Recently in the news, there has been much speculation regarding whether a college degree is worth the investment. And a rather large investment at that! According to the College Board, tuition hikes have exceeded inflation over the past several decades. Private-college costs have risen to an average of $36,993 and in-state costs at public colleges were up to $16,140 in 2010–11. If your children are now teens or pre-teens expect a combined (2 children) sticker price of more than $200,000 in in-state costs. Parents of infants and toddlers face a combined cost of about $360,000. Have the heart palpitations calmed down yet? To calculate your potential education costs, use a tool such as The SmartStudent Guide to Financial Aid’s calculator found here and be sure to click on the “College Cost Projector”.
The Good News…
is that college is still a good investment and it CAN be affordable. People with four-year degrees earn nearly twice as much as those with high school diplomas, according to the U.S. Census Bureau. In addition to the fact that a college degree is more likely to get you hired. While this may be less of a trend since the recession of 2008, many employers are still looking for a minimum of an AA degree even for entry level positions.
The Better News…
Most families get a discount off the “sticker price” of an education in the form of grants, scholarships, education tax breaks, and in some cases student loans. In addition, an average of 76% of college students receive some type of financial assistance. Some great resources are as follows:
The Best News…
Rather than aim for the entire amount, many financial advisers suggest on coming up with about a third in savings and using current income, grants and loans for the rest. Most will agree that starting early is the key but where do you start? Follow these simple steps to prepare for the financial burden of the college years:
1. Open a 529 College Savings Account: A 529 is a tax-advantaged investment account designed specifically to make the most of your educational savings. Qualified withdrawals are now free of federal tax and most plans let you save in excess of $200,000 per beneficiary. Plus, there are no income limitations or age restrictions, meaning you can start a 529 no matter how much you make or how old your beneficiary is. Withdrawals can be used to pay for tuition, books, or other qualified educational expenses.
2. Open A Upromise Account: Upromise is a service that helps families earn extra money for education and is free to join. The service helps members jumpstart their college savings or pay down student loans by earning 1-25% back on qualified everyday spending shopping online or in-store at well-known stores such as Best Buy, Macy’s, and Groupon. You most likely won’t fund your entire education this way, however every little bit helps to reduce the amount of aid you will need and the strain on your own personal finances.
3. Start Saving Early: Once you start to examine your spending closely, it may be easier than you think to stash away a little savings for college. The sooner you start saving, the better. Even modest savings can pack a punch if you give them enough time to grow. Investing just $100 a month for 18 years will yield $48,000, assuming an 8% average annual return.
4. Don’t Ignore Your Own Financial Position: Check your credit score annually and pay your liabilities on time. Generally it is best to contribute to retirement savings first, pay bills/liabilities next, and then use any discretionary funds for college savings. Your children will have more sources of money for college than you will have for your retirement, so make saving for that a priority. In addition, putting too much money in your child’s name might work against you. While it’s true that a child’s income is usually taxed at a lower rate than a parent’s income, keeping funds in a child’s name can reduce your financial aid package.
5. Diversify Your Investments: If you start saving early, stocks will be your best bet for your college savings portfolio. Since tuition costs are rising faster than inflation, a portfolio heavy in stocks is the best way to build enough savings in the long term. When your child approaches college age, you can “secure” your returns by switching more money into bonds and cash.
6. Research & Apply For All Financial Aid Possible: Remember you don’t have to save the entire cost of four years of college. Rather than aim for the entire amount, figure on coming up with about a third in savings and using current income, grants and loans for the rest. Federal, state, and private grants can bridge the gap between your savings and tuition bills, even if you think you make too much to qualify. And if all else fails, there are many college loan programs that can help make up the difference. The approval process for college loans is more lenient than for other loans. Late payments on your credit record aren’t automatic grounds for refusal of a college loan.
So what does all this mean for you? A college education is within your grasp. In fact, a college education may be more affordable the ever before!