For slightly less than what most people pay for their first house, you can send your child to college. That’s according to a recent study by the College Board that found the average in state public college cost of attendance to be $22,826 per year and the average private school cost of attendance to be $44,750 per year for the 2013-2014 academic school.
With the cost to send your child to college for four years being $90,000 to $180,000 in today’s dollars, the idea of helping pay for their education may seem daunting. But with some planning on the part of parents, children and possibly grandparents, this can be an attainable goal without having to sacrifice your retirement or having your child graduate with a significant amount of debt.
Today we will focus on some thoughts about what parents can do.
When it comes to saving for college, the earlier you start the better. Where to save and how much to save depends on a number of factors, the most important being how much can the parents realistically contribute to their child’s education. A lot of times parents tell us they would like to cover 50% of their child’s education, but this can be misleading because 50% of an in-state school is a lot less than 50% of an elite private school. A better way to plan for this would be to have a set total dollar amount that you will contribute. By setting this goal, and communicating this to your child when they are preparing for college, a few things happen. First, they now know how much they have to work with when looking at schools. If they choose a more expensive school it means they will have to determine a way to fund any portion of the cost not covered by the parents. Second, if you set a total amount you will contribute, they hopefully will understand that if it takes them 3 years or 7 years to get their degree, the total that they will get does not increase or decrease. This can encourage your child to work hard to graduate on time, if not early. Remember, whatever amount you set today should be adjusted for the rising cost of college which, according to the College Board, rose 3.2% for Public Four-Year Schools and 2.1% for Private Nonprofit Schools from 2003-2004 to 2013-2014.
Once you have determined how much you can contribute to your child’s education, the next step is to determine what investment vehicles to utilize for these savings. Which one you use can depend on a number of factors, such as; is tax deferred growth an important factor, do you want the flexibility to use the assets for both qualified education expenses and non-education related expenses, will your family qualify for any financial aid, and will you have more than one child that you will be helping with education costs. The most common savings vehicles used today for college education include, Coverdell ESAs, 529 Plans, and UGMA/UTMA accounts. All of which have their particular advantages and disadvantages.
Navigating the college planning landscape can be difficult, but with some sound planning you can create a more efficient path to pursue your goal. We are here to help you create this map and answer the questions you have no matter what stage you are at in preparing for your child’s college education. Stay tuned for our next post about what your child should know about their role in helping cover the cost of their college.