High school is an exciting time of life when lifelong friends can be made and when children start to branch out on their own. They have their own schedules, often a boatload of activities, and they start looking ahead to what is next. Trade school? College? Work? For those looking at education after high school, the question often arises about how to pay for that next step. It is never too late to start, but let’s put ourselves in the shoes of a high school Sophomore about to wrap up the year looking at college as the next step. Half of high school is in the rearview mirror and half lies ahead.
Now what?
If your goal is to make it through college with no debt, here are some tips to make that debt-free college experience possible.
Select an Affordable College. It may seem really obvious, but it is easy to overlook this very important selection. If Aunt Sue went to GottaGoHere University, and you’d be a disappointment if you didn’t go there, too, it is easy to get caught up in the hoopla surrounding where you go to school. Selecting a college you can afford is the number one way to save money on a good education. Just like you shouldn’t go Ferrari shopping on a Toyota budget, the difference between college tuition at different institutions is astounding.
Using numbers from 2020-2021 provided by the US Department of Education, let’s walk through a few options to illustrate the importance of school choice. Dallas, Richardson, and Plano are three towns in North Texas that border each other and provide us with a nice tale of three colleges. SMU in Dallas has an annual tuition price tag of $60,236. That’s more than Harvard and Yale by the way. University of Texas at Dallas is 13 miles away and has an annual tuition of $14,564, a figure that shaves about 76% of the cost off that tuition bill. But wait, there’s more (or in this case, less). Another 9 miles from UT-Dallas there sits the Plano campus of Collin College with an annual tuition cost of $3,094. Collin College is almost 80% off the UT-Dallas cost and 95% off the SMU price. You could pay for four-year degrees for five people at Collin College for about the same price as one year of SMU for one person. You could live in Dallas, Plano, or Richardson and easily attend any of these three colleges, and assuming no increases in the cost of tuition (yeah, right!), you would pay a four-year total of $240,944 at SMU, $58,256 for UT-Dallas, and $12,376 for Collin College. That’s the difference between buying a house, a fully-loaded new car, or a decent used car. All three of them can get you a diploma, but at least one of these options might also leave you broke.
I know it is hard to convince a high school student that college choice should factor in what is affordable, not just how pretty the campus is, how good the football team is, or where friends are headed. I’m telling you, making sure the college fits your budget – just like every other expense in life – will save you a big financial headache later in life. Don’t believe me? When was the last time you asked a doctor where he or she went to school? I care about a doctor’s experience and expertise, but I have never once rejected a doctor because of an alma mater. High school students are sold the idea that your school choice defines your future. I went to college with motivated folks who did well, and unmotivated folks who flunked. Success is far more about the individual than the school, so choose an option you can afford.
Save Early, Save Often. 529 Plans are a great way to save for college. Prepaid plans are another path to college savings. Typically, they lag behind returns from good 529 Plans, but we used a prepaid plan for one of our daughters and the returns exactly mirrored the S&P 500 over that 18-year span. 529 Plans grow your investment tax-free if the money is used for qualified educational expenses. You can also invest in mutual funds or exchange traded funds (ETFs) in a brokerage account on your own, but your gains will not be tax-free. Whatever route you choose, to maximize your growth, follow a few guidelines. First, look at the track record of the investments when selecting a 529 Plan. Avoid age-based plans which tend to provide lower returns. Plans with multiple options are best so you can move the money if returns get sluggish in the investment you choose. Second, you are not confined to investing in your home state’s plan. You can invest in any state plan. Utah has one of the better plans historically because of some good options and relatively low fees. This does not mean the money has to be used in the state of Utah or at Utah schools, but read the details of each plan you are considering to make sure the funds can be flexibly used. Third, invest as early as you can. The power of compound interest will grow the money more over a longer time, so the sooner you start investing the more potential growth you have. Finally, as you approach college age, you may want to move a portion of your funds to a more conservative investment to preserve the money you have. At age 8 a 25% decrease in the account is ugly, but you still have time to recover. At age 18, that same drop could mean you just lost a year of tuition payments with little time to rebound. As the high school sophomore in our example, I recommend parking any money in a high yield savings account to not risk losing money that is needed two years from now.
