go to that school, which means they've got enough cash for half of the cost. But they're going to student loan debt for the other half.
And by the way, if it's $10,000 this year to go to college, college costs are rising almost 10% per year, which means the problem will be 10% worse next year. How bad does it get? Many don't even bother trying to go to college because they can't afford it. But others do go to college but then discover they can't handle it economically. They can't sustain this. 39 million Americans have college debt, but no degree. They went to college, but they never finished college and they have the debt anyway.
Banks Taking Advantage of College Students
The CFPB, the Consumer Financial Protection Bureau, just released a report saying that colleges, (as if colleges aren't already charging us too much money) are inappropriately steering students toward banks and credit card companies that charge high overdraft fees, inactivity penalties and big ATM charges. Because the colleges are getting paid by the banks and the credit card companies to do it. They highlighted one company called Bank Mobile.
Ask your kid in college if they have a credit card or a bank account with Bank Mobile. Nearly half a million college students paid a combined $12.5 million dollars in fees last year, usually because they had a low bank balance. Bank Mobile pays colleges for the right to pitch the students, to sell them checking accounts and credit cards. They show up at campus events, they hand out T-shirts, they send emails and texts, and they're not the only one. There are other companies that strike deals with colleges too.
MidFirst Bank paid Arizona State University nearly $3 million last year, and now half of the students there have an account with MidFirst Bank. Berkeley, University of Minnesota - they've each earned more than $1 million from Bank of the West and Huntington Bank. A Wall Street Journal investigation found that these deals make a lot of money for the colleges, but it leaves the students with big banking fees.
It's time we recognize that the old way of getting a college degree is outdated. We cannot any longer approach college the way that we used to. You pay a ton of money to go to school and you come out with a degree where you earn a ton of money. No, no, no, no, no. That's not how it works anymore.
These days, you pay a ton of money to go to school. You're getting suckered into bad deals that are promoted by the school so they can earn even more money off of you than merely the tuition you're paying.
We've got to look at a new way of doing this. And let me give you an example. Fidelity Investments is the latest company to announce that they're offering a fully paid college education as an employee benefit. The company will pay your tuition fees, taxes and books for a variety of degrees. And Fidelity will pay the schools directly so you don't have to pay up front and wait to get reimbursed. And to make sure your college career is a success, Fidelity is also offering free coaching to help their employees pick the right school and the right major, and then to help you balance school, work and life. This is an amazing program and Fidelity is not alone. Chipotle does this. They offer free college education and so does Starbucks, Walmart, Amazon, Macy's, JPMorgan, Chase, Boeing, Discover, Disney, Papa John's, Target, Verizon, Taco Bell, T-Mobile, Home Depot, Lowe's, Publix, Qualcomm, Waste Management.
There are so many Fortune 500 companies, not to mention the US Armed Forces that will pay for your college degree. You don't have to save any money at all to go to college. Just go work for someone who will pay for your degree. And some employers are now even going a step further. Well, what could employers be doing more than paying for your college degree? They're telling job candidates that you don't have to have a college degree at all.
Google, Delta, IBM, the state of Maryland, they have all stopped saying that a bachelor's degree is needed for certain jobs. They're now saying what matters is that you have skills and experience. 41% of job postings right now require a college degree. That's down from 46% three years ago. Google has an online college alternative program. They offer training in digital marketing and project management. More than 100,000 people have completed that program and Google uses it to hire those people, and so do 150 other companies at IBM. More than half of its jobs no longer require a four-year degree. Delta has stopped demanding that pilots have a college degree. I mean, think about it. What is having a college degree have anything to do with knowing how to fly an airplane? Delta is acknowledging that fact.
Walmart, they're the country's largest private employer. 75% of their store managers began their careers in hourly jobs. Walmart says skills and knowledge matter, which you gain through work experience, not by going to college. And in Maryland, the number of people hired without a degree shot up 41% last year. And some of these jobs pay $80,000 a year. Why on earth would you spend $80,000 a year to go to college when you can go get a job without college and make $80,000 a year?
Colleges are realizing what's going on. They're now beginning to realize they can't keep getting away with their practice of charging hundreds of thousands of dollars to allow people to get a degree that, frankly, isn't helping them prepare for the workforce. 81% of families say they didn't even apply to certain schools because the schools are so expensive.
Time to Cut the Cost of Tuition
So what are the schools doing? These colleges realize they can't keep getting away with this, so they're recognizing what's happening in the marketplace. They're starting to cut their tuition. At Colby Sawyer College in New Hampshire, they were charging $46,000 a year. Now? $17,500. We're talking about a 62% drop in the cost of going to that college, La Salle University, Washington and Jefferson, Roanoke College. Haughton University. Fairleigh Dickinson, Vermont State - these and others have all slashed their tuition in half. Others have frozen their tuition. State universities in New York, Virginia, Nebraska, Wisconsin, South Carolina and Tennessee, they've all frozen their tuition. Purdue hasn't raised tuition in 10 years.
And states around the country are now in onto this as well. They're figuring out ways to give money to students so that the students can afford the cost of going to college. In California, they just launched a brand-new program. They're giving students $10,000 for tuition and living expenses. What do the students have to do to get the $10,000? 450 hours of community service. 13,000 students are expected to enroll in this new California program over the next three years. They're going to spend 15 hours a week for about six months tutoring and mentoring low-income students, building community gardens, planting trees, working at food banks, and doing other local community projects; projects, by the way, that are created by the colleges.
All of this is radically new and different, dealing with the fact that college is simply too expensive and too often isn't effectively preparing our youth for the careers of the future. You must rethink your college planning strategy. Don't go to college at all. If you do go, don't pay too much to do so. Get a degree that leads to the jobs of the future. Get that degree as cheaply as possible. And that means getting a job with a company that is going to be willing to pay for your degree and make sure you really need the degree in the first place. Increasingly, employers don't care if you have a college degree.
Back in the day, my CHRO - my chief human resources officer, had a high school diploma. I didn't care. She was fabulous, brilliant, knowledgeable, skilled experience. The fact that she didn't have a college degree, I couldn't have cared less.
Employers are increasingly waking up to this reality. Employers want to see that you have skills and experience, that you have street smarts, that you have good judgment. You're not necessarily going to get that in a textbook or a classroom. So pursue that instead, pursue skills and experience instead of taking that AP class in high school.
And this affects your use of 529 college savings plans. Are you sure college is going to cost in 18 years - you've got a brand-new baby; you're setting money aside for their college - are you sure college in 18 years is going to cost as much as college costs today? Are you really needing to put $50,000 or $100,000 into a 529 plan? Don't overfund your 529s.
And if you're a financial advisor, you need to stop giving college advice that's the same as the advice you've been giving for the past 20 years. College of the future is going to be different from college of the present and college of the past, and you need to make sure the advice you're giving your clients is focused on the life and the world they're going to find themselves in, not the life and the world they themselves were in when they were in their teens and 20s. It's all about the future, and that's what this program is all about.