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Tackling The High Cost Of Education

As a kid, I was lucky. My parents abstained from material consumption and in exchange paid cash, saved…and then saved some more. From my earliest memories, saving for education was not a matter of “if”, but rather “where and when.”

Unfortunately, over the last 30 years the cost of advanced education has increased about 7% to 9% per year—more than double the increase in GDP over the same time.

This means even frugal parents find students having to borrow more and more to fund the college opportunity.

Sadly, kids graduating from college today are so saddled with debt they are far more likely live with their parents upon graduation and are buying homes and starting families about ten years later than previous generations.

Knowing this, I recently had an interesting conversation with my oldest godson. Ryan did well in high school and punched his ticket to the ever-competitive Mays School of Business at Texas A&M.

His parents have done well, but struggled with the same things everyone does—paying for life—ie: funding a mortgage, retirement, cars…oh, and then there was the small matter of college savings for siblings.

My proposal to Ryan was simple. There would be a written agreement signed by each of us. For each A he made in college, I’d put $300 in his investment account while a B would earn $250. A C would produce $100 and there would be no compensation for a D or F. The agreement would be good for 4 years (or 128 college credits) and only apply to classes taken for the first time. This would cover about 43 classes.

If Ryan ran the tables finishing with all A’s, he would be rewarded with about $13,000. If he was a solid B student his reimbursement would be about $11,000, while averaging all C’s would generate more than $4,000. Although this wouldn’t pay the full cost, it would certainly help.

As Ryan pondered the proposal he inquired as to what he needed to do on his end. At the end of the semester he needed the university to send me his transcripts directly to keep it official and remove any miscommunication.

The wheels in his head turned, but he said very little. Finally, he asked one question: “Can I use this proposal to ask other friends and family to sponsor my education?”

I was a bit surprised, but thought about it. Did I care if Ryan leveraged this plan to not only pay for a bigger portion of his expenses, but maybe all of it? He grinned and said, “If I’m really good, I might even get paid to go to college!”

Although I didn’t want him to hold his breathe, he understood the concept. There is an economic cost associated with getting additional training and we live in a pay-for-performance world. Furthermore, additional education—whether university or trade school-- is needed to stay in front of automation and outsourcing.

Depending upon how good of a salesman Ryan would be, and depending upon his academic performance, he was now in charge of how big of a hole his cost of college would be. If he maintained a B average, and got a total of four people to support his funding plan, he would succeed in satisfying a $40,000 price tag.

My point to Ryan is that merely applying for financial aid only gets you so far. Additionally, loans still have to be paid back.

The best way to eat an elephant is one bite at a time. If you get 5 people to pitch in and underwrite the next step in your education or training, that is great. However, it becomes even better if you gain a commitment from 10 or 20 people.

If successful, the student has immediate buy-in and accountability for the endeavor. Not only does the student have an immediate understanding of the cost and benefit—but they can finish their education owing no money and hit the ground running once they have transitioned into the “real world.”

Dave Sather is a Certified Financial Planner™ and owner of Sather Financial Group. His column, Money Matters, publishes every other week.