Running The Numbers On Where A Client's Kids Go To College

Wednesday, March 09, 2011 23:23
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Running The Numbers On Where A Client's Kids Go To College

Tags: education planning

While college choice is obviously complicated by a host of emotional factors, financial planners have been known to field questions from their clients on the economics of School A versus School B.

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Unfortunately, the tried and true method of evaluating college as an investment -- comparing projected earnings to the opportunity cost of paying higher tuition today -- may work for the back of a napkin, but fails to capture a lot of the financial variables in play.

 

Not even the analysis by Laurence Kotlikoff of Boston University is perfect, but it presents a few of the big factors that a well-made simulation should include: lifespan, taxes, working life, and of course the cost of paying off education debt.

 

As Kotlikoff points out, a classic study demonstrated that years at Harvard may not translate into a higher lifetime standard of living than a community or state college, so at least the "private or public" argument is off your lap -- it's apparently a wash.

 

And if private school matters to your clients for non-financial reasons, it's important to lay that out as a viable goal and accept the fact that ROI really has nothing to do with it.

 

Unfortunately, we're a little past college decision season, but the article's worth bookmarking and coming back to next fall -- or whenever a client wonders whether it makes financial sense to go back to school for a mid-life career change. 

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