Scholarships, scholarships, scholarships! There are millions of scholarship dollars that go unclaimed each year simply because students didn’t know about the scholarships or didn’t take time to apply for them. Scholarships – even small ones – can add up and help move you toward the goal of a debt-free education. While submitting applications and writing essays may not seem like a fun way to spend time, applying for scholarships can provide a great hourly return on investment. For example, if a student took 2 hours applying for 20 different scholarships and was awarded one scholarship for $1,000 as a result, that is a $25/hr. return on investment. Most high school and college students won’t work in summer jobs paying that kind of hourly rate. Beware of scholarship scams, but if you stick with the reputable sites like Scholly you can find a number of scholarships that you qualify for without ever leaving your house. Your high school guidance counsellor should stay current on the latest scholarship opportunities, so seek out your counsellor for scholarships that might be closing their application process soon and ones with low application rates to increase your chances of getting the award. While a $10,000 scholarship may draw your attention, it will also typically have more applications than a $500 scholarship, but your odds of being awarded multiple smaller scholarships might be higher. There are also sites like RaiseMe that begin to offer college discounts in the form of “microscholarships” starting in 9th grade. Be careful not be get suckered in to a college you can’t afford based on scholarship money. Students who make completing scholarship applications their favorite hobby during their senior year may walk away with a lot more money toward college than the average fast-food worker could earn in an entire summer. Pro tip: There is nothing to restricting you from applying for scholarships and find other sources of income!
Get a Job! Dad and Sha-Na-Na will tell you to go find some gainful employment. You can work before you go off to school, you can work over winter and summer breaks, and you can work while at school. All of these will generate money to pay for tuition, fees, and other living expenses. Almost all colleges employee students on campus in jobs in computer labs, cafeterias, and as resident hall advisors. Some of these positions may come with reduced tuition or the ability to register for classes early on top of the paycheck. For example, for those students who land a resident advisor position, many universities provide free housing or free room and board which can save you thousands of dollars a semester. Campus jobs tend to have more flexible hours to work around the needs of students. Having income while working can actually help with life skills like time management and the need to focus. While you might be concerned that having a job in college will be detrimental, there are studies citing that quite the opposite is true. A Rutgers study of 160,000 students showed that students with jobs their first year of college make higher incomes after college, even when they don’t get a degree. A study from Georgetown University showed that students working up to 15 hours a week have better grades that their counterparts with no job, but students working more than 15 hours a week did see a drop in grades. Our example high school sophomore can work for two years of high school before heading off to college. Working a $12/hr. job for 15 hours a week for ten months (40 weeks) and 30 hours a week during 10 weeks of summer would earn our high schooler about $10,000 pear year. Over two years, that $20,000 could cover some or all of a college education (see Select An Affordable College).
Intern or Co-op. Getting a college internship or participating in a co-operative education program is a specific subset of getting a job. An internship is typically a semester long full-time job where you do a job that is relevant to your major. A co-op position is the same idea but often comes with a recurring commitment. That recurrence could be every other semester for two years for example which would yield a full year of work experience over a two-year period while still gaining a year of college credit. The advantage of a co-op or intern position is that they tend to pay fairly well, and many jobs are in a relevant field of study compared to job that might have you waiting tables or delivering food. While there is nothing wrong with any of those job options, interns get the added advantage of gaining valuable experience in their field prior to graduation. That experience could be a differentiator when it comes time to interview for full-time jobs. Interning is less likely in high school, but there are programs where high school students get experience in their field as early as high school through a self-directed study program. While these are typically unpaid positions, taking advantage of a work/study program in high school could give you a lag up on in internship or co-op position in college.
Ask Relatives. While you might not have a rich aunt or uncle, it is not uncommon that someone in the family highly values education and is willing to contribute to your learning after high school. Relatives can be a source of funds for your college experience. Be careful to weigh the pros and cons of accepting money from relatives. If that donation to your education comes with unreasonable strings attached aimed to control as much as help you, you may want to pass. Uncle Joe might have gone to Eastern Tech University, and he is willing to give you $1,000 toward college if you go there, too. The problem might be that old ETU costs twice as much as the college you are planning to attend. Don’t let the allure of free money cause you to make a bad financial decision.
JROTC / Future Military Service. Programs like the GI Bill and ROTC Scholarships will pay you to go to school. There are obligations of ROTC and future military service that go with the money, so read carefully to make sure what you are signing up for fits into your expectations at school. Also check on eligibility if a family member served in the military because some restrictions do apply to the GI Bill. JROTC and ROTC scholarships can be a great way to pay for a large portion of your college education. High school Junior ROTC does not come with an expectation of military service, so you can “try before you buy” in high school before making a more serious commitment in college.
The average student can work in high school, potentially get a little help from parents or a relative, apply and receive scholarship money, and select an affordable college. Using a combination of these approaches could get you a college degree debt free. If you are committed to a debt-free education and funding your education takes more than four years, your diploma doesn’t come with any footnote saying how long it took you to complete your degree program. If you need to take a semester off to build up a cash reserve to pay for school, that is a thoughtful way to approach paying for college.
Whatever your approach, know and believe that a debt-free college experience is possible by making intentional choices along the way.
KJ Financial Coaching 