Fully funding a college education without debt is no simple task. It’s no secret that the cost of a four-year degree has soared. But do you realize how much it has risen?
According to Education Data Initiative, the average cost of college tuition and fees at four-year public schools has risen 179% over the last 20 years. It’s an average annual increase of 9.0%.
The average cost of tuition and fees at private four-year schools has risen 124% over the same period for an average annual increase of 6.2%.
That is an increase from an annual cost of $3,349 to $9,349 for a public university and $14,616 to $32,769 for a private school.
The statistics are sobering, and students are piling up unmanageable debts to secure a degree.
But there are ways to help reduce out-of-pocket expenses, and avoid or at least minimize the need to take on debt.
Be savvy about financial aid
First, let’s review financial aid. This can be an important way to reduce costs, depending on the school.
Saving for college
As with all saving, the sooner you start saving for your children’s college, the better off you’ll be. And there are several advantaged ways to save for education purposes. This isn’t an all-encompassing list, but we’ll touch on high points.
The Fed’s medicine for inflation
We know that college saving can seem daunting. But develop a plan. Break it into smaller steps. Tackle each step and stay disciplined. If you have any questions or want assistance with resources, we’re here to help.
The Federal Reserve has been grappling with the worst inflation in over 40 years. Of course, it’s not just the Fed. Equity investors, bondholders, consumers, and workers are feeling the sting of higher prices.
High inflation has forced the Fed to react by ratcheting up interest rates at the fastest pace since the early 1980s, according to St. Louis Federal Reserve data.
Higher rates have pressured stocks. Rising yields have also pressured bonds. The price of bonds moves in the opposite direction of yields.
A quick review of the table of returns below highlights the weakness in stocks and bonds since the beginning of the year.
Table 1: Key Index Returns
|MTD %||YTD %|
|Dow Jones Industrial Average||6.7||-9.6|
|S&P 500 Index||9.1||-13.3|
|Russell 2000 Index||10.4||-16.0|
|MSCI World ex-USA*||4.9||-16.2|
|MSCI Emerging Markets*||-0.7||-19.3|
|Bloomberg US Agg Bond TR USD||2.4||-8.2|
Source: Wall Street Journal, MSCI.com, MarketWatch, Bloomberg
MTD returns: June 30, 2022—July 29, 2022
YTD returns: Dec 31, 2021—July 29, 2022
*In US dollarsGovernment data demonstrate that wages aren’t keeping pace with inflation. And you and I are well aware of the higher prices we are paying for a range of goods and services. Here is a question that sometimes comes up: “Why is the Fed raising interest rates to tackle inflation?”It’s a fair question that doesn’t require a complex answer. I once heard that economics is simply commonsense made difficult. Let’s go step by step and try to remove the ‘difficult’ as we explain what the Fed is hoping to accomplish.Inflation raged in the 1970s. It became embedded into the DNA of the economy. No one liked rising prices, but it was the fabric of everyday life. That is until Paul Volcker was appointed chairman of the Federal Reserve in 1979. Without diving too deep into economic theory, the Federal Reserve, under his leadership, drove interest rates into the stratosphere. In early 1981, the Fed briefly pushed the fed funds rate over 20% (St. Louis Federal Reserve). Six months prior to that, the key rate sat near 10%. When rates soar to seemingly unfathomable levels, economic activity grinds to a halt amid the soaring cost of money. The jobless rate jumped, production fell, and excess capacity in the economy rose. It’s the opposite of today’s supply chain woes. Put another way, supply of goods and services exceeded the demand for goods and services. Furthermore, because businesses didn’t require as many workers, there was less pressure to bid up wages. This is also the opposite of today’s environment. Input costs came down, which removed the pressure to raise prices. And, with falling demand brought on by a steep recession, most businesses lost the ability to quickly raise prices. Long story short, the rate of inflation came down. But it took a very painful recession to squeeze a vicious inflationary cycle out of the economy. This isn’t the 1970s, but the concept is similar. Raise interest rates, which raises the cost of money and—the Fed hopes—slows demand. Slower demand would likely reduce sky-high job openings (in turn, reducing upward pressure on wages). Slower demand makes it more difficult to raise prices, which would bring down the rate of inflation—at least that is the theory behind the Fed’s reasoning. Well, Gross Domestic Product (GDP), which is the broadest measure of goods and services in the economy, fell in