If a student drops out of college today, how do parents respond?
The answer, surprisingly enough, isn’t one of disapproval or fear for their wellbeing. They’re angry. Sure, there is still the concern about what might happen to their children if they don’t earn a traditional degree, but with the unbridled rise in tuition (1,100% since 1985) and the extraordinary burden of debt carried by graduates, parents are more willing today to explore other options. Parents are also aware of the rise in employers hiring candidates educated outside the conventional schooling system who carry impressive portfolios, pointing a spotlight on new learning platforms and make bachelor degrees an afterthought.
So what is it that bothers parents the most these days about their children dropping out of college?
It’s the money they didn’t spend.
“When I dropped out of college, my dad wasn’t frustrated because he thought it was a terrible decision. He was frustrated – no angry – because he knew I wasn’t going back and a chunk of the money he had worked so hard to save over the past 18 years was going to end up taxed and back in the government’s hands. And I totally understand that,” explained Dale Stephens, founder of UnCollege – a gap year program that helps young adults plan and prepare for their future.
The majority of college students say that the primary goal of attending college is to learn the skills needed to succeed in the real world. It’s also the primary reason why families open college savings accounts such as 529s and Education Savings Accounts (ESAs). But kids today don’t learn all of their skills in the classroom. From YouTube tutorials to online course platforms like Coursera, Udemy, Khan Academy, General Assembly and CreativeLive, young adults learn the skills they need to succeed in today’s fast changing professional world wherever they can. What’s upsetting is that saving plans haven’t adapted to support today’s diverse learning experiences.
The government has made some changes to 529s and (ESAs) to cover more than traditional 4-year universities. They can now fund 2-year associate degree programs, select vocational schools and trade schools. But online and offline hardskill programs that do a phenomenal job teaching the skills young people need to get a job today, such as Dev Boot Camp – where the graduate employment rate is over 75% within the first year with an average salary of $75,965 – can’t be paid for using a 529 or ESA.
Why is it that successful programs like this cannot fall under the same umbrella as a vocational school? Why can’t Dale’s father use the money he saved to help his son continue his professional development by attending skill workshops, conferences, and online courses?
What’s worse than the restrictive nature of the 529s and ESAs is what happens to the money when it isn’t used to fund traditional education. Just ask Morgan Ostrowsky, a young adult who elected not to go to college and is currently working in the tech space in San Francisco. “Basically, if I decide not to go back to school – which right now I’m happy at my job – my parents will have to pay tax on the interest earned and an additional 10% penalty…which I feel awful about, obviously.” Morgan is right – if he doesn’t use the funds before he turns 30, his parents will have to pay the taxman. The only loophole is to change the beneficiary, deferring the funds to the next child, niece or nephew in the family. You’re out of luck if no one else is in line.
This isn’t the only scary aspect about college savings plans, particularly the 529’s. According to Bloomberg Business, 529s have limited investment options, high fees, complicated rules and anxiety-producing investment risks.
So how do we change this situation? How do people like Dale and Morgan avoid those painful conversations with their parents? How do we make sure families can explore and pay for the diverse learning opportunities available today? How can we make sure families have more versatility when it comes to investing in their children’s education?
There isn’t a simple solution, but learning, as we all know, happens over a lifetime. The most successful people in the innovation economy will be the ones who are continuously learning. A change in the age restriction and versatility of 529s and ESAs would not only protect a family’s investment, but it would also reflect an emphasis by the government on the importance of lifelong learning as a driver of an innovation economy.
Did you like this post? If so, don't miss these:
- Dropping Out of College? Start Planning Before You Make the Leap
- How to Tell Your Parents You Are Dropping Out of College