Investing In Your Child's Future

[Annette Hibbler]

I have children that are college bound. Considering the number of unemployed college graduates, I’m seriously wondering if going the traditional route to finance college expenses is actually the best option.

The most recent research shows that nearly 40% of college graduates are underemployed and earn up to 40% less per week than their peers, making it more difficult to pay student loans and become self-sustainable. Higher numbers of college grads are returning to their parents residences unable to afford rent or keep pace with the rising cost of living. That’s just underemployment, now lets add the unemployed.

The Bureau of Labor Statistics reports the unemployment rate for 20 to 24 year olds was 11.9% in January, a slight increase from 11.1% in December 2013. Those who are unemployed six months or longer have very slim chances of securing full time work in their chosen field of study. Many become discouraged and give up.

Traditionally, parents felt an overwhelming responsibility to fund their children’s college expenses through home equity or personal loans believing a diploma would guarantee them a high paying salary. But times have changed and the recent economic decline has hit us all hard. Looking at it objectively, it’s like taking out a loan for $100K on an investment with the high likelihood that you will not see any return. Meanwhile, both student and parent is in debt up to their eyeballs for at least, the next ten years.

If you had $50K for your child, would you still gamble on the college route? Consider that 51% are either unemployed or underemployed when they graduate. We no longer have the “guarantee” of a job much less a job that pays well enough to live on. Why would we get in debt to set them on a path with no guarantees? Would it be better to set your child up with assets worth $50K to $100K generating an income of 12% to 22% which is easily achievable with the right real estate investment?

For example, with $50K you could purchase two turnkey properties with an approximate earning 15% net yield and $7.5K a year or a trust deed earning 12% paying $6K a year. Now your child has some options, they could use that income to help set his/her own business up, support them financially during school and at the very least obtain a lower student loan. After graduation, they have that base income while looking for work which helps them pay their monthly student loan requirements.

Parent’s of young children, could use this same formula to invest into their child’s future college expenses and ultimately the parent’s still own the asset to help in their retirement. What do you think? What vehicles are you using to fund college expenses and how do they compare? Is your child starting adulthood with a solid financial asset or the chain of debt around their neck?

[Jerry W.]

I really struggled financially to get through college, but I was able to put off getting any loans until law school. there were a few years of only going to college for 1 semester a year due to lack of money. I was able to pay my loans back fairly rapidly, it took longer to pay off the medical costs of having 2 kids in college.

As to investing in my kids college, I pretty much didn't give them a choice. I told them they could get a degree in basket weaving, it was their choice, but they would have the opportunity to be whatever they wanted. There was kind of a joke about my son's last semester in college that I practically held a gun on him to make him finish and he wasn't sure if I would use it or not.

Both have college degrees, both have good jobs, hopefully doing what they want to do.