This month, we’re talking about life insurance and college funding. If you don’t have a kid in college, you might not realize just how expensive it’s become. Here’s what your clients are up against.
College tuition isn’t getting any cheaper—and neither are the expenses associated with it, like books or room and board. But it’s still a must-have for many employers. Plus, the Harvard Business Review notes that graduates with a 4-year degree make 168% of what people with only a high-school diploma make.
The obvious answer is to try for scholarships. But even if your client’s child gets a scholarship, there are still plenty of expenses like room, board, books, and a computer. Chances are, they’re going to need help paying for all that. Our August 2018 sales kit can help you explain how life insurance is a good alternative to depleting their savings or retirement fund. To help make your case, let’s look at just how much it costs to go to college these days.
What College Costs Now
The National Center for Education Statistics provides stats on pricing for the 2016-2017 school year. This is a reputable source to use if you’re talking stats with clients. Use these figures when you’re talking with clients who have a school-aged child. According to the NCES's most recent data, here are some average costs:
Public 4-Year College (state college or university)
- Tuition and required fees, in state: $8,804
- Room, in state: $6,017
- Board, in state: $4,666
- Total, in state: $19,488
- Tuition and required fees, out-of-state: $24,854
Private 4-Year College (private or Christian university)
- Tuition and required fees: $29,478
- Room: $6,717
- Board: $5,273
- Total: $41,468
Public 2-Year College (community college, vocational college)
- Tuition and required fees: $3,156
- Tuition and required fees, out of state: $7,668
Increased Costs & Decreased Purchasing Power
It’s increasingly common for parents to tell their kids they’re on their own when it comes to college tuition. Who can blame them? Inflation has gone up, while wages have stagnated. In fact, Harvard Business Review reports that since the early 70s, average hourly wages (adjusted for inflation) have only risen 0.2% per year.
What does that mean? The average family’s buying power isn’t what it used to be.
In 1970, the national average wage index was $6,186. Here's what things cost at the time:
- Gas: average price was $0.40 a gallon
- Car: average cost $2,500 (40% of annual wage index)
- House: average house cost $40,000 (6.5 times the average annual wage index)
Next, let’s take a look at what these things cost now.
- Gas: average price is $2.86 a gallon (AAA) – 7 times higher than above
- Car: average cost $36,270 (Kelley Blue Book) – 14.5 times higher
- House: average house costs $217,300 (Zillow) – 5.4 times higher
- House in a state with severely impacted real-estate market (CA): $539,800 (Zillow) – 13.5 times higher
Okay, now let’s ask the obvious question: have wages risen this much? Not by a long shot.
If you want to buy a new car today, you’d need a salary of $89,697 to have the same purchasing power you would have had in 1970. Today’s dollar just doesn’t go as far, and that means fewer families can comfortably afford to put their kids through college.
If you want to buy a new car today, you’d need a salary of $89,697 to have the same purchasing power you would have had in 1970.
So how are today’s college-bound students supposed to cope?
With federal aid, in many cases. Grants are rare, but most students can qualify for federal student aid. That solves the problem for Mom and Dad, but it creates a whole new one for the student.
The Student Loan Debt Crisis
Today’s college students and graduates are drowning in debt. As of June 2018, student loan debt is the second largest debt category behind mortgages. In the first quarter of 2018, the Federal Reserve calculated outstanding student loan debt to be $1.5 trillion. That’s almost double what it was a decade ago.
Why? A different Federal Reserve study blames both the federal government and colleges. The more the government offers in loans, the more the schools raise their tuition. As a result, between 1985 and 2011, the average tuition in America increased 498% (InflationData.com). There is absolutely no way salaries are going to keep pace with that rate.
Between 1985 and 2011, the average tuition in America increased 498%.
To make matters worse, once students take on that debt, they don’t get out quickly or easily.
Here are a couple highlights from the Department of Education’s fall 2017 report:
- 20 years later, only 50% of those who took federal student aid had paid it back in full. Of those left, most owed about $10,000, half of what they’d borrowed.
- 25% of borrowers defaulted within 20 years of starting school.
Understandably, many parents hate the idea of seeing their kids struggle throughout their 20s. Things like buying a house or saving for retirement are difficult or downright impossible with 5-6 figures’ worth of student loan payments. Increasingly, graduates have to move back home while they search for a job because they can’t afford rent, a car payment, and their student loan payment at the same time.
Older generations didn't have these problems - at least not to the same degree. The discrepancy between wages and cost of living has risen drastically in the past few decades. It’s not that today’s graduates are slackers—far from it. It’s that they’re faced with more debt and higher expenses than ever before.
How Life Insurance Can Help
Those are scary numbers, we know. So imagine how scared your clients are when they see their kids bring home A’s and B’s…or say they want to become doctors, lawyers, veterinarians, or other professionals with expensive schooling. It’s every parent’s dream, until it becomes a question of paying for it.
That’s where we come in.
We can explain how cash value life insurance can help. If you haven't downloaded this month's sales kit, now's the time.
That’s our look at college funding…and why it’s so necessary these days.
Have you helped clients with college funding? What were their biggest concerns? What solution did you use? Tell us in the comments!
