Without a doubt, college tuition in the United States has risen rapidly in the past 10 years; by a total of 79.5 percent from August 2003 to August 2013. This is well above the rate of inflation, and beyond all reasonable amounts. Could it be that the cost of operating a university -- technology, wages and infrastructure -- is rising at triple the rate of other technology, wages and infrastructure simply by being inside an institution of higher learning?
The higher the cost of tuition, the greater the amount of college loans outstanding. If wages for college grads rose by the same amount, it would be a wash. However, the unemployment rate of college grads, while half that of non-grads, is still 8.5 percent; the average starting salary is $45,473, not even 50 percent more than it was 20 years ago.
There are world-class universities, such as my alma mater (McGill), which do not cost $60,000 per year. At the time I attended the Faculty of Arts, Faculty of Science, and Faculty of Law at McGill, there was a 20-year tuition freeze in the province of Quebec which allowed me to attend one of the world's top 20 institutions for eight years for the cost of a half semester at one of the top US colleges. I had student aid for tuition and housing, and worked to pay the rest, graduating with three degrees and no debt. However, afterward, as a Canadian attending the University of Chicago for my MBA, I did not receive any student aid. My parents both worked, but did not have the money to pay the six-figure tuition, so they co-signed a loan which would ultimately be my responsibility.
After working for a while on Wall Street, I repaid the loan in full. Right after, I started to set aside funds for retirement and future college payments. I first saved through cash value life insurance and later added 529 plans, all of which accumulate and are withdrawn for college free of taxes.
So, how do college graduates meet demands and get ahead? I counsel athletes in all stages of their careers, and would use the following simple analogy with recent graduates to help give them perspective: Think of your working life as a career with an arc.
1. It begins with the "First Contract"--typically a small salary relative to the top earners in the field. At this stage, your needs are pretty simple: keep a budget which includes loan expenses, and resist the temptation to spend like more established players. Force yourself to save through retirement plans and make sure you have disability insurance. Your mindset here is to focus on preserving capital and building structure and organization in your finances.
2. The "Second Contract" is more lucrative, and often comes with more life complexity such as marriage and family. With higher relative income, the focus turns to being sensitive to income taxes. Saving for children's college and for retirement can be accomplished through insurance, college savings and retirement plans. The longer the time horizon in the investment vehicle, the more risk one can take. Your advisors should be able to help you protect your assets from litigants, creditors and spouses.
3. Phase III is the peak earnings period within a career when income from work and other sources (portfolios for non-athletes; endorsements for athletes) is highest. Here individuals and families need proper trust planning for asset protection and wealth transfer, philanthropic consulting and legacy planning, and a toolkit to bring children into the dialogue about money and values.
4. Finally, in retirement, all income is derived from investments, social security and retirement plans. The goal is to maximize pension income, and once again, budgeting often comes into play. For athletes, retirement can last 50 years, so portfolios must generate enough growth to account for inflation over such a long period of time.
I realize how difficult it is to think long-term when the stresses of post-college life and work set in. I wonder how graduates can afford to live in a city like New York while paying back student loans. It seems far-fetched to plan and save for the future when the present is in focus.
However, as tough as it seems today, life gets much more complicated and intense with family, business succession, health and education costs and retirement to contend with (to name but a few issues down the line). Just as good study habits can lead to success in college, embarking on a sensible long-term plan will help recent grads set a course for financial stability and keep a level head when the real crunch time eventually comes.