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Student loans and higher education costs
By Vittorio Mena, OD, MS
Sept. 25, 2024
Colleges throughout the U.S. start the fall semester for both undergraduate and professional schooling, including optometry school, around this time.
That makes this a good time to crunch the numbers for attending these institutions.
Challenges of Student Loans
Some lucky students will get the luxury of getting a full ride, however the average institutional scholarship awarded for undergraduates is $8,005.1
With the cost of school increasing, many students take out loans, and some are lucky enough to have parents who can cover the full cost of their education.
Unfortunately, the Federal Parent PLUS loans are at a 33 year high at 9.08 percent2, and borrowers also have to pay a 4.228 percent origination fee.
Typically, to qualify for private loans, you would need a FICO score of at least 700 or higher. However, private loans tend to lack the protection from potential loan forgiveness or income-based repayments.
Typical student loans are at 6.53 percent. Undergraduate students for both subsidized and non-subsidized schools can borrow a total of $57,700, and in the first year alone, the max one can take out is $9,500.
For graduate or professional schools, the max one can borrow is $138,500.
The Cost of Education is Leading to Fewer Higher Education Students
In the 2023 fall semester, there were “18.3 million students enrolled at a post-secondary institution where 15.2 million were enrolled in an undergraduate program and 3.1 million were enrolled in a graduate level program.3”
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The sad truth is that college student enrollment generally declined over the past 12 years. The reason could possibly be the cost of attendance. The average cost of attendance for a student living on campus in the U.S. for an in-state public four-year institution is $27,146 per year, or $108,584 over four years.
Out-of-state students pay $45,708 per year, or $182,832 over four years. Students attending a private, non-profit university pay about $58,628 per year or $234,512 over four years.
ROI of Saving for Higher Education
Let’s continue with the statistics! The compounded annual growth rate for college tuition is currently around 4.11 percent.
Let’s dive into the math for optometrists with children they hope will attend college.
If you were to put $250 away per month from birth until the child turns 18, the total amount of money that parent would have deposited would be $54,000.
If you were to compound $250 per month every month at a 4 percent rate of return, that would accrue to $79,161. A 7 percent rate of return would accrue to $108,308, and at 9 percent, the accrual would be $135,094!
If you were fortunate enough to put $500 away per month from birth until the child turns 18 years old, the total amount deposited would be $108,000. If you were to compound $500 per month every month at a 4 percent rate of return, it would accrue to $158,322. A 7 percent rate of return would accrue to $216,617, and at a 9 percent rate, the accrual would be $270,187!
Keeping Up with the Rising Costs of Higher Education
Now you are probably saying to yourself, “Well, in 18 years from now, if colleges are increasing at 4.11 percent each year, wouldn’t we need more money by then?”
I’m glad you thought that. So, here is what it could potentially look like in the year 2042:
In-state public four-year institutions will cost $56,813 per year or $227,252 over four years.
Out-of-state students will pay $95,661 per year or $382,644 over four years. Private, non-profit university students will pay $122,701 per year or $490,804 over four years.
What’s Working in Your Favor & Against You
What I wanted to address is that time and compounding interest are on your side. What is against you is the cost of school continuing to increase yearly.
The bottom line is the sooner you start putting money away, the higher the likelihood of helping your children reach their goals and dreams.
The important takeaway point is to come up with a game plan to maximize your family’s chances of success.
Good luck to you and your children, or future children, and stay tuned for my next column!
*There is always risk with any type of investment. This column is for informational purposes only. Please seek a professional financial advisor when embarking on any type of investment journey.
References
- Bankrate: https://www.bankrate.com/loans/student-loans/scholarships-facts-and-statistics/
- Studentaid.gov (Federal Student Aid) https://studentaid.gov/understand-aid/types/loans/plus/parent
- Berg, B., Causey, J., Cohen, J., Randolph, B., & Shapiro, D. Current Term Enrollment Estimates: Fall 2023, Herndon, VA: National Student Clearinghouse Research Center. January 2024.
Vittorio Mena OD, MS, is the sports vision director with Optical Academy. Dr. Mena is also an Optometric Financial Planner, with Series 6 and 63 investment licenses and Series 2-14 life and variable annuity licenses. To contact him: menavitt@gmail.com
This article was created using several editorial tools, including AI, as part of the process. Human editors reviewed this content before publication.