the first and second quarters (U.S. BEA). Demand is down, right? Why isn’t inflation down? Aren’t we in a recession as some folks say? If we’re in a recession, it’s one unusual recession. Job growth is strong, and quirks in how GDP is calculated are playing a role in the weak numbers. For example, consumer spending was up in Q1 and Q2. While job openings are still high, they are coming down, according to the latest U.S. BLS data. Instead of a recession, today’s environment is more akin to ‘stagflation,’ or stagnate economic growth and high inflation. Bringing inflation down isn’t an overnight process. In order to succeed, the Fed is eyeing additional rate hikes, as it hopes to bring demand back in line with supply. “There’s a path for us to be able to bring inflation down while sustaining a strong labor market. We know that the path has clearly narrowed, really based on events that are outside of our control. And it may narrow further,” Fed Chief Jerome Powell said at the end of July. Powell recognizes that it may take a recession to help get inflation back to the Fed’s 2% target, or an incredible amount of luck to engineer an economic soft landing, i.e., slower economic growth that brings inflation down without a significant rise in the jobless rate. Powell was asked how deep a recession the Fed might tolerate in its quest to squash inflation. He wisely side-stepped the question. We say ‘wisely’ because telling the public the Fed would blink if the medicine is too tough—or saying ‘Yes, we’ll drive the jobless rate as high as needed’ are hypotheticals that could lead to unintended short-term consequences in the market. I trust you’ve found this review to be educational and insightful. If you have any questions or would like to discuss any matters, please feel free to email or give me or any of my team members a call. As always, thank you for the trust, confidence, and the opportunity to serve as your financial advisors. We never take that for granted. Best Regards, Bill Raymond James and its advisors do not offer tax or legal advice. You should discuss any tax or legal matters with the appropriate professional. The Dow Jones Industrial Average (DJIA), commonly known as “The Dow” is an index representing 30 stocks of companies maintained and reviewed by the editors of the Wall Street Journal. The NASDAQ composite is an unmanaged index of securities traded on the NASDAQ system. The S&P 500 is an unmanaged index of 500 widely held stocks that is generally considered representative of the U.S. stock market. The Russell 2000 Index measures the performance of the 2,000 smallest companies in the Russell 3000 Index, which represent approximately 8% of the total market capitalization of the Russell 3000 Index. The MSCI ACWI ex USA Investable Market Index (IMI) captures large, mid and small cap representation across 22 of 23 Developed Markets (DM) countries (excluding the United States) and 24 Emerging Markets (EM) countries*. With 6,211 constituents, the index covers approximately 99% of the global equity opportunity set outside the US. The MSCI Emerging Markets is designed to measure equity market performance in 25 emerging market indices. The index’s three largest industries are materials, energy, and banks. The Bloomberg Barclays US Aggregate Bond Index is a broad-based flagship benchmark that measures the investment grade, US dollar-denominated, fixed-rate taxable bond market. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any opinions are those of William Y. Rice III and not necessarily those of Raymond James. Expressions of opinion are as of this date and are subject to change without notice. There is no guarantee that these statements, opinions, or forecasts provided herein will prove to be correct. Investing involves risk and you may incur a profit or loss regardless of strategy selected. Keep in mind that individuals cannot invest directly in any index, and index performance does not include transaction costs or other fees, which will affect actual investment performance. Individual investor’s results will vary. Past performance does not guarantee future results. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions. Unless certain criteria are met, Roth IRA owners must be 59½ or older and have held the IRA for five years before tax-free withdrawals are permitted. Additionally, each converted amount may be subject to its own five-year holding period. Converting a traditional IRA into a Roth IRA has tax implications. Investors should consult a tax advisor before deciding to do a conversion. Matching contributions from your employer may be subject to a vesting schedule. Please consult with your financial advisor for more information.
As you embark on your wealth management journey, you may wonder whether financial advisors truly add value to your investments. By answering these five essential