Strategies to Know Now About Saving for College (1/6)

Knowing that September is College Savings Month, I thought it would be a good time to address it. A friend of mine recently brought an uneducated and expensive little ball of joy into this world. He asked my advice on saving for college in hopes that one day – 18 years from now – he can turn his new son into an educated, yet still expensive, while slightly larger young man. His question got me thinking about the sheer cost of education and the many ways to pay for it.

Previously, I wrote about how to prioritize repaying student loans after graduation when your budget is pulled in so many different ways. Over the next several weeks I’ll post about the cost of secondary education and the ways to academically and financially prepare.

Saving for College Blog Series:

Week 1: An Expensive Experiment: The High Cost of Matriculation

Week 2: Birth–Age 18: 529 Plan vs Uniform Transfer to Minor Account (UTMA)
Parents and grandparents, family and friends can start early by contributing to an account dedicated for the student’s future use.

Week 3: High School: Scholarships vs Grants
Once you enter high school, pay attention! Your grades and activities do matter!

Week 4: Graduation: FAFSA and Student Aid
The Free Application for Federal Student Aid is an application and starting point to qualify for grants and subsidized loans from Federal and State governments.

Week 5: Filling the Gaps: Summer Jobs & Internships
Even if you don’t meet the requirements for work-study, you can still work on the side or even just through the summer. There may also be internship opportunities that pay.

Week 6: Last Resort: Student Loans
Student loans aren’t evil, but if you can help it they should not be your first choice of funding for college.

Week 1: An Expensive Experiment: The High Cost of Matriculation

Kids go to college at a time in their lives when even the best laid plan is subject to change on a whim. It’s a very expensive and years-long experiment to find out who we are and hopefully what we want to do with our lives. We must make sure that the benefit is worth the expense, and understanding the expense is the first step.

Consider the average per-year cost for tuition and fees, combined with the average room and board cost at a four-year university to get a good idea of the total expense in 2014.

2014 (1-year) Tuition & Fees       Room & Board               Total Cost
Public                    $8,893            +         $9,498             =            $18,391
Private                 $30,094           +       $10,823             =            $40,917
*Source: The College Board, Annual Survey of Colleges

And this doesn’t include essential extras like spring break and study abroad programs! While these numbers are large, the costs are rising. Education expenses are expected to outpace inflation, which means college will become relatively more expensive each and every year. Based on current trends for a child born in 2014, we can project costs will rise at 6.4% per year. Therefore, the average cost for one year of public college could rise to $56,177 by that child’s 18th birthday. After adjusting for inflation at 3%, that would be like paying $32,998 in today’s dollars compared to the $18,391 shown above. And that’s just for the first year!

Using the same assumptions, a child born this year would need to have $189,638 by his 18th birthday in order to pay for a 4 year degree at an average public university. Again adjusting for inflation, that would be like needing $111,392 to start school today. If you’re having sticker shock, you’re not alone! In next week’s post, we’ll uncover savings strategies to accommodate that price tag.

Of course if you have questions about your specific situation or would like answers before I finish this blog series, please email me or post your questions or comments below.

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